Sonic Innovations Announces Results for Second Quarter 2008

Record Quarter Sales

SALT LAKE CITY, Aug. 5 /PRNewswire-FirstCall/ -- Sonic Innovations, Inc.
(Nasdaq: SNCI), a leading producer of advanced digital hearing aids, today
announced results for the second quarter ended June 30, 2008.
Second quarter highlights:

-- Achieved record second quarter sales of $35.3 million and realized
16.2 percent sales growth compared to second quarter 2007.
-- Continued financial improvement in vertically integrated operations.
-- Consolidation of European operations nearly completed. Cost savings and
improved profitability expected.

"In the second quarter 2008, we continued to consolidate several of our
European operations to reduce expenses and focus the Company's resources on
those markets that provide the greatest opportunity for increased
profitability. In addition, I am very pleased with our overall sales levels
in the second quarter," said Sam Westover, Chairman and CEO. "I anticipate
the consolidation activities will drive considerable improvement in Company
performance."
The Company expects that the consolidation activities will result in total
restructuring charges of approximately $2.4 million in non-cash charges and
$2.0 million in cash charges in 2008. For the second quarter of 2008, the
Company recorded a restructuring charge of $3.2 million, or $0.12 per share
and $3.8 million on a year-to-date basis.
Record second quarter 2008 net sales of $35.3 million were 16.2 percent
higher than second quarter 2007 sales of $30.4 million. North American sales
of $12.3 million in the second quarter 2008 increased 4.6 percent from 2007.
European sales of $14.7 million in the second quarter 2008 increased
15.4 percent from 2007. Rest-of-world sales of $8.3 million in the second
quarter 2008 were up 41.4 percent from 2007.
Net sales of $67.3 million for the six months ended June 30, 2008
increased 13.2 percent over the prior period. Net sales increased by
6.6 percent in North America, 9.4 percent in Europe and 35.1 percent for
rest-of-world for the first six months of 2008 compared to 2007.
Gross profit of $22.0 million in the second quarter 2008 was up
13.7 percent from 2007. Gross margin for the second quarter was 62.4 percent
in 2008 compared to last year's second quarter level of 63.7 percent as a
result of inventory write-offs associated with our consolidation activities
and lower North American selling prices resulting from the continued softness
of the U.S. economy.
The Company's gross profit increased to 63.1 percent for the six months
ended June 30, 2008 from 62.5 percent for the same six months of 2007.
Selling, general and administrative expense as a percentage of net sales
decreased from 57.6 percent in the second quarter 2007 to 57.5 percent in the
second quarter 2008. Excluding restructuring charges and reserves and
expenses of the impacted locations, operating expense as a percentage of sales
is down 1.1 percent on a year-over-year basis from 62.8 percent to
61.7 percent. Research and development expense in the second quarter of both
2008 and 2007 was $2.2 million.
Loss from continuing operations for the second quarter of 2008 was
$4.0 million, or $0.15 per share, compared to a net loss from continuing
operations of $0.5 million, or $0.02 per share for the second quarter 2007,
primarily resulting from the Company's consolidation efforts, inventory
write-offs and lower selling prices in North America as a result of the
economic environment.
The year-to-date loss from continuing operations for the six months ended
June 30, 2008 was $4.5 million, or $0.17 per share, as compared with income
from continuing operations of $0.2 million or $0.01 per share for the six
months ended June 30, 2007.
As of June 30, 2008, Sonic Innovations had cash and cash equivalents of
$15.2 million and an available 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 three non-GAAP ("Generally Accepted Accounting
Principles") financial measures ("EBITDA," "NON-GAAP ADJUSTED NET INCOME
(LOSS) AND EARNINGS (LOSS) PER SHARE," and "NET INCOME (LOSS) TO NON-GAAP
ADJUSTED NET INCOME"). We believe the inclusion of such non-GAAP financial
measure improves the transparency of our disclosure. We have provided
reconciliations of these non-GAAP financial measures to the most directly
comparable GAAP measures.
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, August 5, 2008 at 3:00 p.m. Mountain Time (5:00 p.m.
Eastern Time).
To participate in the conference call, please call toll free
(800) 901-5218, or (617) 786-4511 outside the U.S., and use participant
passcode: 31090522. 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 50515815 (available through August 7, 2008, midnight), or access the
playback through our website.

SONIC INNOVATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

Three months ended Six months ended
June 30, June 30,
2008 2007 2008 2007

Net sales $35,349 $30,417 $67,276 $59,436
Cost of sales 13,305 11,031 24,794 22,295

Gross profit 22,044 19,386 42,482 37,141
Selling, general and
administrative expense 20,314 17,505 38,532 32,233
Research and development expense 2,157 2,171 4,382 4,464
Restructuring charges 3,200 - 3,765 -

Operating income (loss) (3,627) (290) (4,197) 444
Other income (expense), net (80) 86 252 320

Income (loss) before income taxes (3,707) (204) (3,945) 764
Provision for income taxes 295 274 589 546

Income (loss) from continuing
operations (4,002) (478) (4,534) 218
Income (loss) from discontinued
operations, net of income taxes - 44 - (81)

Net income (loss) $(4,002) $(434) $(4,534) $137

Basic income (loss) per common
share:
Continuing operations $(0.15) $(0.02) $(0.17) $ 0.01
Discontinued operations - - - -

Net income (loss) $(0.15) $(0.02) $(0.17) $ 0.01

Diluted income (loss) per common
share:
Continuing operations $(0.15) $(0.02) $(0.17) $ 0.01
Discontinued operations - - - -

Net income (loss) $(0.15) $(0.02) $(0.17) $0.01

Weighted average number of common
shares outstanding:
Basic 27,336 26,468 27,093 26,292

Diluted 27,336 26,468 27,093 27,373

SONIC INNOVATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET INFORMATION
(in thousands)
(unaudited)

June 30, December 31,
2008 2007
Assets:

Cash and cash equivalents $15,184 $20,684
Accounts receivable 21,212 21,996
Inventories 12,973 13,451
Property and equipment 7,923 8,267
Goodwill and intangibles 58,380 52,837
Other assets 8,477 6,466

Total assets $124,149 $123,701

Liabilities:

Accounts payable and accrued liabilities $27,095 $26,546
Loans payable 8,879 10,820
Deferred revenue 11,013 10,102

Total liabilities 46,987 47,468

Shareholders' equity:

Common stock 28 28
Additional paid-in capital 142,663 139,853
Accumulated deficit (75,802) (71,268)
Other 10,273 7,620

Total shareholders' equity 77,162 76,233

Total liabilities and shareholders' equity $124,149 $123,701

SONIC INNOVATIONS, INC.
CONSOLIDATED STATEMENT OF NET SALES INFORMATION
(in thousands)
(unaudited)

Three months ended Six months ended
June 30, June 30,
2008 2007 2008 2007
Hearing aids:
North America $12,339 $11,800 $24,232 $22,737
Europe 14,719 12,755 27,820 25,429
Rest-of-world 8,291 5,862 15,224 11,270

Total $35,349 $30,417 $67,276 $59,436

EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION ("EBITDA")
(in thousands)
(unaudited)

Three months ended Six months ended
June 30, June 30,
2008 2007 2008 2007
Income (loss) from continuing
operations $(4,002) $(478) $(4,534) $218
Add back (deduct):
Interest income (expense), net 47 (74) 33 (247)
Taxes 295 274 589 546
Depreciation and amortization 1,366 1,117 2,586 2,134

EBITDA $(2,294) $839 $(1,326) $2,651

NON-GAAP ADJUSTED NET INCOME (LOSS) AND EARNINGS (LOSS) PER SHARE
(in thousands)
(unaudited)

Six months ended Six months ended
June 30, 2008 June 30, 2007

Non-GAAP Non-GAAP
As Adjustments As As Adjustments As
Reported (1) Adjusted Reported (1) Adjusted

Net sales $67,276 $(3,726) $63,550 $59,436 $(6,631) $52,805
Cost of sales 24,794 (1,991) 22,803 22,295 (3,213) 19,082

Gross profit 42,482 (1,735) 40,747 37,141 (3,418) 33,723

Operating
expenses 42,914 (3,723) 39,191 36,697 (3,527) 33,170
Restructuring
charges 3,765 (3,765) - - - -

Operating
income
(loss) (4,197) 5,753 1,556 444 109 553

Net income
(loss) $(4,534) $5,738 $1,204 $137 $154 $291

Basic income
(loss) per
common
share $(0.17) $ 0.21 $0.04 $0.01 $- $0.01

Diluted
income
(loss) per
common
share $(0.17) $ 0.21 $0.04 $0.01 $- $0.01

Basic
weighted
average
number of
common shares
outstanding 27,093 27,093 27,093 26,292 26,292 26,292

Diluted
weighted
average
number of
common shares
outstanding 27,093 27,093 27,202 27,373 27,373 27,373

NET INCOME (LOSS) TO NON-GAAP ADJUSTED NET INCOME
(in thousands)
(unaudited)

Six months ended June 30,
2008 2007

Net income (loss) $(4,534) $137
Add back (deduct):
Restructuring charges 3,765 -
Restructured operations (2) 1,973 154

Adjusted net income $1,204 $291

(1) The non-GAAP adjustments include the reversal of financial results for
four European locations subject to the Company's consolidation efforts
and reversal of the second quarter and year-to-date restructuring
charges.
(2) The restructured operations include four European locations subject to
the Company's consolidation efforts.

SOURCE Sonic Innovations, Inc.

Sam Westover, Chairman and CEO, +1-801-365-2800, or Michael Halloran, Vice
President and CFO, +1-801-365-2854, both of Sonic Innovations, Inc.