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Sonic Innovations Announces Results for Fourth Quarter and Full Year 2007
Date:2/5/2008

Record Annual Net Sales and Net Income

SALT LAKE CITY, Feb. 5 /PRNewswire-FirstCall/ -- Sonic Innovations, Inc. (Nasdaq: SNCI), a leading producer of advanced digital hearing aids, today announced results for the fourth quarter 2007. Net sales for the fourth quarter 2007 of $32.3 million were up 12.4% over the $28.7 million for the fourth quarter of 2006. Net sales for the year 2007 of $122.5 million improved 16.1% over the $105.5 million for the year 2006. The auditory testing equipment division was sold in February 2007 and has been reflected as a discontinued operation.

North American sales of $46.7 million in 2007 increased 11.9% from $41.8 million in 2006. European sales of $50.5 million in 2007 increased 21.1% from $41.7 million in 2006. Rest-of-world sales of $25.2 million in 2007 were up 14.7% from $22.0 million in 2006. North American sales of $11.4 million in the fourth quarter 2007 increased 5.8% from $10.8 million in the fourth quarter of 2006. European sales of $13.6 million in the fourth quarter 2007 increased 11.6% from $12.1 million in the fourth quarter 2006. Rest-of-world sales of $7.3 million in the fourth quarter 2007 were up 26.4% from $5.8 million in the fourth quarter 2006.

Gross profit was $77.3 million in 2007, up 26.9%, from 2006. Gross margin in 2007 of 63.1% increased from the 2006 level of 57.7%. Gross profit was $20.8 million in the fourth quarter 2007, up 20.2%, from the same period in 2006. Gross margin of 64.5% in the fourth quarter 2007, a record for the company, was up from the fourth quarter of 2006 level of 60.3%. The increase in gross margin was a result of cost reductions in manufacturing, distribution activities, lower warranty costs, reduced returns and foreign currency.

Selling, general and administrative expense increased from $53.1 million in the year ended 2006 to $67.7 million in the year ended 2007 and from $14.9 million in the fourth quarter 2006 to $18.5 million in the fourth quarter 2007 due to the costs of integrating and expanding distribution channels, increased spending on marketing and selling initiatives, and foreign currency.

Research and development expense in the year ended 2007 of $8.5 million increased $0.8 million, or 10.2%, from $7.8 million in the prior year, primarily due to increased expenses relating to the development of our new product lines. Research and development expense in the fourth quarter 2007 of $2.0 million slightly increased by 1.5%, from $1.9 million in the prior year.

Net income for 2007 was $0.7 million, an increase of $2.3 million from a loss of $1.6 million in 2006. Earnings per share for 2007 was three cents, an improvement of ten cents from the loss of seven cents in 2006. Net income for the fourth quarter of 2007 was $0.1 million, a decrease of $0.3 million from net income of $0.4 million in 2006. Earnings per share for the fourth quarter of 2007 were zero, a decrease of two cents from 2006.

Sam Westover, President and CEO, stated, "Our sales and earnings are clearly heading in the right direction, having established record numbers for the company this year. Once again, we generated double digit sales growth for the year and approximately a two-fold increase in earnings from our previous record year. I am pleased that our company continues to show such improvement."

As of December 31, 2007, Sonic Innovations had cash and marketable securities of $20.7 million and a 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 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: 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; 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, 2006, as filed with the Securities and Exchange Commission.

This release contains a non-GAAP financial measure ("EBITDA"). We believe the inclusion of such a non-GAAP financial measure improves the transparency of our disclosure. We have provided a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure.

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, February 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) 291-5365, or (617) 614-3922 outside the U.S., and use participant pass code 79423106 for the Sonic Innovations teleconference. 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 pass code 53203626 (available through February 8, 2008), 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 Twelve months ended

December 31, December 31,

2007 2006 2007 2006

Net sales $ 32,265 $ 28,706 $122,480 $105,492

Cost of sales 11,452 11,390 45,220 44,605

Gross profit 20,813 17,316 77,260 60,887

Selling, general and

administrative

expense 18,495 14,890 67,741 53,148

Research and development

expense 1,975 1,946 8,547 7,759

Operating income (loss) 343 480 972 (20)

Other income, net 142 255 853 1,013

Income before income taxes 485 735 1,825 993

Provision for income taxes 336 81 977 577

Income from continuing

operations 149 654 848 416

Discontinued operations,

net of income taxes (50) (211) (131) (1,996)

Net income (loss) $ 99 $ 443 $ 717 $ (1,580)

Basic income (loss)

per common share:

Continuing operations $ 0.01 $ 0.03 $ 0.03 $ 0.02

Discontinued operations (0.01) (0.01) - (0.09)

Net income (loss) $ - $ 0.02 $ 0.03 $ (0.07)

Diluted income (loss)

per common share:

Continuing operations $ 0.01 $ 0.03 $ 0.03 $ 0.02

Discontinued operations (0.01) (0.01) - (0.09)

Net income (loss) $ - $ 0.02 $ 0.03 $ (0.07)

Basic weighted average

number of common

shares outstanding 26,762 25,610 26,518 23,408

Diluted weighted average

number of common

shares outstanding 27,801 26,097 27,570 23,932

Sonic Innovations, Inc.

Consolidated Balance Sheet Information

(In thousands)

(Unaudited)

December 31, December 31,

2007 2006

Assets:

Cash and marketable securities $ 20,684 $ 26,452

Accounts receivable 21,996 18,932

Inventories 13,843 10,475

Property and equipment 8,267 8,265

Goodwill and intangibles 52,836 36,812

Assets held for sale - 2,584

Other 6,331 4,801

Total assets $123,957 $108,321

Liabilities:

Accounts payable and accrued liabilities $ 26,802 $ 26,758

Loans payable 10,820 6,423

Deferred revenue 10,102 8,011

Liabilities associated with assets held for sale - 1,225

Total liabilities 47,724 42,417

Shareholders' equity:

Common stock 28 27

Additional paid-in capital 139,853 134,464

Accumulated deficit (71,268) (71,985)

Other 7,620 3,398

Total shareholders' equity 76,233 65,904

Total liabilities and shareholders' equity $123,957 $108,321

Sonic Innovations, Inc.

Consolidated Statements of Other Information

(In thousands)

(Unaudited)

Net Sales

Three months ended Twelve months ended

December 31, December 31,

2007 2006 2007 2006

Hearing aids:

North America $ 11,417 $ 10,787 $ 46,731 $ 41,761

Europe 13,553 12,148 50,510 41,718

Rest-of-world 7,295 5,771 25,239 22,013

Total $ 32,265 $ 28,706 $122,480 $105,492

Discontinued

operations $ - $ 821 $ 325 $ 3,483 Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA")

(Excluding Discontinued Operations)

Three months ended Twelve months ended

December 31, December 31,

2007 2006 2007 2006

Income from continuing

operations $ 149 $ 654 $ 848 $ 416

Add back (deduct):

Interest income, net (152) (220) (484) (546)

Taxes 336 81 977 577

Depreciation and

amortization 1,214 921 4,530 3,988

EBITDA $1,547 $1,436 $5,871 $4,435


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SOURCE Sonic Innovations, Inc.
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