Sonic Innovations Announces Results for Fourth Quarter 2008

Thu. February 05, 2009; Posted: 04:03 PM

Sonic Innovations, Inc. (Nasdaq: SNCI), a leading producer of advanced digital hearing aids, today announced results for the fourth quarter and year ended December 31, 2008.

Highlights include:

-- Achieved record annual sales from continuing operations of $124.9 million; realizing a 4.9 percent sales growth compared to 2007. -- Strengthened product lineup by launching one new product during the fourth quarter. -- Entered into an agreement with Bose Corporation to sell a digital signal processing patent while retaining the rights to utilize such technology in Sonic-branded products and services. -- Completed restructuring activities which were initiated in the first quarter of 2008.

"I am pleased by the increase in year-over-year sales growth in a soft economy," said Sam Westover, Chairman and CEO. "Our on-going international operations continue to improve. North American operations continue to be hampered by the economy; however, we remain committed to expense reductions that are responsive to revenue fluctuations. The launch of an additional product in the fourth quarter continues to enhance our product offerings and I am looking forward to several product launches in 2009."

Net sales from continuing operations for the year ended December 31, 2008 increased 4.9 percent over the same period in 2007 to $124.9 million. Net sales decreased 2.9 percent in North America, increased 8.5 percent in Europe, and increased 12.6 percent for Rest-of-World for the year ended December 31, 2008 compared to 2007.

Fourth quarter 2008 net sales from continuing operations of $27.3 million were 14.5 percent lower than fourth quarter 2007 net sales of $31.9 million primarily due to the challenging global economic situation and the strengthening of the U.S. dollar. The stronger U.S. dollar reduced sales by $3.1 million or 9.7 percent on a year-over-year basis for the fourth quarter 2008. North American sales of $9.3 million in the fourth quarter 2008 decreased 18.9 percent from 2007. European sales of $12.5 million in the fourth quarter 2008 decreased 5.1 percent from 2007 and Rest-of-World sales of $5.5 million in the fourth quarter 2008 were down 24.6 percent from 2007.

Gross profit from continuing operations of $17.0 million in the fourth quarter 2008 decreased 17.6 percent from 2007. Gross margin from continuing operations for the fourth quarter was 62.3 percent in 2008 compared to 64.6 percent in the same period of 2007 primarily as a result of the strengthening of the U.S. dollar and lower average selling prices in North America. The Company's gross margin from continuing operations remained flat at 63.3 percent for the years ended December 31, 2008 and 2007.

Selling, general and administrative expense as a percentage of net sales from continuing operations increased from 54.5 percent in 2007 to 56.5 percent in 2008, and increased from 55.5 percent in the fourth quarter 2007 to 56.8 percent in the fourth quarter 2008 primarily as a result of retail acquisitions, which carry a higher percentage of selling, general and administrative expense. Research and development expense was $8.3 million in 2008 compared to $8.6 million in 2007, a year-over-year decline of $0.3 million. Research and development expense in the fourth quarter 2008 of $1.9 million decreased $0.1 million from $2.0 million in the prior year.

For the fourth quarter of 2008, the Company recorded total restructuring charges of $0.6 million, or $0.02 per share. For the full year 2008, the Company recorded total restructuring charges of $4.7 million, or $0.17 per share, of which $2.5 million was non-cash and $2.2 million was cash. Excluding discontinued operations, in the fourth quarter of 2008, the Company recorded restructuring charges of $0.5 million, or $0.02 per share, and $2.1 million, or $0.08 per share, on a year-to-date basis. The Company also recorded a $2.1 million charge related to goodwill impairment during the fourth quarter 2008.

During the fourth quarter of 2008, the Company entered into an agreement with Bose Corporation to sell a digital signal processing patent while retaining the rights to utilize such technology in Sonic-branded products and services. This gain is recognized as a component of Other Income in the Condensed Consolidated Statements of Operations.

During 2008, the Company closed one of its European operations and sold another operation in Europe as part of its consolidation efforts. These units have been classified as discontinued operations for the three months and years ended December 31, 2008, and 2007, respectively.

Loss from continuing operations for the year ended December 31, 2008 was $3.6 million or $0.13 per share, as compared with income from continuing operations of $1.8 million or $0.07 per share, for the year ended December 31, 2007. Excluding restructuring charges and goodwill impairment, the annual income from continuing operations for year ended 2008 was $0.6 million, or $0.02 per share, as compared with income from continuing operations of $1.8 million or $0.07 per share, for the year ended December 31, 2007.

As of December 31, 2008, the Company had cash and cash equivalents of $13.4 million and an available line of credit of $6.0 million.

Sonic Innovations designs, develops, manufactures and markets advanced digital hearing aids designed to provide the highest levels of satisfaction for hearing impaired consumers.

This press release contains "forward-looking statements" as defined under securities laws. Actual results may differ materially and adversely from those described herein depending on a number of factors but not limited to, the following risks: we face aggressive competition in our business; acquisitions could be difficult to integrate and disrupt our current business and therefore may harm our operating results; we may poorly operate newly acquired businesses; our consolidation initiative may not produce the cost savings we anticipate; our new products may not increase sales; we may lose a large customer or suffer a reduction in orders from a large customer; we must have innovative, technologically superior products to compete effectively; our products, due to their complexity, may contain errors or defects that are only discovered after sales by our customers, thus harming our reputation and business; we may have issues with intellectual property; and we have important international operations, which expose us to a variety of risks including government reimbursement and foreign currency exchange fluctuations, that could impact sales and operating results. For additional information regarding the risks inherent in our business, please see "Factors That May Affect Future Performance" included in our Annual Report on Form 10-K for the year ended December 31, 2007, as filed with the Securities and Exchange Commission.

This press release contains one non-GAAP ("Generally Accepted Accounting Principles") financial measure ("EARNINGS FROM CONTINUING OPERATIONS BEFORE INTEREST, TAXES, NON-CASH ITEMS, AND DEPRECIATION AND AMORTIZATION.") We believe the inclusion of this non-GAAP financial measure improves the transparency of our disclosure. We have provided a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure.

We undertake no obligation to revise our forward-looking statements to reflect events or circumstances after the date hereof as a result of new information, future events or otherwise.

The Company will host a teleconference call in connection with this release on Thursday, February 5, 2009 at 3:00 p.m. Mountain Time (5:00 p.m. Eastern Time).

To participate in the conference call, please call toll free (866) 804-6928, or (857) 350-1674 outside the U.S., and use participant passcode: 59678322. A live webcast will also be available through our website at www.sonici.com. You may also visit our website for an archive of prior press releases and earnings announcements.

If you wish to hear a digital playback of the call, please dial (888) 286-8010 within the U.S., or (617) 801-6888 outside the U.S., and enter passcode 87073848 (available through February 9, 2009, midnight), or access the playback through our website.

SONIC INNOVATIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited) Three months ended Year ended December 31, December 31, 2008 2007 2008 2007 Net sales $27,280 $31,908 $124,878 $119,062 Cost of sales 10,283 11,286 45,864 43,676 Gross profit 16,997 20,622 79,014 75,386 Selling, general and administrative expense 15,502 17,717 70,515 64,932 Research and development expense 1,879 1,975 8,266 8,547 Goodwill impairment 2,111 - 2,111 - Restructuring charges 491 - 2,052 - Operating income (loss) (2,986) 930 (3,930) 1,907 Other income, net 302 165 412 880 Income (loss) before income taxes (2,684) 1,095 (3,518) 2,787 Provision for income taxes 383 336 62 977 Income (loss) from continuing operations (3,067) 759 (3,580) 1,810 Loss from discontinued operations, net of income taxes (180) (660) (3,904) (1,093) Net income (loss) $(3,247) $99 $(7,484) $717 Basic income (loss) per common share: Continuing operations $(0.11) $0.03 $(0.13) $0.07 Discontinued operations (0.01) (0.03) (0.14) (0.04) Net income (loss) $(0.12) $- $(0.27) $0.03 Diluted income (loss) per common share: Continuing operations $(0.11) $0.03 $(0.13) $0.07 Discontinued operations (0.01) (0.03) (0.14) (0.04) Net income (loss) $(0.12) $- $(0.27) $0.03 Weighted average number of common shares outstanding: Basic 27,540 26,762 27,305 26,518 Diluted 27,540 27,801 27,305 27,570 SONIC INNOVATIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEET INFORMATION (in thousands) (unaudited) December 31, December 31, 2008 2007 Assets: Cash and cash equivalents $13,413 $20,684 Accounts receivable 17,524 21,996 Inventories 10,269 13,451 Property and equipment 6,869 8,267 Goodwill and intangibles 51,310 52,837 Other assets 7,701 6,466 Total assets $107,086 $123,701 Liabilities: Accounts payable and accrued liabilities $22,562 $26,546 Loans payable 6,855 10,820 Deferred revenue 9,618 10,102 Total liabilities 39,035 47,468 Shareholders' equity: Common stock 29 28 Additional paid-in capital 143,965 139,853 Accumulated deficit (78,752) (71,268) Treasury stock and other comprehensive income 2,809 7,620 Total shareholders' equity 68,051 76,233 Total liabilities and shareholders' equity $107,086 $123,701 SONIC INNOVATIONS, INC. CONSOLIDATED STATEMENT OF NET SALES INFORMATION (in thousands) (unaudited) Three months ended Year ended December 31, December 31, 2008 2007 2008 2007 Net sales: North America $9,261 $11,416 $45,392 $46,731 Europe 12,520 13,197 51,077 47,092 Rest-of-World 5,499 7,295 28,409 25,239 Total $27,280 $31,908 $124,878 $119,062 EARNINGS FROM CONTINUING OPERATIONS BEFORE INTEREST, TAXES, NON-CASH ITEMS, AND DEPRECIATION AND AMORTIZATION (in thousands) (unaudited) Three months ended Year ended December 31, December 31, 2008 2007 2008 2007 Income (loss) from continuing operations $(3,067) $759 $(3,580) $1,810 Add back (deduct): Interest (income) expense, net 42 (148) 149 (478) Taxes 383 336 1,367 977 Non-cash items: Deferred tax asset valuation allowance reversal - - (1,305) - Stock based compensation 488 403 1,867 1,436 Goodwill impairment 2,111 - 2,111 - Depreciation and amortization 1,065 1,151 4,823 4,271 Total $1,022 $2,501 $5,432 $8,016

SOURCE Sonic Innovations, Inc.

http://www.sonici.com

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