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Sonic Innovations Announces Results for Third Quarter 2007

Wednesday, October 31, 2007 General News J E 4
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SALT LAKE CITY, Oct. 30 Sonic Innovations, Inc.(Nasdaq: SNCI), a leading producer of advanced digital hearing aids, todayannounced results for the third quarter 2007. Net sales for the third quarter2007 of $30.8 million were up 19.0% over the $25.9 million for the thirdquarter of 2006. The auditory testing equipment division was sold in February2007 and has been reflected as a discontinued operation.

North American sales of $12.6 million in the third quarter 2007 increased28.5% from $9.8 million in the third quarter of 2006. European sales of$11.5 million in the third quarter 2007 increased 13.8% from $10.1 million inthe third quarter 2006. Rest-of-world sales of $6.7 million in the thirdquarter 2007 were up 12.4% from 2006.

Gross profit was $19.3 million in the third quarter 2007, up 28.4%, fromthe same period in 2006. Gross margin of 62.7% in the third quarter 2007 wasup from the third quarter of 2006 level of 58.2% as a result of costreductions in manufacturing, distribution activities, lower warranty costs andreduced returns.

Selling, general and administrative expense increased from $13.3 millionin the third quarter 2006 to $17.0 million in the third quarter 2007 due tothe costs of integrating and expanding distribution channels, increasedspending on marketing and selling initiatives, and litigation costs andseverance. Research and development expense in the third quarter 2007 of $2.1million was up $0.1 million, or 5.9%, from $2.0 million in the prior year,primarily due to increased expenses relating to the development of ourVelocity product line.

The Company recorded $973,000 of expenses during the third quarter relatedto settlement of a patent infringement lawsuit and associated legal costs.While these costs had a material effect on the Company's results of operationsfor the third quarter of 2007, the Company believes that the settlement was inthe Company's best interest. The Company also reduced a previously recordedliability by approximately $365,000 as a result of an anticipated settlementof an appealed lawsuit.

Sam Westover, President and CEO, stated, "We are pleased with our recordsales for the quarter and our earnings improvements. We were able to absorbnearly a million dollars of legal costs and still generate a 400% increase inyear-to-date pre-tax income. We look forward to continuing revenue andearnings growth in the fourth quarter."

Income from continuing operations for the quarter was $0.5 million, up$0.9 million from the loss from continuing operations of $0.4 million from thethird quarter 2006. Net income improved from $0.8 million loss in the thirdquarter of 2006 to a gain of $0.5 million this year. Year-to-date incomebefore income taxes improved 419% over the prior year.

As of September 30, 2007, Sonic Innovations had cash and marketablesecurities of $22.9 million and a line of credit of $6.0 million.

Sonic Innovations designs, develops, manufactures and markets advanceddigital hearing aids designed to provide the highest levels of satisfactionfor hearing impaired consumers.

This press release may contain "forward-looking statements" as definedunder securities laws. Actual results may differ materially and adverselyfrom those described herein depending on a number of factors including, butnot limited to, the following risks: revenue growth and improved profitabilityfor the fourth quarter; we face aggressive competition in our business;acquisitions could be difficult to integrate and disrupt our current businessand therefore may harm our operating results; we may lose a large customer orsuffer a reduction in orders from a large customer; we must have innovative,technologically superior products to compete effectively; our products, due totheir complexity, may contain errors or defects that are only discovered aftersales by our customers, thus harming our repu
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