Sonic Innovations, Inc. Announces Results For Third Quarter 2006
SALT LAKE CITY, Oct. 25 /PRNewswire-FirstCall/ -- Sonic Innovations, Inc. , a leading producer of advanced digital hearing aids, today announced results for its third quarter ended September 30, 2006. Net sales in the third quarter 2006 established a third quarter record of $26.5 million, up 8.7% from net sales of $24.4 million in the third quarter 2005. The net loss was $0.8 million, or $0.03 per share, in the third quarter 2006 compared to a net loss of $7.3 million or $0.34 per share, in the third quarter 2005. The third quarter 2006 net loss included charges for a legal ruling and the on-going Tympany earn-out obligation totaling $0.5 million. The third quarter 2005 net loss included an asset impairment charge of $5.7 million and a restructuring charge of $1.2 million. Excluding asset impairment and other charges from the third quarter 2006 and 2005, income before taxes improved $1.7 million.
North American sales of $9.8 million in the third quarter 2006 increased $0.5 million, or 4.9% from the third quarter 2005 North American sales of $9.3 million. European sales of $10.1 million in the third quarter 2006 increased $0.9 million, or 10.2%, from third quarter 2005 European sales of $9.2 million mainly as a result of strong sales due to the introduction of Ion. Rest-of- world sales of $6.0 million in the third quarter 2006 were up 24.7% from third quarter 2005 rest-of-world sales of $4.8 million primarily due to Australian sales and marketing activities and further training of our hearing care consultants. Auditory testing equipment sales of $0.6 million in the third quarter 2006 decreased $0.5 million from the third quarter 2005 sales of $1.1 million. The Company has launched two new products this year, Ion and Natura Pro. Products introduced during the last 24 months comprised 77% of third quarter U.S. net sales.
Gross profit of $15.4 million in the third quarter 2006 also established a third quarter record and was up 22.0% from gross profit of $12.6 million in last year's third quarter. Gross margin of 58.3% in the third quarter 2006 was up from last year's third quarter level of 51.9% as a result of higher average selling prices in Europe due to the introduction of Ion, sales mix, and cost reduction activities in manufacturing. The third quarter 2005 gross profit was impacted by a $0.7 million asset impairment charge relating to the auditory testing equipment segment.
Selling, general and administrative expense increased $0.5 million or 3.7% during the third quarter 2006 principally as a result of targeted sales and marketing initiatives and expanded and acquired retail operations, offset by a reduction in auditory testing equipment expense and the effect of the restructuring activities in the fourth quarter of 2005. Selling, general and administrative expense as a percentage of revenue for the third quarter 2006 improved 2.4% from the prior year. Research and development expense in the third quarter 2006 of $2.2 million remained at the same level as the prior year third quarter.
The third quarter 2006 included a $0.6 million charge related to a legal ruling involving an acquisition earn-out. Also in the third quarter 2006, an asset impairment charge of $0.2 million for the Tympany earn-out obligation was offset by a settlement of $0.3 million relating to the same obligation for the period from acquisition in December 2004 to June 2006. Asset impairment and restructuring charges of $6.9 million in the third quarter 2005 related to the write-down of intangible assets recorded in connection with the acquisition of Tympany of $5.7 million and restructuring charges, principally personnel reductions at Tympany, of $1.2 million.
The Company recorded income tax expense of $0.4 million in the third quarter 2006, compared to a $1.2 million benefit in the third quarter 2005, resulting in a $1.6 million tax expense increase over the prior year third quarter. The income tax benefit in the third quarter 2005 of $1.2 million included a benefit of $0.7 million related to the resolution of a foreign income tax contingency.
Sam Westover, President and CEO, stated, "The improvement in our financial results is accelerating. I am further pleased that our products continue to achieve widespread acceptance in the marketplace which is driving meaningful sales growth and gross profit improvements for the Company. We are also excited about the product launches of Balance and Ion+ this month."
As of September 30, 2006, Sonic Innovations had cash and marketable securities of $25.0 million and debt of $6.5 million. The cash and marketable securities increase of $7.8 million from June 30, 2006 was mainly due to net proceeds of $11.1 million as a result of the private placement of 3.2 million shares of common stock to a group of new and existing institutional investors.
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 may contain "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 including, but not limited to, the following risks: the market acceptance of our products, including the new Ion+ product and Balance product line; 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 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, particularly in Germany and Australia, 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, 2005, as filed with the Securities and Exchange Commission.
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 Wednesday, October 25, 2006 at 3:00 p.m. Mountain Time (5:00 p.m. Eastern Time).
To participate in the conference call, please call toll free (800) 573- 4754, or (617) 224-4325 outside the U.S., and ask to be connected to the Sonic Innovations teleconference. 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 call (888) 286-8010 within the U.S., or (617) 801-6888 outside the U.S., and enter passcode 76668346 (available through November 1, 2006), 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 Nine months ended September 30 September 30 2006 2005 2006 2005 Net sales $26,465 $24,353 $79,448 $80,429 Cost of sales 11,047 11,024 34,379 36,477 Asset impairment charge -- 694 -- 694 Gross profit 15,418 12,635 45,069 43,258 Selling, general and administrative expense 13,219 12,748 39,490 42,262 Research and development expense 2,240 2,192 6,601 6,680 Asset impairment and other charges 542 6,247 1,263 6,247 Operating loss (583) (8,552) (2,285) (11,931) Other income 235 96 759 184 Loss before taxes (348) (8,456) (1,526) (11,747) Income tax provision (benefit) 409 (1,166) 496 (1,243) Net loss $(757) $(7,290) $(2,022) $(10,504) Basic and diluted loss per common share $(0.03) $ (0.34) $(0.9) $(0.49) Basic and diluted weighted average number of common shares outstanding: 24,003 21,488 22,665 21,332 Sonic Innovations, Inc. Consolidated Balance Sheet Information (In thousands) (Unaudited) September 30, December 31, 2006 2005 Assets: Cash and marketable securities $25,005 $16,249 Accounts receivable 17,359 14,870 Inventories 10,477 10,234 Property and equipment 7,792 8,772 Goodwill and intangibles 37,033 33,825 Other 5,008 2,814 Total assets $102,674 $86,764 Liabilities: Accounts payable and accrued liabilities $24,466 $23,519 Loans payable 6,496 6,217 Deferred revenue 7,982 7,257 Total liabilities 38,944 36,993 Shareholders' equity: Common stock 27 22 Additional paid-in capital 133,930 120,578 Accumulated deficit (72,427) (70,405) Other 2,200 (424) Total shareholders' equity 63,730 49,771 Total liabilities and shareholders' equity $102,674 $86,764 Sonic Innovations, Inc. Consolidated Statement of Net Sales Information (In thousands) (Unaudited) Three months ended Nine months ended September 30 September 30 2006 2005 2006 2005 North America $9,791 $9,337 $30,974 $28,759 Europe 10,132 9,194 29,569 33,398 Rest-of-World 5,940 4,763 16,243 13,786 Auditory Testing Equipment 602 1,059 2,662 4,486 Total $26,465 $24,353 $79,448 $80,429
Sonic Innovations, Inc.CONTACT: Michael Halloran, Vice President and CFO, +1-801-365-2854, or SamWestover, President and CEO, +1-801-365-2800, both of Sonic Innovations,Inc.
Web site: http://www.sonici.com/