SonoSite Announces Third Quarter 2009 Results

REVENUE

Revenue in the third quarter of 2009 was $53.6 million, a decrease of 13% compared to the third quarter of 2008. For the nine months of 2009, revenue was $157.7 million, a decrease of 9% compared to the nine months of 2008.

Overall revenue included $3.0 million for the quarter and nine months just ended from the recently acquired CardioDynamics International Corporation (CDIC).

Excluding CDIC, revenue in the third quarter was $50.6 million, a decrease of 18% compared to the third quarter of 2008, and $154.7 million for the nine months just ended.

Foreign exchange had zero effect on third quarter revenue, but had a negative impact of $6.7 million or 4% for the nine months just ended.

OPERATING INCOME AND CASH FLOW

Overall, "reported" third quarter operating income was $2.3 million, including charges from CDIC of $3.1 million related to operating results as well as acquisition and integration.

Operating income in the third quarter excluding CDIC was $5.4 million, a 10.7% operating margin versus a $3.0 million or 5.6% operating margin in the second quarter 2009.

Cash Flow

Operating cash flow was $1.6 million for the quarter and $8.9 million for the nine months of 2009, as compared to $13.0 million and $18.0 million for the comparable periods of 2008. Operating cash flow reflects the decline in operating income and the $3.1 million impact of the CDIC acquisition.

Net income

For the third quarter of 2009, the Company recorded a net loss of $0.2 million or $0.01 per share, compared to a net income of $3.7 million or $0.21 per share in 2008. For the nine months of 2009, net income was $1.0 million or $0.06 per share compared to $5.3 million or $0.30 per share, all of which include $3.1 million in charges related to the CDIC acquisition.

COMMENTARY

"While revenue remained sluggish, gross margins and expense management improved, resulting in a better than forecasted operating margins of 10.7% in our core businesses, excluding CDIC," said Kevin M. Goodwin, SonoSite President and CEO. "The revenue environment remains tight, US revenue levels continued stabilizing and we experienced a few order delays in our international business. Importantly, pricing and expense management have continued to improve, resulting in steadily increasing operating margin performance."

"We also recently concluded an agreement with General Electric to settle our patent disputes," Mr. Goodwin stated. "As a part of the settlement, both companies agreed to invest in an important new education and clinical research foundation, which the companies will co-fund, and which will contribute to the long-term market adoption of best practices in point-of-care ultrasound."

"Our 2009 outlook remains unchanged," Mr. Goodwin said. "Going forward, we intend to continuously improve our operating margins and cash flow while preparing and positioning ourselves for the resumption of revenue growth. We have numerous growth initiatives in place, alongside a strengthening handle on pricing and expense control. We are targeting operating margins of 11 -- 13% for 2010. These targets assume zero to low revenue growth rates. If we realize greater growth rates, our operating margins will be structured to improve further. These projections exclude $3.3 million of expected amortization for intangibles related to the CDIC acquisition."

As of September 30, 2009, the company held $248 million in cash and investments and had outstanding senior convertible notes of $120 million. The Company used $16.2 million for the CDIC acquisition including re-payment of their debt.

2009 FINANCIAL OUTLOOK

The Company has updated its outlook to include the impact of the CDIC acquisition:

-- revenues in the range of $225 - $230 million,

-- gross margins are expected to be level with 2008, and

-- operating income in the range of $10 - $11 million inclusive of negative $8 million in charges from the CDIC acquisition.

NON-GAAP MEASURES

This release includes a discussion of management measures that are non-GAAP. We believe it is useful for investors to understand the comparison of operating results in 2009 versus 2008 by eliminating the impact of the CDIC related charges using non-GAAP measures.

Conference Call Information

SonoSite will hold a conference call on October 27th at 1:30 pm PT/4:30 pm ET. The call will be broadcast live and can be accessed via http://www.sonosite.com/company/investors. A replay of the audio webcast will be available beginning October 27, 2009, 5:30 pm PT and will be available until November 10, 2009, 9:59 pm PT by dialing 719-457-0820 or toll-free 888-203-1112. The confirmation code 1942151 is required to access the replay. The call will also be archived on SonoSite's website.

About SonoSite

SonoSite, Inc. (www.sonosite.com) is the innovator and world leader in hand-carried ultrasound. Headquartered near Seattle, the company is represented by ten subsidiaries and a global distribution network in over 100 countries. SonoSite's small, lightweight systems are expanding the use of ultrasound across the clinical spectrum by cost-effectively bringing high performance ultrasound to the point of patient care.

Forward-looking Information and the Private Litigation Reform Act of 1995

Certain statements in this press release relating to our future financial position and operating results are "forward-looking statements" for the purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on the opinions and estimates of our management at the time the statements are made and are subject to risks and uncertainties that could cause actual results to differ materially from those expected or implied by the forward-looking statements. These statements are not guaranties of future performance, are based on potentially inaccurate assumptions and are subject to known and unknown risks and uncertainties, including, without limitation, the risk that the acquisition of CardioDynamics will not yield the expected potential benefits, our ability to manufacture, market and sell our newest products, spending patterns in the hospital market, healthcare reform and the other factors contained in Item 1A. "Risk Factors" section of our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission. We caution readers not to place undue reliance upon these forward-looking statements that speak only as to the date of this release. We undertake no obligation to publicly revise any forward-looking statements to reflect new information, events or circumstances after the date of this release or to reflect the occurrence of unanticipated events.

SonoSite, Inc.
Selected Financial Information
Condensed Consolidated Statements of Income
(in thousands except per share data) (unaudited)
                                                       Three Months Ended                      Nine Months Ended
                                                       September 30,                           September 30,
                                                       2009                2008                2009              2008
                                                                           As Adjusted                           As Adjusted
Revenue                                                $       53,571      $       61,633      $    157,661      $    173,362
Cost of revenue                                                16,021              18,562           48,033            50,962
Gross margin                                                   37,550              43,071           109,628           122,400
Gross margin percentage                                        70.1   %            69.9   %         69.5    %         70.6    %
Operating expenses:
Research and development                                       6,497               7,440            21,569            20,574
Sales, general and administrative                              28,874              28,254           81,682            86,712
Licensing income and litigation settlement with Zonare         -                   (2,643 )         (924    )         (2,643  )
Acquisition costs, net of bargain purchase (gain)              (110   )            -                469               -
Total operating expenses                                       35,261              33,051           102,796           104,643
Operating income                                           *   2,289               10,020           6,832             17,757
Other loss, net                                                (3,013 )            (3,655 )         (5,486  )         (8,591  )
(Loss) income before income taxes                              (724   )            6,365            1,346             9,166
Income tax (benefit) provision                                 (484   )            2,715            298               3,914
Net (loss) income                                      $       (240   )    $       3,650       $    1,048        $    5,252
Net (loss) income per share:
Basic                                                  $       (0.01  )    $       0.22        $    0.06         $    0.31
Diluted                                                $       (0.01  )    $       0.21        $    0.06         $    0.30
Weighted average common and potential
common shares outstanding:
Basic                                                          17,308              16,927           17,203            16,858
Diluted                                                        17,308              17,592           17,650            17,488
Reconciliation of Non-GAAP operating income:
Operating income                                       $       2,289           $   10,020      $    6,832        $    17,757
Adjustments to operating income for:
Acquisition costs, net of bargain purchase (gain)              (110   )            -                469               -
CardioDynamics operations and integration costs                3,187               -                3,187             -
Non-GAAP operating income                              $       5,366       $       10,020      $    10,488       $    17,757
*includes acquisition and integration related charges of $4.2
million in third quarter and $4.7 million for the nine months ended
of 2009 reduced by a bargain purchase gain of $1.1 million in both
periods of 2009.

Condensed Consolidated Balance Sheets
(in thousands) (unaudited)
                                              September 30,     December 31,
                                              2009              2008
                                                                As Adjusted
Cash and cash equivalents                     $    211,035      $    209,258
Short-term investment securities                   36,864            69,882
Accounts receivable, net                           55,414            66,094
Inventories                                        35,309            29,115
Deferred income taxes, current                     14,830            13,372
Prepaid expenses and other current assets          6,695             6,623
Total current assets                               360,147           394,344
Property and equipment, net                        9,393             8,955
Investment securities                              -                 578
Deferred income taxes                              180               793
Intangible assets, net                             28,841            16,829
Other assets                                       3,595             5,383
Total assets                                  $    402,156      $    426,882
Accounts payable                              $    8,451        $    6,189
Accrued expenses                                   21,616            31,921
Deferred revenue                                   2,485             2,755
Total current liabilities                          32,552            40,865
Long-term debt, net                                95,462            111,336
Deferred income taxes, net                         6,776             9,871
Other non-current liabilities                      14,423            13,750
Total liabilities                                  149,213           175,822
Shareholders' equity:
Common stock and additional paid-in capital        289,834           285,928
Accumulated deficit                                (34,988 )         (36,036 )
Accumulated other comprehensive (loss) income      (1,903  )         1,168
Total shareholders' equity                         252,943           251,060
Total liabilities and shareholders' equity    $    402,156      $    426,882

Condensed Consolidated Statements of Cash Flow
(in thousands) (unaudited)
                                                              Nine Months Ended
                                                              September 30,
                                                              2009          2008
                                                                            As Adjusted
Operating activities:
Net income                                                    $  1,048      $   5,252
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization                                    3,647          3,086
Stock-based compensation                                         5,201          5,209
Amortization of debt discount, debt issuance costs               3,792          6,581
Gain on bargain purchase acquisition                             (1,078  )      -
Gain on convertible debt repurchase                              (1,339  )      -
Non-cash gain on litigation settlement with Zonare               -              (643    )
Changes in working capital and other adjustments                 (2,360  )      (1,487  )
Net cash provided by operating activities                        8,911          17,998
Investing activities:
Investment securities, net                                       33,939         62,368
Acquisition of CardioDynamics, net of cash acquired              (8,185  )      -
Purchases of property and equipment                              (2,290  )      (2,198  )
Earn-out consideration associated with SonoMetric acquisition    (387    )      (921    )
Net cash provided by investing activities                        23,077         59,249
Financing activities:
Excess tax benefit from exercise of stock based compensation     -              961
Repurchase of convertible debt and related hedge transactions    (20,416 )      -
Repayment of convertible debt                                    (5,250  )      -
Shares retired for taxes                                         (1,285  )      -
Proceeds from exercise of stock-based awards                     1,419          3,526
Net cash (used in) provided by financing activities              (25,532 )      4,487
Effect of exchange rate changes on cash and cash equivalents     (4,679  )      1,262
Net change in cash and cash equivalents                          1,777          82,996
Cash and cash equivalents at beginning of period                 209,258        188,701
Cash and cash equivalents at end of period                    $  211,035    $   271,697

SOURCE: SonoSite, Inc.

SonoSite, Inc. 
Mike Schuh, 425-951-1224