SonoSite, Inc. ( SONO)

Q3 2010 Earnings Call Transcript

October 21, 2010 4:30 pm ET

Executives

Kevin Goodwin – President and CEO

Marcus Smith – SVP and CFO

Analysts

Alan Robinson – Royal Bank of Canada

Evan [ph] – JP Morgan

Presentation

Operator

Good day, everyone, and welcome to the SonoSite third quarter results conference call. Today’s call is being recorded. At this time, for opening remarks and introductions, I’d like to turn the call over to Mr. Kevin Goodwin. Please go ahead, sir.

Kevin Goodwin

Thank you, operator. And good afternoon to everyone on the call. This is Kevin Goodwin, President and CEO of SonoSite. And along with me today is Marcus Smith, our CFO.

This conference call contains certain projections and/or forward-looking statements regarding future events or the future financial performance of the company. And except for historical information discussed during the conference call, the statements made today contain forward-looking statements that involve substantial risks and uncertainties.

Actual results could differ materially because of the risk factors listed in the Management Discussion and Analysis section of the company’s 2010 Form 10-K and in other filings and reports with the SEC. We do not undertake any duty to publicly update any forward-looking statements.

All right. On the call today, I will cover our financial performance for Q3 2010 and the first nine months of 2010. I will then move on to discuss some forward-looking initiatives, opportunities, and wrap up with our outlook for the remainder of 2010.

I’ll start off with revenue for the quarter. Revenue came in at $68.5 million, up a solid 28% versus 2009 Q3. VisualSonics, which we acquired in Q2, recorded $8.7 million of this revenue. Excluding VisualSonics, revenue was up 12%, representing yet another quarter of double-digit growth. Our US revenue was up 17%, our international revenue was up 7%, and the newly acquired VisualSonics revenue was up 30% organically year-over-year in the quarter.

Looking a little deeper into the revenue compared to last year’s Q3, US hospital revenue was up 13%, enterprise revenue was up 32%, and that includes the non-recurring charge to revenue of $813,000. Stabilization in Europe and a 15% increase in Asia-Pacific resulted in strengthening overall international sales. And changes in currency had a minimal impact on Q3.

Now moving over to the first nine months of 2010. Revenue was $186.1 million, up 18% from the prior year’s nine months. Revenue from VSI was $8.7 million. Revenue excluding VSI was up 12% for the nine months. Overall US revenue was up 19%. US hospital revenue was up 16%. Enterprise was down 22% year-to-date, as expected. International was up 7%. And currency changes had a positive 1% impact on total revenue for nine months.

I’m going to shift over now to gross margin. Gross margin came in at 71.3%, up 120 basis points for the quarter and 190 basis points for the first nine months. Stable pricing and geographic mix helped gross margins.

Operating expenses now. For the quarter, including $1.4 million of one-time acquisition-related and restructuring charges, OpEx came in at $43.8 million. Excluding one-time charges, OpEx was $42.4 million, up 28%, including the acquisition of VSI. SonoSite’s core OpEx without VSI or without one-time charges was $37.1 million, up 12%.

For the first nine months, including $3.9 nine months of one-time acquisition-related and restructuring charges, OpEx was $119 million. Excluding one-time charges, OpEx was $115.1 million or up 16%, again including the acquisition of VSI. SonoSite’s core OpEx without VSI or without one-time charges was $109.8 million, up 10%.

The impact of having our cardiovascular disease management division on the P&L for nine months of 2010 account for 8 percentage points of the increase in OpEx, currently cited at 10% for the core business. Changes in currency had a minimal impact for both the quarter and nine months on OpEx.

I’m going to shift over now to EBIT and EBITDAS. First, for the quarter, excluding one-time charges, EBIT was $7.3 million or 11% of revenue, representing a 50% increase over the prior year. Again, excluding one-time charges, EBITDAS was $11.9 million, an increase of 55%. For the first nine months, excluding one-time charges, EBIT increased 86% to $18.6 million. And again excluding one-time charges, EBITDAS increased 54% to $28.7 million.

I’m moving down now to net income and EPS. For the quarter, excluding one-time charges, net income was $2.6 million or $0.18 a share versus $0.6 million or $0.04 a share last year. With the one-time charges included, net income was $942,000 or $0.07 a share compared to a $0.01 loss last year.

For the first nine months, excluding one-time charges, net income was $7.9 million or $0.51 a share versus $3.5 million or $0.20 a share last year, a 224% increase. With the one-time charges included, net income was $4.2 million or $0.27 per share versus $1 million or $0.06 a share in the prior year.

I’m moving over to cash flow. For the first nine months, cash flow from operations was $17.5 million compared to $8.9 million last year, an increase of $8.6 million or 96%. Over the same period, the company used $126.1 million of cash to repurchase 4.2 million shares of stock under our previously announced share repurchase program.

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