U.S. net revenues were $9.3 million, compared with $10.2 million in the second quarter of fiscal 2008. International net revenues were $2.5 million, flat with the same period in 2008. For the six-month period, U.S. net revenues increased two percent to $18.1 million from $17.7 million and international revenues increased 31 percent from $3.8 million to $4.9 million.

"Amid continued weakness in the U.S. economy, hospitals restricted their capital spending for the INVOS System to a greater extent than we had anticipated," said Bruce Barrett, Somanetics' president and chief executive officer. "Since most of our INVOS System placements for revenue in the U.S. market are in pediatric and neonatal ICUs, capital budget constraints also are impacting the start up of new neonatal and pediatric accounts and associated sensor sales."

"On the positive side, adult sensor demand was strong, largely off-setting the shortfall in pediatric and neonatal sensor volume," said Barrett. "We experienced our strongest sequential growth in more than two years in the U.S. market for adult sensors in the second quarter. INVOS System hardware and disposable sensor purchases by our international distribution partners are on track for the year."

Second quarter income before income taxes was $2.9 million, compared to $4.8 million for the second quarter of 2008. Net income was $1.8 million, or $0.14 per diluted share, compared with net income of $3.1 million, or $0.21 per diluted share, in the second quarter of 2008.

For the six months ended May 31, 2009, income before income taxes was $5.0 million compared to $6.5 million in the comparable period of fiscal 2008. Net income was $3.1 million, or $0.24 per diluted share for the first half of 2009, compared with net income of $4.1 million, or $0.28 per diluted share, for the first half of 2008.

Gross margin was 86 percent in the second quarter and first six months of fiscal 2009, compared with 87 percent for the respective periods of 2008. Cash, marketable securities and long-term investments at May 31, 2009 totaled $74.1 million, with no borrowings.

"From an earnings perspective, we finished the first half of our fiscal year modestly ahead of our internal plan due to lower than planned spending," said Barrett. "We have increased our investments by 11 percent compared to last year to support our entry into the neonatal ICU and pursue development and launch of our new Vital Sync System, but this increase is below our plan primarily due to the addition of personnel at a slower pace than we had projected."

Extension of International Distribution Agreement with Covidien

Somanetics also announced today that it has extended its long-standing exclusive distribution agreement with Covidien to distribute Somanetics' INVOS Cerebral/Somatic Oximeter products in Europe, the Middle East and Africa. The three-year extension will go into effect on February 16, 2010, when the current agreement expires. At that time, transfer prices will change and incremental revenue recognized by Somanetics in the first full year of the extension is estimated to be between $2.5 million and $3.0 million.

"We are very pleased to extend this important relationship with Covidien under terms that both parties embrace," Barrett said.

Expanded FDA Labeling Claims

Somanetics received 510(k) clearance from the U.S. Food and Drug Administration to expand the labeling for its INVOS Cerebral/Somatic Oximeter. The new labeling includes three new marketing claims based on results published in peer-reviewed literature as follows:

   --  The measurement of regional cerebral oxygen saturation (rSO2) is an       indication of whether oxygen delivery to the brain is adequate.        Prolonged declines in rSO2 are indicative of, or may result in,       potential brain injury.    --  When used as an indication of compromised cerebral oxygenation,       interventions to return the patient's rSO2 to baseline using the INVOS       System have been shown to improve outcomes after surgery.    --  In neonates, infants and children, cerebral and somatic rSO2 provide       noninvasive indications of oxygen changes in the cerebral and       peripheral circulatory systems and may provide an early indication of       oxygen deficits associated with impending shock states and       anaerobiosis.   

"Early indications are that this new labeling is going to help us continue to drive adoption of our technology, especially in adult cardiac surgery," said Barrett.