When a company announces a 20% growth in year-over-year revenue almost a month before its earnings release, the subsequent earnings announcement tends to be a little bland.
SonoSite (NASDAQ:SONO), maker of hand-carried ultrasound equipment, surprised at least a few investors yesterday afternoon by announcing that net income had grown a whopping 32% year over year for the second quarter. It was able to increase the bottom line more than the top line by becoming more efficient.
Gross margins have slipped for a couple of quarters now, but that's not necessarily bad. SonoSite has been branching out and increasing its market outside the United States. In fact, it had more sales outside the U.S. this quarter than stateside. It sells the devices at a discount -- thus the lowered gross margins -- to third-party sellers, who sell them to the customer. But it makes up for the lost revenue by decreasing its sales and marketing costs, which were down to 44% of revenue for the quarter compared with 50% of revenue a year ago.
The company sold $200 million in senior notes earlier this month, and it put that money to work quickly. Yesterday, SonoSite also announced that it had acquired privately held LumerVu, which has a patented catheter tracking technology. SonoSite didn't give details of the transaction, but it couldn't have cost too much, since it said the purchase wouldn't have a material effect on its 2007 financial results.
LumerVu's machines use an optical fiber at the tip of the catheter to follow the catheter as it's guided through the body. SonoSite doesn't think it will take too long to integrate the new technology into its product line; it sees launches of the devices as early as the second half of next year. The technology seems like a good complement to its ultrasound devices and should strengthen their position in the vascular access market.
The company continues to expect strong revenue growth for the rest of the year, in the 15%-18% range. With potential income from a patent infringement lawsuit filed against General Electric (NYSE:GE), the bottom-line growth potential is certainly there. SonoSite isn't cheap by any means, but if it continues to grow revenue at this rate for many years to come, it has some time to grow into its bulky P/E.
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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.
