Company achieves profitability on 50% increase in revenue on a year over year basis
Salt Lake City, Utah July 23, 2002 - Sonic Innovations, Inc. (NASDAQ: SNCI), designer, developer, manufacturer and marketer of Natura®, Altair™, Tribute™, Quartet™ and Adesso™ advanced digital hearing aids, today announced record results for its second quarter ended June 30, 2002. Net sales of $17,351,000 in the second quarter 2002 were up 50% from second quarter 2001 net sales of $11,552,000 and were up 15% from first quarter 2002 net sales of $15,104,000. The Company achieved profitability in the quarter with net income of $157,000, or $.01 per share. This compared with a net loss in the second quarter 2001 of $2,915,000 ($.15 per share) and a net loss in the first quarter 2002 of $419,000 ($.02 per share). The profitability improvement resulted from a combination of increased net sales, improved gross margin and better leveraged operating expenses.
Hearing aid sales were $17,210,000 in the second quarter 2002. This represented a 51% increase from hearing aid sales of $11,433,000 in the prior year's second quarter and a 15% increase from first quarter 2002 hearing aid sales of $14,955,000. North American sales of $9,869,000 were up 8% from last year's second quarter level and up 7% from the first quarter 2002 level. European sales of $3,655,000 benefited from several small acquisitions and were up 78% from last year's second quarter level and up 27% from the first quarter 2002 level. Rest-of-world sales of $3,686,000, which included sales from the company's Australian operation that was acquired in July 2001, were up 1,275% from last year's second quarter level and up 29% from the first quarter 2002 level.
Component sales were $141,000 in the second quarter 2002. This compared to component sales of $119,000 in last year's second quarter and $149,000 in the first quarter 2002. The Company has stated previously that component sales are no longer significant to its business.
Gross profit was a record $8,987,000 in the second quarter 2002, up $4,297,000, or 92%, from gross profit of $4,690,000 in last year's second quarter and up $1,324,000, or 17%, from gross profit of $7,663,000 in the first quarter 2002. Gross margin of 51.8% in the second quarter 2002 increased significantly from last year's second quarter level of 40.6% and also increased from first quarter 2002 gross margin of 50.7%. The improvement reflected the Company's continuing efforts to reduce its product costs and improve its manufacturing cost structure. The improvement in gross margin was achieved despite declining average selling prices resulting from product mix shift toward lower priced products on a global basis.
Operating loss of $294,000 in the second quarter 2002 was significantly improved from an operating loss of $3,417,000 in last year's second quarter and was also improved from the prior quarter's operating loss of $808,000 as the Company benefited from increased net sales, higher gross margin and leveraged operating expenses.
At June 30, 2002, Sonic Innovations had cash and marketable securities, including long-term marketable securities, of $36.7 million compared to $45.8 million at December 31, 2001. The decrease was mainly due to a number of acquisitions totaling $7.8 million and common stock repurchases of $0.7 million.
President and CEO Andy Raguskus stated, "We are very pleased to have crossed over to profitability after having made significant progress in improving our results over the past several quarters. Over the last five quarters, our net loss has dropped from $2,915,000 to $1,473,000 to $997,000 to $419,000, and now we have reached net income of $157,000. These improvements reflect our increasing sales and our focus on product, manufacturing and operating costs. We had previously stated that we expected to be profitable by the third quarter of this year and we are pleased to say that we have beaten that prediction by a quarter."
Mr. Raguskus added, "Although the global hearing aid market continues in the doldrums, we have benefited from an expanded product offering and expanded distribution, which has been aided by several acquisitions. During the second quarter, we acquired operations in Switzerland, Austria, Canada and the U.K. We introduced our second generation instant-fit product, Adesso, in March and our lower priced Tribute custom product line in April, which gives us two very competitive product offerings in the lower-priced segment of the digital hearing aid market. Our broader product offering, which now includes Natura 2 SE, Altair, Tribute and Quartet custom devices and the Adesso instant-fit device, coupled with the full effect of our acquired operations, should result in our business improving through the balance of 2002. We believe we continue to be in a position to increase sales and leverage our existing infrastructure."
Sonic Innovations designs, develops, manufactures and markets advanced digital hearing aids designed to provide the highest levels of satisfaction for hearing impaired consumers. Capitalizing on its advanced understanding of human hearing, the company has developed patented digital signal processing, or DSP, technologies and embedded them in the smallest single-chip DSP platform ever installed in a hearing aid. The company believes its hearing aids set a new standard for consumer satisfaction because they are smaller, more comfortable and more reliable and deliver more natural sound than competing hearing aids.
This press release contains "forward-looking statements" as defined under securities laws, including statements concerning our expectations for 2002 business improvement and increasing sales and leveraged infrastructure in the future. Actual results may differ materially and adversely from those described in this press release depending on a number of factors, including general economic conditions; hearing aid market conditions; problems with product manufacturing, distribution or market acceptance of our products, particularly our new Tribute line and Adesso product; the competitive performance of our products; relationships with our customers; delays in completing or introducing new products; regulatory requirements; difficulties in managing international operations; difficulties in integrating and managing acquired operations that could result in poor performance and writedowns of acquired intangible assets; the effect of future acquisitions, if any; component availability and pricing; the effect of international conflicts and threats; and other business factors beyond our control. For additional information regarding the risks inherent in our business, please see "Factors That May Affect Future Performance," included in Item 1 of our Report on Form 10-K for the year ended December 31, 2001 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 Tuesday, July 23, 2002 at 3:00 p.m. Mountain time (5:00 pm Eastern time).
To participate in the conference call, please call toll free 877-679-9049, or 952-556-2803 outside the U.S., and ask to be connected to the Sonic Innovations teleconference. A live webcast will also be available through our web-site at www.sonici.com. You may also visit our web-site for an archive of prior press releases and earnings announcements.
If you wish to hear a digital playback of the call, please call 800-615-3210 within the U.S. and 703-326-3020 outside the U.S. and enter confirmation code 6067558 (available through July 26, 2002) or access the playback through our website.
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