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 News Release - May 29, 2008

Aspect Medical Systems Announces U.S. Sales Force Expansion Plan and Reaffirms Q2 Financial Guidance

Expansion to support efforts to increase adoption of BIS technology

NORWOOD, Mass.--(HSMN NewsFeed)--Aspect Medical Systems, Inc. (NASDAQ: ASPM ) today announced a sales force expansion plan to increase the Company’s U.S. sales organization to 55-60 sales representatives from the current level of 40. Hiring for the expansion is expected to take place over the next three quarters and be completed by the end of the first quarter of 2009. The company will be adding sales representatives and creating smaller territories to support an ongoing sales strategy designed to provide customers with enhanced sales access as well as greater clinical and educational support.

“Throughout the past year we have shifted our focus from creating new customer relationships to working with existing customers to increase BIS knowledge. This has allowed us to spend more time with our customers, implement education programs and demonstrate the value of BIS-guided anesthesia care. We believe that all of these steps are essential to supporting business growth long term and helping clinicians attain the range of patient safety and quality benefits associated with BIS monitoring,” said Nassib Chamoun, president and CEO of Aspect. “Our customers have responded well to this strategy and we feel that it is now appropriate to expand our sales organization. Further, we believe that this will allow us to scale and train our organization in anticipation of new product and market opportunities, as well as emerging outcomes data that we believe will highlight the value of using BIS to manage patient exposure to anesthetics. With this expansion our goal is to achieve annual sensor growth in excess of 20% by the end of 2009.”

Aspect is reaffirming financial guidance for Q2 as follows:

Total revenue and product revenue is expected to be within a range of $24.4 million to $25.4 million;

GAAP net loss per share is expected to be within a range of ($0.03) to ($0.01); and

Non-GAAP net income per fully-diluted share is expected to be within a range of $0.03 to $0.05.

Conference Call Details

Aspect will host a conference call and webcast at 4:30 p.m. Eastern Time for all interested parties, including financial analysts, portfolio managers, individual investors and members of the press. To participate in the call, please dial 1-800-818-7543 (domestic), 1-913-312-1395 (international), or access the webcast at www.aspectmedical.com on the Investor page, or at www.earnings.com. Telephone replays will be available by dialing 1-888-203-1112 (domestic), or 1-719-457-0820 (international), access code 2385334. The webcast replay will be available from May 30, 2008 to June 05, 2008.

Use of non-GAAP Financial Measures

This press release contains a reference to non-GAAP financial measures that exclude the effects of share-based compensation and the requirements of Statement of Financial Accounting Standards No. 123(R), or “SFAS No. 123R”. Stock-based compensation expenses consist of expenses for stock options, restricted stock and other stock-based awards under SFAS No.123R and is excluded from the Company’s non-GAAP net income per fully diluted share. The Company excludes these stock-based compensation expenses and the related tax effects from non-GAAP measures primarily because they are non-cash expenses, because of the complexity and considerable judgment involved in calculating their values, and because they have in the past and are expected in the future to be driven by a different set of factors than other expenses in these categories.

The manner in which management uses the non-GAAP financial measures to conduct or evaluate its business:

The non-GAAP financial measures used by management and disclosed by the Company exclude the income statement effects of all forms of share-based compensation. Reconciliations of the GAAP to non-GAAP net income per diluted share for the second quarter of 2008 are set forth in the table below and the reconciliations to the GAAP financial measure should be carefully considered.

GAAP net loss per share ($0.03) – ($0.01)
Stock-based compensation expense $0.04 – $0.08
Non-GAAP net income per fully diluted share $ 0.03 – $0.05

Net income per fully diluted share (referred to as earnings per share, or EPS) is one of several primary financial measures management uses for planning and forecasting future periods that are affected by share-based compensation. Because management reviews these financial measures in a manner calculated without taking into account the effects of SFAS No.123R, these financial measures are treated as "non-GAAP financial measures" under Securities and Exchange Commission rules. Management uses non-GAAP financial measures for internal managerial purposes, including as a means to compare period-to-period results on a consolidated basis and as a means to evaluate the Company's results on a consolidated basis compared to those of other companies. In addition, management uses certain of these measures when publicly providing forward-looking statements on expectations regarding future consolidated financial results. Management and the Board of Directors will continue to compare the Company's historical consolidated net income per fully diluted share, excluding stock-based compensation, to financial information prepared on the same basis during the Company's budget and planning process, to assess the business, make resource allocation decisions and to compare consolidated results to the objectives identified for the Company. The Company's budget and planning process culminates with the preparation of a consolidated annual budget that includes this and other non-GAAP financial measures. This budget, once finalized and approved, serves as the basis for allocation of resources and management of operations. While share-based compensation is a significant expense affecting the Company's results of operations, management excludes share-based compensation from the Company's consolidated budget and planning process to facilitate period to period comparisons and to assess changes in gross margin, net income and earnings per share targets in relation to changes in forecasted revenue.

Profit-dependent cash incentive pay to employees, including senior management, also is calculated using formulae that incorporate the Company's annual results excluding share-based compensation expense.

The economic substance behind management's decision to use such non-GAAP financial measures:

The Company discloses non-GAAP information to the public to enable investors to more easily assess the Company's performance on the same basis applied by management and to ease comparison on both a GAAP and non-GAAP basis among other companies that separately identify share-based compensation expenses. In particular, the Company believes that it is useful to investors to understand how the expenses and other adjustments associated with the application of SFAS No. 123R are being reflected on the Company's income statements, including EPS.

Why management believes the non-GAAP financial measure provides useful information to investors:

Management believes that each of the non-GAAP measures it uses, including non-GAAP EPS, reveals important information about the economic model of the Company and the Company discusses each of these items with the public on a regular basis on both a GAAP and non-GAAP basis. The Company discloses this information to the public to enable investors to more easily assess the Company's past performance and estimate future performance on the same basis applied by management and to ease comparison on both a GAAP and non-GAAP basis among other companies that separately identify share-based compensation expense. In particular, the Company believes that it is useful to investors to understand how the expenses and other adjustments associated with the application of SFAS No. 123R are being reflected on the Company's income statements.

The material limitations associated with use of non-GAAP financial measure as compared to the use of the most directly comparable GAAP financial measures:

The non-GAAP financial measures disclosed by the Company, including the non-GAAP EPS set forth herein, are not meant to be considered superior to or a substitute for results of operations prepared in accordance with GAAP. The non-GAAP financial measures disclosed by the Company may be different from, and therefore may not be comparable to, similar measures used by other companies.

Although these non-GAAP financial measures adjust expense and diluted share items to exclude the accounting treatment of share-based compensation, they should not be viewed as a pro-forma presentation reflecting the elimination of the underlying share-based compensation programs, as those programs are an important element of the Company's compensation structure and generally accepted accounting principles indicate that all forms of share-based payments should be valued and included as appropriate in results of operations.

The manner in which management compensates for these limitations when using non-GAAP financial measures:

Management takes into consideration the limitations in using non-GAAP financial measures by evaluating the dilutive effect of the Company's share-based compensation arrangements on the Company's basic and diluted earnings per share calculations and by reviewing other quantitative and qualitative information regarding the Company's share-based compensation arrangements. Management also uses these non-GAAP measures in conjunction with GAAP measures to assess the impact of share-based compensation.

About Aspect Medical Systems, Inc.

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 approximately 26 million patients and has been the subject of more than 3,300 published articles and abstracts. BIS technology is installed in approximately 80 percent of hospitals listed in the July 2007 U.S News and World Report ranking of America's Best Hospitals and in approximately 60 percent of all U.S. operating rooms. In the last twelve months BIS technology was used in approximately 19 percent of all U.S. surgical procedures requiring general anesthesia or deep sedation. BIS technology is available in more than 160 countries. Aspect Medical Systems has OEM agreements with nine leading manufacturers of patient monitoring systems. The company is also investigating how other methods of analyzing brain waves may aid in the diagnosis and management of neurological diseases, including depression and Alzheimer's disease. For more information, visit Aspect's Web site at http://www.aspectmedical.com.

Safe Harbor Statement

Certain statements in this release are forward-looking and may involve risks and uncertainties, including without limitation statements with respect to: the Company's sales expansion plans and marketing strategies, the timing of, and expected completion date for, the sales force expansion, the Company’s expectations regarding the benefits of implementing its sales and marketing strategies, the Company’s goals with respect to sensor growth, the Company’s expectations regarding future positive outcomes data with respect to BIS monitoring, and the Company's Q2 2008 guidance with respect to total revenue, product revenue and GAAP and non-GAAP net income (loss) per fully diluted share. 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 successfully execute on, or achieve the expected benefits, of its sales expansion plan and marketing strategies. The Company may not be able to control expenses or grow its product revenue. The Company may also 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. The Company's business and operating results may be adversely affected by the recent NEJM article and related publicity comparing the Company's BIS-monitoring products to other anesthesia monitoring approaches. The Company also faces competitive and regulatory risks relating to its ability to successfully develop and introduce enhancements and new products including the BIS VISTA monitor and products based upon its neuroscience technology such as its ATR biomarker under development. In addition, the Company's ability to remain profitable will depend upon its ability to successfully 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. The Company has incurred substantial indebtedness in connection with the issuance of convertible notes in June 2007 and a substantial portion of its cash flows from operations may be dedicated to interest and principal payments on such notes. 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 "Risk Factors" in the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2008 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.

Aspect, Bispectral Index and BIS are registered trademarks of Aspect Medical Systems, Inc. All other trademarks, service marks and company names are the property of their respective owners.


Source: Aspect Medical Systems

Issuer of this News Release is solely responsible for its content.
Please address inquiries directly to the issuing company.



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