SonoSite, Inc. (Nasdaq:SONO), the world leader and
specialist in bedside and point-of-care ultrasound, today reported
financial results for the third quarter and nine months ended
September 30, 2010.
REVENUE
Revenue increased 28% in the third quarter to $68.5 million and
increased 18% for the nine months of 2010 to $186.1 million, as
compared to the prior year.
Revenue included $8.7 million for the third quarter and nine
months from the recently acquired VisualSonics (VSI).
Excluding VSI, revenue in the third quarter was $59.8 million,
an increase of 12% compared to the third quarter of 2009, and
$177.4 million, an increase of 12% for the nine months just
ended.
THIRD QUARTER HIGHLIGHTS:
- Sustained revenue improvement in the US
hospital channel, which was up 13% for the quarter.
- Stabilization in Europe resulted in
strengthening overall international sales.
- VisualSonics, a new acquisition, is off
to a strong start and on track to meet projected six month revenue
expectations; VSI revenues grew 30% organically in Q3.
- Stable pricing helped gross margins
increase 1.2 percentage points in the quarter.
- Operating expense rationalization was
implemented.
- Solid early market progress with the
new Advanced Needle Visualization software upgrade.
EBIT and EBITDAS
Third Quarter
Third quarter EBIT reflects non-recurring charges of $2.2
million, including charges related to acquisition and
restructuring, and a revenue charge of $0.8 million.
Excluding these charges, third quarter EBIT was $7.3 million, or
11% of revenue, representing an increase of 50% compared to the
prior year. Including these charges, EBIT for the third quarter was
$5.1 million, or 7% of revenue.
Additionally, excluding non-recurring charges, third quarter
EBITDAS was $11.9 million, up 55%.
Nine Months Results
For the first nine months of 2010, non-recurring charges were
$4.7 million.
Excluding these charges, EBIT was $18.6 million or 10% of
revenue, an increase of 86% compared to the prior year. Including
these charges, EBIT was $13.9 million, or 7% of revenue, up 104%
over the nine months of 2009.
Additionally, excluding non-recurring charges, EBITDAS for the
first nine months was $28.7 million, up 54%.
For the nine months, cash flow from operations was $17.5 million
compared to $8.9 million from the prior year, representing an
increase of $8.6 million or 96% over the prior year.
EPS
Excluding non-recurring charges, EPS was $0.18 per share for the
third quarter and $0.51 per share for the first nine months of
2010.
Including non-recurring charges, EPS was $0.07 per share for the
third quarter, versus a loss of $0.01 per share in 2009. In the
first nine months of 2010 EPS was $0.27 per share compared to $0.06
per share in the prior year’s first nine months.
Over the first nine months of 2010, the weighted average of
fully-diluted outstanding shares was 15.3 million compared to 17.7
million in the prior year. Over this period, the Company
repurchased 4.2 million shares in the open market pursuant to its
previously announced share repurchase program. At quarter end,
fully-diluted shares were 14.1 million.
COMMENTARY
“We had a good quarter and made substantial overall progress on
the business model as well as future strategy steps,” said Kevin M.
Goodwin, SonoSite’s President and CEO. “We saw sustained revenue
growth in the US hospital channel, and we are on track to meet our
revenue expectations for VisualSonics. In addition, we saw an
improvement internationally as sales increased somewhat faster for
the quarter. We also implemented actions to reduce structural
operating expenses to enable expansion of forward operating
margins.”
Mr. Goodwin continued, “We continued introducing our Advanced
Needle Visualization upgrade, a new proprietary algorithm for
improving needle visualization for steep and deep nerve blocks.
This point-of-care advance has become a key differentiator for us
across the point-of-care marketplace and is gaining strong
worldwide success.”
“We also recently formed a new strategic partnership with the
National Basketball Association (NBA) to drive awareness among
sports medicine providers of the benefits of ultrasound
visualization. We see this initiative as a great opportunity to
drive visibility in musculoskeletal medicine,” said Mr.
Goodwin.
The NBA’s Chief of Medical Affairs, Dr. Jace Provo, commented,
“SonoSite is a proven industry leader and their products will help
NBA and NBA D-League teams diagnose and treat injuries in the best
and easiest way possible. Our players are competing at the highest
level, so it is a tremendous opportunity for our team doctors and
athletic trainers to attend special seminars and learn about
SonoSite’s unique diagnostic ultrasound products for the overall
benefit of our players and our game.”
2010 FINANCIAL OUTLOOK
The company is maintaining its outlook and is providing the
following guidance for the full year 2010, which now includes the
impact of the VSI acquisition:
- Core business revenue growth of 10 –
12%. The inclusion of $17.0 million of estimated revenue from VSI
will aid overall revenue growth to a projected 18-19%;
- reaffirmed
gross margins in a range of 70-71%;
- reaffirmed
core business EBIT margins of 11 – 13%. Including $7.0 million in
transaction costs, amortization and stock compensation expenses
from the VSI acquisition, we project EBIT margins of 8-9% with
higher overall revenue;
- reaffirmed
core business EBITDAS margins of 16 – 18%. We are projecting a
positive contribution from VSI, and overall EBITDAS margins of
15-17%; and
- full-year effective tax rate of 36%
compared to prior guidance of 40%.
Non-GAAP Measures
This release includes discussions of EBIT, EBITDAS and EPS
excluding certain charges; these are non-GAAP financial measures.
SonoSite believes these measures are a useful complement to results
provided in accordance with GAAP. “EBITDAS” refers to operating
income (EBIT) before depreciation, amortization and stock-based
compensation.
Conference Call Information
SonoSite will hold a conference call on October 21 at 1:30 p.m.
PT/4:30 p.m. 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 21,
2010, 5:30 pm PT and will be available until November 4, 2010, 9:59
pm PT by dialing (719) 457-0820 or toll-free (888) 203-1112. The
confirmation code 7304277 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 bedside and point-of-care ultrasound and an industry
leader in ultra high-frequency micro-ultrasound technology and
impedance cardiography equipment. Headquartered near Seattle, the
company is represented by fourteen 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
VisualSonics will not yield the expected potential benefits, our
ability to manufacture, market and sell our newest products, our
ability to manage expenses, spending patterns in the hospital
market, healthcare reform, prolonged adverse conditions in the U.S.
or world economies or SonoSite’s industry 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, 2010 2009 2010
2009 Revenue $ 68,538 $ 53,571 $
186,064 $ 157,661 Cost of revenue 19,675
16,021 53,150 48,033 Gross
margin 48,863 37,550 132,914 109,628 Gross margin percentage 71.3 %
70.1 % 71.4 % 69.5 % Operating expenses: Research and
development 8,455 6,497 23,263 21,569 Sales, general and
administrative 35,320 28,764 95,745 82,151 Licensing income and
litigation settlement - - -
(924 ) Total operating expenses 43,775 35,261 119,008
102,796 Operating income (EBIT) 5,088 2,289 13,906 6,832
Other loss, net (3,799 ) (3,013 )
(8,498 ) (5,487 ) Income (loss) before income taxes
1,289 (724 ) 5,408 1,345 Income tax provision (benefit)
347 (483 ) 1,208 298
Net income (loss) $ 942 $ (241 ) $ 4,200 $ 1,047
Net income (loss) per share: Basic $ 0.07 $
(0.01 ) $ 0.28 $ 0.06 Diluted $ 0.07 $ (0.01 )
$ 0.27 $ 0.06 Weighted average common and
potential common shares outstanding: Basic 13,676
17,308 14,844 17,203
Diluted 14,147 17,308 15,347
17,650 Reconciliation of Non-GAAP
Measures: Operating income (EBIT) $ 5,088 $ 2,289 $ 13,906 $ 6,832
Adjustments to EBIT: Acquisiton and integration costs 752
2,601 3,257 3,180 Restructuring and other non-recurring charges
1,484 - 1,484 -
Non-GAAP Adjusted EBIT 7,324 4,890 18,647
10,012 Other loss, net (3,799 ) (3,013 ) (8,498 ) (5,487 )
Adjusted income before income taxes 3,525 1,877 10,149 4,525
Adjusted income tax provision 948 1,253
2,267 1,003 Adjusted net
income $ 2,577 $ 624 $ 7,882 $ 3,522
Non-GAAP Adjusted net income per share, diluted $ 0.18
$ 0.04 $ 0.51 $ 0.20 Non-GAAP
Adjusted EBIT $ 7,324 $ 4,890 $ 18,647
$ 10,012 Adjustments for EBITDAS: Depreciation and
amortization 2,528 1,537 5,818 3,648 Stock-based compensation
2,037 1,258 4,245
4,983 Non-GAAP Adjusted EBITDAS $ 11,889 $
7,685 $ 28,710 $ 18,643
Condensed
Consolidated Balance Sheets (in thousands) (unaudited)
September 30, December 31, 2010 2009
Cash and cash equivalents $ 71,749 $ 183,065 Short-term
investment securities - 74,682 Accounts receivable, net 68,918
71,347 Inventories 38,506 32,216 Deferred tax asset, current 8,183
7,350 Prepaid expenses and other current assets 15,862
12,034 Total current assets 203,218 380,694
Property and equipment, net 9,615 9,160 Investment in
Carticept 8,000 - Deferred tax asset, net 738 775 Intangible
assets, net 90,858 27,920 Other assets 5,139
4,425 Total assets $ 317,568 $ 422,974
Accounts payable $ 9,110 $ 6,175 Accrued expenses 28,920 25,923
Deferred revenue 5,799 5,504 Total
current liabilities 43,829 37,602 Long-term debt, net 96,245
92,905 Deferred tax liability, net 5,268 5,083 Deferred revenue
15,777 18,081 Other non-current liabilities 16,319
14,873 Total liabilities 177,438 168,544
Shareholders' equity: Common stock and additional paid-in
capital 295,405 287,537 Accumulated deficit (154,747 ) (32,753 )
Accumulated other comprehensive loss (528 ) (354 )
Total shareholders' equity 140,130 254,430
Total liabilities and shareholders' equity $ 317,568
$ 422,974
Condensed Consolidated Statements of
Cash Flow (in thousands) (unaudited) Nine Months Ended
September 30, 2010 2009 Operating activities: Net income $
4,200 $ 1,047 Adjustments to reconcile net income to net cash
provided by operating activities: Depreciation and amortization
5,818 3,648 Stock-based compensation 4,245 4,983 Deferred income
tax provision (1,918) 1,216 Amortization of debt discount and debt
issuance costs 4,335 3,792 Non-cash gain on litigation settlement -
(924) Gain on convertible debt repurchase - (1,339) Other
adjustments (847) 436 Changes in working capital 1,671 (3,949) Net
cash provided by operating activities 17,504 8,910 Investing
activities: Purchase of investment securities, net 74,777 33,939
Purchases of property and equipment (1,898) (2,290) Investment in
Carticept Medical Inc. (8,000) - Purchase of VisualSonic, Inc, net
of cash acquired (61,217)
-
Purchase of Cardio Dynamics, net of cash acquired - (8,185) Payment
of LumenVu contingent consideration (425) - Earn-out consideration
for SonoMetric acquisition
-
(387) Net cash provided by investing activities 3,237 23,077
Financing activities: Excess tax benefit from stock-based
compensation 847 - Proceeds from exercise of stock based awards
4,263 2,828 Minimum tax withholding on stock-based awards (1,065)
(1,285) Stock repurchase including transaction costs (126,104) -
Repayment of VisualSonics, Inc. long-term debt (8,871) - Purchase
of convertible debt - (25,750) Purchase of warrants - (1,325) Net
cash used in financing activities (130,930) (25,532) Effect
of exchange rate changes on cash and cash equivalents (1,127)
(4,679) Net change in cash and cash equivalents (111,316)
1,776 Cash and cash equivalents at beginning of period 183,065
209,258 Cash and cash equivalents at end of period $ 71,749 $
211,034
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