Record First Quarter Sales and Gross Margin SALT LAKE CITY, May 1
/PRNewswire-FirstCall/ -- Sonic Innovations, Inc. (NASDAQ:SNCI), a
leading producer of advanced digital hearing aids, today announced
results for the first quarter ended March 31, 2008. First quarter
highlights: -- Achieved record first quarter sales of $31.9 million
and gross margin of 64 percent -- Realized 10 percent sales growth
compared to first quarter 2007 -- Launched two new products --
ion(TM) 400 and Velocity(TM) miniBTE -- Continued financial
improvement in vertically integrated operations -- Completed four
acquisitions with annualized revenue of approximately $4.2 million
-- Announced kick-off of its 10-year anniversary celebration "I am
pleased with the performance of the Company's core business units
in North America, Europe and Australia which was fueled by our
newest products, ion 400 and Velocity miniBTE, enhanced customer
service and marketing programs, continued manufacturing cost
savings and gross margin expansion," said Sam Westover, President
and CEO. "Industry data shows the U.S. hearing aid market
experienced more than a 5 percent decline in sales during the month
of March. While we have also experienced some softness in the North
American market as a result of the downturn in the economy, we
believe this situation is temporary. We are executing our business
strategies, producing significant customer satisfaction and
introducing exciting new products." In the first quarter 2008, the
Company has begun to consolidate several of its European operations
in an effort designed to reduce expenses and focus management and
resources on those markets that provide the greatest opportunity
for increased profitability. The Company expects that the
consolidation activities will result in a total of approximately
$1.3 million in non-cash and $2.5 million in cash restructuring
charges in 2008. For the first quarter of 2008, the Company
recorded a restructuring charge of $0.6 million, or $0.02 per
share. Regarding the Company's announcement to consolidate some of
its European operations, Sam Westover stated, "During the past two
years, we have been very successful in improving our gross margin
from 55 percent to 64 percent. We expect that the consolidation of
some of our European operations will improve our administrative
costs as a percentage of revenue which is an important next step. I
continue to be optimistic that, excluding charges related to this
initiative, we will achieve our earnings targets for 2008 and we
will be even better positioned for earnings growth going forward."
Sonic CFO, Mike Halloran, added, "In the fourth quarter of 2007 and
first quarter of 2008, the European operations included in this
consolidation initiative incurred operating losses of approximately
$900,000 and $600,000, respectively. The consolidation of European
operations is expected to eliminate these losses and allow us to
leverage our administrative expenses throughout our businesses and
position the remaining European operations to positively contribute
to our bottom line." On net sales of $31.9 million in the first
quarter 2008, and excluding the restructuring charge, the Company's
net income was slightly positive. The Company recognized losses
from continuing operations of $0.5 million, or $0.02 per share with
the inclusion of the restructuring charge. Record first quarter
2008 net sales were 10.0 percent higher than first quarter 2007
sales of $29.0 million. North American sales of $11.9 million in
the first quarter 2008 increased 8.7 percent from 2007. European
sales of $13.1 million in the first quarter 2008 increased 3.4
percent from 2007. Rest-of-world sales of $6.9 million in the first
quarter 2008 were up 28.2 percent from 2007. Gross profit of $20.4
million in the first quarter 2008 was up 15.1 percent from 2007.
Gross margin hit a first quarter record of 64.0 percent in 2008
compared to last year's first quarter level of 61.2 percent as a
result of lower return rates and warranty costs, cost reduction
activities in manufacturing and sales mix. Selling, general and
administrative expense as a percentage of net sales increased from
50.8 percent in the first quarter 2007 to 57.1 percent in the first
quarter 2008 as a result of increased vertical integration and the
operating expense to sales ratio in the European operations subject
to the Company's consolidation activities. Research and development
expense in the first quarter 2008 of $2.2 million was down $0.1
million from $2.3 million in the prior year. The auditory testing
equipment division was sold in February 2007 and has been reflected
as a discontinued operation. As of March 31, 2008, Sonic
Innovations had cash and cash equivalents of $14.1 million and a
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 including, (i) our
belief with respect to temporary market softness; (ii) our
expectation that our consolidation efforts will reduce expenses and
better focus management and resources; and (iii) our expectation
that our consolidation efforts will improve our earnings growth
going forward. 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 or may
take longer or be more difficult than we anticipate; our
consolidation initiative may divert a significant amount of
management's resources and attention away from other matters or may
adversely affect other segments of our business; 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, 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
two non-GAAP ("Generally Accepted Accounting Principles") financial
measures ("EBITDA" and "Non-GAAP Net Income Per Share"). We believe
the inclusion of such a 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, May 1, 2008 at 3:00 p.m.
Mountain Time (5:00 p.m. Eastern Time). To participate in the
conference call, please call toll free (866) 277-1181, or (617)
597-5358 outside the U.S., and use participant passcode: 85632751.
A live webcast will also be available through our website at
http://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 23715646 (available through May 7, 2008, midnight),
or access the playback through our website. Sonic Innovations, Inc.
Consolidated Statement of Operations Information (In thousands,
except per share data) (Unaudited) Three months ended March 31,
2008 2007 Net sales $ 31,927 $ 29,019 Cost of sales 11,489 11,264
Gross profit 20,438 17,755 Selling, general and administrative
expense 18,218 14,728 Research and development expense 2,225 2,293
Restructuring charge 565 - Operating expenses 21,008 17,021
Operating profit (loss) (570) 734 Other income 332 234 Income
(loss) from continuing operations before taxes (238) 968 Income tax
provision 294 272 Income (loss) from continuing operations (532)
696 Loss from discontinued operations, net of income taxes - (125)
Net income (loss) $ (532) $ 571 Basic income (loss) per common
share: Continuing operations $ (0.02) $ 0.03 Discontinued
operations - (0.01) Net income (loss) $ (0.02) $ 0.02 Diluted
income (loss) per common share: Continuing operations $ (0.02) $
0.03 Discontinued operations - (0.01) Net income (loss) $ (0.02) $
0.02 Basic weighted average number of common shares outstanding
26,849 26,113 Diluted weighted average number of common shares
outstanding 26,849 27,028 Sonic Innovations, Inc. Consolidated
Balance Sheet Information (In thousands) (Unaudited) March 31,
December 31, 2008 2007 Assets: Cash and cash equivalents $ 14,102 $
20,684 Accounts receivable 24,489 21,996 Inventories 12,842 13,451
Property and equipment 8,297 8,267 Goodwill and intangibles 59,837
52,837 Other 8,409 6,466 Total assets $ 127,976 $ 123,701
Liabilities: Accounts payable and accrued liabilities $ 27,166 $
26,546 Loans payable 10,092 10,820 Deferred revenue 11,074 10,102
Total liabilities 48,332 47,468 Shareholders' equity: Common stock
28 28 Additional paid-in capital 141,791 139,853 Accumulated
deficit (71,800) (71,268) Other 9,625 7,620 Total shareholders'
equity 79,644 76,233 Total liabilities and shareholders' equity $
127,976 $ 123,701 Sonic Innovations, Inc. Consolidated Statement of
Net Sales Information (In thousands) (Unaudited) Three months ended
March 31, 2008 2007 North America $ 11,893 $ 10,937 Europe 13,101
12,674 Rest-of-World 6,933 5,408 Total $ 31,927 $ 29,019 Earnings
Before Interest, Taxes, Depreciation and Amortization ("EBITDA")
Three months ended March 31, 2008 2007 Income (loss) from
continuing operations $(532) $696 Add back (deduct): Interest
income, net (14) (173) Taxes 294 272 Depreciation and amortization
1,220 1,017 EBITDA $968 $1,812 Non-GAAP Net Income (Loss) per Share
Reconciliation Three months ended March 31, 2008 2007 Net income
(loss) per share, as reported $(0.02) $0.02 Add back: Restructuring
charge 0.02 - Non-GAAP net income per share $ - $0.02 DATASOURCE:
Sonic Innovations, Inc. CONTACT: Sam Westover, President and CEO,
+1-801-365-2800, or Michael Halloran, Vice President and CFO,
+1-801-365-2854, both of Sonic Innovations, Inc. Web site:
http://www.sonici.com/
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