Aspect Medical Systems, Inc. Reports Operating Results for Fourth Quar

Aspect Medical Systems, Inc. Reports Operating Results for Fourth Quarter and Year Ended December 31, 2004; Company Achieves Full Year Profit

    Business Editors/Medical Editors

    NEWTON, Mass.--(BUSINESS WIRE)--Feb. 9, 2005--Aspect Medical Systems, Inc.(NASDAQ: ASPM)

    Highlights of the Quarter Compared with Q4 2003

--	Worldwide revenue increased 30%
--	Worldwide monitor and module unit sales increased by 67% and total placements at end users exceeded 1,700 units
--	Worldwide installed base of monitors and modules increased 24% compared to year end 2003
--	Net income was $955,000 in Q4 compared with a net loss of ($817,000) and net income per diluted share was $0.04 compared with a net loss per share of ($0.04) enabling us to achieve full year profitability

    Aspect Medical Systems, Inc. (NASDAQ: ASPM), reported today that revenue was $15.7 million for the fourth quarter of 2004, an increase of 30% over revenue of $12.1 million for the fourth quarter of 2003, and $55.6 million for the year ended December 31, 2004, an increase of 26% over revenue of $44.1 million for the year ended December 31, 2003.
    Net income for the quarter was $955,000, or $0.04 per share on 23.0 million diluted shares outstanding, compared with a net loss of ($817,000) or ($0.04) per share on 19.5 million basic and diluted shares outstanding in the fourth quarter of 2003. Net income for the year ended December 31, 2004 was $303,000, or $0.01 per share on 22.3 million diluted shares outstanding, compared with a net loss of ($6.5) million, or ($0.34) per share on 19.4 million basic and diluted shares outstanding for the year ended December 31, 2003.
    "The fourth quarter was our second consecutive quarter of profitability and established 2004 as our first full year of profitability. Equally significant, over 1,700 BIS sockets were placed at customer sites during the quarter, the largest number for any quarter in our history, and double the number of sockets placed in Q4 2003. Capping a great year, in November, Aspect was honored by being named the small company Medical Device Manufacturer of the Year by the Medical Device and Diagnostic magazine," said Nassib Chamoun, president and chief executive officer.
    "Publication of the awareness data, FDA clearance of an awareness indication for BIS monitoring, and most recently, JCAHO's Sentinel Event Alert, have combined to create great momentum for the Company. We are now focused on sustaining this momentum, and we believe that the substantial increase in our installed base in 2004, and the acceleration in new installations in Q4, bodes well for sensor sales in 2005 and beyond."

    Revenue Analysis - (see attached unaudited consolidated revenue data)

    Domestic revenue was $12.3 million for the fourth quarter and $43.6 million for the year ended December 31, 2004, an increase of 22% and 21%, respectively, over comparable periods in the prior year. Domestic sensor revenue increased 23% from Q4 2003 to Q4 2004. The increase resulted from a 16% increase in sensor unit volume combined with a 6% increase in sensor average unit price.
    International revenue was $3.4 million for the fourth quarter and $11.9 million for the year ended December 31, 2004, an increase of 74% and 47%, respectively, over comparable periods in the prior year. The growth in international revenue in Q4 2004 from Q4 2003 reflects a 44% increase in sensor revenue and a 117% increase in equipment revenue.

    Liquidity and Capital Resources

    At December 31, 2004, the Company had cash, cash equivalents and investments of $43.7 million, stockholders' equity of $45.6 million and total debt of $497,000. At December 31, 2003, the Company had cash, cash equivalents and investments of $31.2 million, stockholders' equity of $31.0 million and total debt of $1.2 million.

    Outlook for the First Quarter of 2005

    For the first quarter of 2005, the Company believes that revenue will be within a range of $16.0 million to $16.5 million and net income per diluted share will be within a range of $0.03 to $0.04.

    Conference Call Set for 10AM ET Today

    Aspect will hold a conference call to discuss fourth quarter results and management's outlook for the first fiscal quarter of 2005 at 10:00 a.m. Eastern Time today, Wednesday, February 9, 2005. The call can be accessed live by dialing 1-888-202-2422 (domestic), 1-913-981-5592 (international), or access the webcast at http://www.aspectmedical.com on the Investor page or http://ccbn.com. It also will be available for replay from February 9, 2005, until February 16, 2005, by dialing 1-888-203-1112 (domestic), or 1-719-457-0820 (international), access code 2294092. The webcast replay will also be available on Aspect's website at http://www.aspectmedical.com on the news releases page under investor information.

    About the Company

    Aspect Medical Systems, Inc. (NASDAQ: ASPM) is a global market leader in brain monitoring technology. To date, the Company's Bispectral Index (BIS) technology has been used to assess more than 10.4 million patients worldwide and has been the subject of more than 1,800 published articles and abstracts. BIS technology is installed in approximately 36 percent of all domestic operating rooms and is available in more than 160 countries. Aspect Medical Systems has OEM agreements with seven leading manufacturers of patient monitoring systems.

    Safe Harbor Statement

    Certain statements in this release are forward-looking and may involve risks and uncertainties, including statements with respect to the expected increase in sales of BIS sensors, the impact of the October 2004 Sentinel Event Alert, the Company's expected results of operations for future periods, our ability to maintain profitability, the worldwide market acceptance of the Company's products and our ability to maintain market momentum. There are a number of factors that could cause actual results to differ materially from those indicated by these forward-looking statements. For example, the Company may not be able to achieve widespread market acceptance of its BIS monitoring technology or to compete with new products or alternative techniques that may be developed by others, including third-party anesthesia monitoring products approved by the FDA, and also faces competitive and regulatory risks relating to its ability to successfully develop and introduce enhancements and new products, including regulatory approval of its XP technology in Japan. In addition, the Company has limited sales and marketing experience both in the U.S. and internationally, and if it is unable to develop and implement a successful sales and marketing strategy, including with respect to its own sales force, domestic and international distributors, original equipment manufacturers and other direct and indirect sales channels, it will not be able to generate meaningful product revenue. In addition, the Company's ability to remain profitable will depend upon its ability to promote frequent use of the BIS system so that sales of its BIS sensors increase. The Company will not remain profitable if hospitals and anesthesia providers do not buy and use its BIS systems in sufficient quantities. Cases of awareness with recall during monitoring with the BIS system and significant product liability claims are among the factors that could limit market acceptance. There are other factors that could cause the Company's actual results to vary from its forward-looking statements, including without limitation those set forth under the heading "Factors Affecting Future Operating Results" in the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended October 2, 2004, as filed with the Securities and Exchange Commission.
    In addition, the statements in this press release represent the Company's expectations and beliefs as of the date of this press release. The Company anticipates that subsequent events and developments may cause these expectations and beliefs to change. However, while the Company may elect to update these forward-looking statements at some point in the future, it specifically disclaims any obligation to do so. These forward-looking statements should not be relied upon as representing the Company's expectations or beliefs as of any date subsequent to the date of this press release.

    For further information regarding Aspect Medical Systems, Inc., visit the Aspect Medical Systems, Inc. website at www.aspectmedical.com

    ...FINANCIAL TABLES FOLLOW...

ASPECT MEDICAL SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands Except Per Share Amounts)

Three Months Ended Year Ended ----------------------- ----------------------- December 31,December 31,December 31,December 31, 2004 2003 2004 2003 ----------- ----------- ----------- ----------- (Unaudited) (Unaudited) (Unaudited) (Unaudited)

Revenue $15,716 $12,066 $55,564 $44,091 Costs of revenue 3,705 2,871 12,992 10,898 ----------- ----------- ----------- ----------- Gross profit margin 12,011 9,195 42,572 33,193

% of revenue 76.4% 76.2% 76.6% 75.3%

Operating expenses: Research and development 1,975 1,917 7,470 7,287 Sales and marketing 7,333 6,793 26,776 25,321 General and administrative 2,041 1,481 8,946 7,833 ----------- ----------- ----------- ----------- Total operating expenses 11,349 10,191 43,192 40,441 ----------- ----------- ----------- -----------

Income (loss) from operations 662 (996) (620) (7,248)

Interest income 314 222 1,029 924 Interest expense (21) (43) (106) (199)

----------- ----------- ----------- ----------- Net income (loss) $955 $(817) $303 $(6,523) =========== =========== =========== ===========

Net income (loss) per share: Basic $0.05 $(0.04) $0.02 $(0.34) Diluted $0.04 $(0.04) $0.01 $(0.34)

Shares used in computing net income (loss) per share: Basic 20,622 19,454 20,142 19,413 Diluted 23,034 19,454 22,286 19,413

ASPECT MEDICAL SYSTEMS, INC.

CONSOLIDATED REVENUE DATA

(In Thousands Except Unit Amounts)

Three Months Ended --------------------------------- December 31, December 31, % 2004 2003 Change ----------- ----------- --------- (Unaudited) (Unaudited) REVENUE ------- WORLDWIDE Sensors $10,904 $8,655 26%

Monitors 3,028 1,928 57% Modules 914 638 43% Other Equipment 870 845 3% ----------- ----------- --------- Equipment 4,812 3,411 41% ----------- ----------- --------- Total Worldwide $15,716 $12,066 30% =========== =========== =========

DOMESTIC Sensors $9,292 $7,534 23%

Monitors 2,151 1,573 37% Modules 238 280 (15%) Other Equipment 658 743 (11%) ----------- ----------- --------- Equipment 3,047 2,596 17% ----------- ----------- --------- Total Domestic $12,339 $10,130 22% =========== =========== =========

INTERNATIONAL Sensors $1,612 $1,121 44%

Monitors 877 355 147% Modules 676 358 89% Other Equipment 212 102 108% ----------- ----------- --------- Equipment 1,765 815 117% ----------- ----------- --------- Total International $3,377 $1,936 74% =========== =========== =========

UNITS ----- WORLDWIDE Sensors 772,000 635,000 22% Monitors 636 347 83% Modules (a) 783 501 56% Installed Base (b)

DOMESTIC Sensors 584,000 504,000 16% Monitors 386 226 71% Modules (a) 160 175 (9%) Installed Base (b)

INTERNATIONAL Sensors 188,000 131,000 44% Monitors 250 121 107% Modules (a) 623 326 91% Installed Base (b)

(a) Represents module shipments to OEM customers (b) Includes end-user module placements by OEM customers

ASPECT MEDICAL SYSTEMS, INC.

CONSOLIDATED REVENUE DATA

(In Thousands Except Unit Amounts)

Year Ended --------------------------------- December 31, December 31, % 2004 2003 Change ----------- ----------- --------- (Unaudited) (Unaudited) REVENUE ------- WORLDWIDE Sensors $39,585 $30,391 30%

Monitors 9,551 6,942 38% Modules 3,008 3,229 (7%) Other Equipment 3,420 3,529 (3%) ----------- ----------- --------- Equipment 15,979 13,700 17% ----------- ----------- --------- Total Worldwide $55,564 $44,091 26% =========== =========== =========

DOMESTIC Sensors $34,116 $26,981 26%

Monitors 6,187 5,196 19% Modules 672 781 (14%) Other Equipment 2,663 3,010 (12%) ----------- ----------- --------- Equipment 9,522 8,987 6% ----------- ----------- --------- Total Domestic $43,638 $35,968 21% =========== =========== =========

INTERNATIONAL Sensors $5,469 $3,410 60%

Monitors 3,364 1,746 93% Modules 2,336 2,448 (5%) Other Equipment 757 519 46% ----------- ----------- --------- Equipment 6,457 4,713 37% ----------- ----------- --------- Total International $11,926 $8,123 47% =========== =========== =========

UNITS ----- WORLDWIDE Sensors 2,820,000 2,244,000 26% Monitors 1,948 1,340 45% Modules (a) 2,239 2,259 (1%) Installed Base (b) 24,133 19,517 24%

DOMESTIC Sensors 2,187,000 1,846,000 18% Monitors 999 801 25% Modules (a) 438 553 (21%) Installed Base (b) 15,405 12,831 20%

INTERNATIONAL Sensors 633,000 398,000 59% Monitors 949 539 76% Modules (a) 1,801 1,706 6% Installed Base (b) 8,728 6,686 31%

(a) Represents module shipments to OEM customers (b) Includes end-user module placements by OEM customers

ASPECT MEDICAL SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)

December 31, December 31, 2004 2003 ----------- ----------- (Unaudited) (Unaudited)

ASSETS Current assets: Cash, cash equivalents and investments (A) $32,295 $31,162 Accounts receivable, net 7,835 5,773 Current portion of investment in sales-type leases 1,698 1,797 Inventory, net 2,224 1,515 Other current assets 1,192 1,147 ----------- ----------- Total current assets 45,244 41,394

Property and equipment, net 2,662 2,996 Long-term investments (A) 11,439 -- Long-term investment in sales-type leases 2,320 2,613 Other long-term assets 25 737 ----------- ----------- Total assets $61,690 $47,740 =========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $311 $679 Accounts payable and accrued liabilities 9,752 9,060 Deferred revenue 957 975 ----------- ----------- Total current liabilities 11,020 10,714

Long-term portion of deferred revenue 4,898 5,533 Long-term debt 186 525 Stockholders' equity 45,586 30,968 ----------- ----------- Total liabilities and stockholders' equity $61,690 $47,740 =========== ===========

(A) Investments with maturities beyond twelve months are included in long-term investments.

--30--JS/bo*

CONTACT: Aspect Medical Systems, Inc. J. Neal Armstrong, 617-559-7162 Vice President & CFO or Diane Hettwer, 312-640-6760 or Tim Grace, 312-640-6667

KEYWORD: MASSACHUSETTS INDUSTRY KEYWORD: BANKING MEDICAL DEVICES MEDICAL BIOTECHNOLOGY EARNINGS CONFERENCE CALLS SOURCE: Aspect Medical Systems, Inc.

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