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Volcano Reports 22 Percent Increase in Third Quarter Revenues
Date:11/5/2009

SAN DIEGO, Nov. 5 /PRNewswire-FirstCall/ -- Volcano Corporation (Nasdaq: VOLC), a leader in the development, manufacture and sales of products for the diagnosis and treatment of coronary and peripheral artery disease, today reported revenues of $53.9 million for the third quarter of fiscal 2009.

The results for the quarter ended September 30, 2009, represent an increase of 22 percent over revenues of $44.1 million in the third quarter of 2008. Revenues for the third quarter of 2009 include $4.6 million from Axsun Technologies, Inc., which Volcano acquired at the end of 2008, and for which the company recorded no revenues in the third quarter a year ago.

For the third quarter of 2009, the company reported a GAAP net loss of $4.0 million, or $0.08 per share, versus GAAP net income of $744,000, or $0.01 per diluted share, in the third quarter of 2008. Weighted average shares for the third quarter of 2009 were 48.5 million.

Excluding stock-based compensation expense of $2.6 million and commissions of $1.4 million paid to a former distributor related to the company's transition to a direct sales initiative in Japan, the company reported non-GAAP net income of $7,000, or $0.00 per diluted share. In the third quarter of 2008, excluding stock-based compensation expense of $2.5 million, the company reported non-GAAP net income of $3.3 million, or $0.06 per diluted share. A reconciliation of the company's GAAP to non-GAAP results is included below.

For the first nine months of 2009, Volcano reported revenues of $156.9 million, a 28 percent increase over revenues of $122.2 million in the same period a year ago. Revenues for the first nine months of 2009 include $12.2 million from Axsun. The company reported a GAAP net loss of $16.9 million, or $0.35 per share, compared with a GAAP net loss of $15.1 million, or $0.32 per share, in the same period year ago. Excluding stock-based compensation expense of $8.2 million and the aforementioned commissions of $1.4 million, Volcano reported a non-GAAP net loss of $7.3 million, or $0.15 per share, in the first nine months of 2009. Excluding in-process research and development costs of $12.4 million related to the Novelis and CardioSpectra transactions, $2.9 million in due diligence, legal and accounting expenses related to an acquisition that was not consummated, and stock-based compensation expense of $7.0 million, Volcano reported non-GAAP net income of $7.2 million, or $0.14 per diluted share, in the first nine months of 2008.

"In addition to experiencing a very solid financial performance during the quarter, we completed our transition from our distributor relationship with Goodman to a direct sales effort in Japan and had new data demonstrating the value of our offerings presented at the recent Transcatheter Cardiovascular Therapeutics (TCT) meeting," said Scott Huennekens, president and chief executive officer.

"During the quarter, our core intravascular ultrasound (IVUS) disposable sales increased 15 percent year-over-year, including 22 percent in Japan and 16 percent in the U.S. Our total functional measurement (FM) business increased 53 percent, led by year-over-year growth of more than75 percent in both the U.S. and Europe," Huennekens noted.

"In Japan," he continued, "we have successfully completed our transition program with Goodman and converted all of their more than 400 accounts. We are also about halfway through our program to transition customers there to our s5 family of IVUS consoles.

"Data from the key PROSPECT and FAME presentations at TCT demonstrated the value of our IVUS and FM offerings by providing evidence that diagnostic angiography alone is not enough and that the use of our devices can not only enhance patient care, but also have a meaningful impact on the cost of healthcare. We believe this data will help fuel further adoption of our current and future products," Huennekens concluded.

2009 Guidance

The company reconfirmed prior guidance for fiscal 2009 and continues to expect revenues for fiscal 2009 will be in the range of $218-$223 million, or an increase of 27-30 percent over revenues in 2008.

The company continues to expect gross margin for the full year will be in the range of 59-60 percent, including additional depreciation of approximately $775,000 through the balance of the year related to the distributor transition in Japan. Operating expenses continue to be expected in the range of 67-69 percent, including stock-based compensation expense of approximately $12.0 million, intangible amortization of approximately $4.2 million and approximately $3.5 million in Goodman commissions. The outlook for operating expenses reflects increased spending in Japan, the expansion of sales and marketing programs in other geographies, G&A to support the growth of the company and litigation-related expenses. The company also expects a modest increase in research and development spending to fund product development programs, clinical trials and regulatory activities.

The company continues to expect to report a GAAP net loss of $0.38-$0.43 per share. Excluding stock-based compensation expense of approximately $12.0 million and Goodman commissions of approximately $3.5 million, the company expects to report a net loss of $0.06-$0.11 per share. The company further noted that as previously reported, additional payments would be due to former CardioSpectra stockholders if one of the specific milestones in the acquisition agreement is met by the end of fiscal 2009 and the company would be required to make a milestone payment of approximately $11.0 million and record a one-time charge to in-process research and development. The impact of this charge, if it were to occur, would increase expectations for the range of loss per share from $0.38-$0.43 per share to $0.61-$0.66 per share. Weighted average shares outstanding at year-end 2009 are expected to be approximately 48.4 million basic shares and 50.0 million diluted shares.

Conference Call Information

The company will hold a conference call at 2 p.m. Pacific Standard Time, (5 p.m., Eastern Standard Time), today. The teleconference can be accessed by calling (719) 457-2658, passcode 2641790, or via the company's website at http://www.volcanocorp.com. Please dial in or access the webcast 10-15 minutes prior to the beginning of the call. A replay of the conference call will be available through November 12, at (719) 457-0820, passcode 2641790, and via the company's website.

About Volcano Corporation

Volcano Corporation (NASDAQ: VOLC) offers a broad suite of devices designed to facilitate endovascular procedures, enhance the diagnosis of vascular and structural heart disease and guide optimal therapies. The company's intravascular ultrasound (IVUS) product line includes ultrasound consoles that can be integrated directly into virtually any modern cath lab. Volcano IVUS offers unique features, including both single-use phased array and rotational IVUS imaging catheters, and advanced functionality options, such as VH® IVUS tissue characterization and ChromaFlo®. Volcano also provides functional measurement (FM) consoles and single-use pressure and flow guide wires and is developing a line of ultra-high resolution Optical Coherence Tomography (OCT) and Forward-Looking IVUS systems and catheters. Currently more than 4,700 Volcano IVUS and FM systems are installed worldwide, and more than half of Volcano's revenues are derived from outside the United States. Through its wholly-owned subsidiary, Axsun Technologies, Volcano also develops and manufactures optical monitors, lasers and optical engines used in telecommunications, spectroscopy and other industrial applications. These products are sold to a variety of customers, including Nokia Siemens, Ericsson, Alcatel-Lucent and HuaWei Technologies. For more information, visit the company's website at http://www.volcanocorp.com.

Non-GAAP Financial Measures

This press release includes certain non-GAAP financial information as defined by the U.S. Securities and Exchange Commission Regulation G. Pursuant to the requirements of this regulation, a reconciliation of this non-GAAP financial information to our financial statements as prepared under generally accepted accounting principles in the United States (GAAP) is included in this press release. Non-GAAP financial measures provide an indication of our performance before certain charges. Our management believes that in order to properly understand our short-term and long-term financial trends, investors may wish to consider the impact of these charges. These charges result from factors and circumstances that vary in frequency and/or impact on continuing operations. Our management believes that these items are not reflective of our core operating activities and should be excluded when comparing our current operating results with those of prior periods, including in-process research and development in the second quarter of 2008 related to the costs associated with the May 2008 acquisition of Novelis, Inc., and the December 2007 acquisition of CardioSpectra, Inc., the acquisition due diligence costs incurred in the first quarter of 2008 related to a proposed acquisition that was not consummated and the commissions paid under the Distribution Termination Agreement related to our termination of a distributor relationship with Goodman Co., Ltd. in July 2009. In addition, stock-based compensation is a non-cash expense. Finally, our management uses results of operations before certain charges to evaluate the operational performance of the company and as a basis for strategic planning and for forecasting and planning future periods. Investors should note that the non-GAAP financial measures used by the company may not be the same non-GAAP financial measures, and may not be calculated in the same manner, as those of other companies. Investors should consider these non-GAAP measures in addition to, and not as a substitute for, financial performance measures in accordance with GAAP and are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure as detailed below.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Any statements in this press release regarding Volcano's business that are not historical facts may be considered "forward-looking statements," including statements regarding the company's financial guidance for 2009, market adoption of the company's technology, the impact of clinical and other technical data, the timing and impact of the company's transition to a direct sales force in Japan, including impact on revenue, expenses and income, growth strategies, achievement of product development milestones, market development and product sales. Forward-looking statements are based on management's current preliminary expectations and are subject to risks and uncertainties, which may cause Volcano's results to differ materially and adversely from the statements contained herein. Some of the potential risks and uncertainties that could cause actual results to differ from the results predicted are detailed in the company's annual report on Form 10-K, quarterly reports on Form 10-Q and other filings made with the Securities and Exchange Commission. Undue reliance should not be placed on forward-looking statements, which speak only as of the date they are made. Volcano undertakes no obligation to update any forward-looking statements to reflect new information, events or circumstances after the date they are made, or to reflect the occurrence of unanticipated events.

                               VOLCANO CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

                                                    September 30, December 31,
                                                         2009         2008
                                                         ----         ----
                                                      (unaudited)
     Assets
     Current assets:
       Cash and cash equivalents                        $48,512     $100,949
       Short-term available-for-sale investments         80,308       48,941
       Accounts receivable, net                          38,923       41,795
       Inventories                                       36,457       28,936
       Prepaid expenses and other current assets          5,492        5,869
                                                          -----        -----
         Total current assets                           209,692      226,490
     Restricted cash                                        553          327
     Property and equipment, net                         44,752       30,007
     Intangible assets, net                              12,624       15,636
     Goodwill                                               931          842
     Other non-current assets                             2,041        2,177
                                                          -----        -----
                                                       $270,593     $275,479
                                                       ========     ========

     Liabilities and Stockholders' Equity
     Current liabilities:
       Accounts payable                                 $15,532      $14,867
       Accrued compensation                              12,841       12,690
       Accrued expenses and other current liabilities     9,737       10,745
       Deferred revenues                                  4,913        4,833
       Short-term debt                                        -          151
       Current maturities of long-term debt                  40           57
                                                             --           --
         Total current liabilities                       43,063       43,343
     Long-term debt                                           9           34
     Deferred revenues                                    2,028        1,914
     Other                                                1,110          456
                                                          -----          ---
         Total liabilities                               46,210       45,747
     Stockholders' equity                               224,383      229,732
                                                        -------      -------
                                                       $270,593     $275,479
                                                       ========     ========



                               VOLCANO CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)
                                   (Unaudited)

                                     Three Months Ended   Nine Months Ended
                                         September 30,      September 30,
                                         -------------    -----------------
                                          2009     2008      2009      2008
                                          ----     ----      ----      ----
      Revenues                          $53,852  $44,118  $156,853  $122,242
      Cost of revenues                   21,778   16,581    64,913    45,915
                                         ------   ------    ------    ------
      Gross profit                       32,074   27,537    91,940    76,327
      Operating expenses:
        Selling, general and
         administrative                  28,272   19,546    79,805    62,405
        Research and development          9,181    6,879    27,816    18,823
        In-process research and
         development                          -        -         -    12,407
        Amortization of intangibles       1,058      786     3,163     2,337
                                          -----      ---     -----     -----
              Total operating expenses   38,511   27,211   110,784    95,972
                                         ------   ------   -------    ------
      Operating (loss) income            (6,437)     326   (18,844)  (19,645)
      Interest income                       142    1,109       640     4,206
      Interest expense                       (1)      (2)       (4)       (8)
      Exchange rate gain (loss)           2,419     (441)    2,162     1,091
                                          -----     ----     -----     -----
      (Loss) income before provision
       for income taxes                  (3,877)     992   (16,046)  (14,356)
      Provision for income taxes            121      248       833       707
                                            ---      ---       ---       ---
      Net (loss) income                 $(3,998)    $744  $(16,879) $(15,063)
                                        =======     ====  ========  ========
      Net (loss) income per share:
        Basic                            $(0.08)   $0.02    $(0.35)   $(0.32)
                                         ======    =====    ======    ======
        Diluted                          $(0.08)   $0.01    $(0.35)   $(0.32)
                                         ======    =====    ======    ======
      Shares used in calculating net
       loss per share:
        Basic                            48,506   47,456    48,293    47,236
                                         ======   ======    ======    ======
        Diluted                          48,506   50,323    48,293    47,236
                                         ======   ======    ======    ======



                               VOLCANO CORPORATION
                RECONCILIATION OF GAAP RESULTS TO NON-GAAP RESULTS
                      (in thousands, except per share data)
                                   (Unaudited)

                                         Three                  Nine
                                      Months Ended          Months Ended
                                      September 30,         September 30,
                                      -------------         -------------
                                      2009      2008       2009        2008
                                      ----      ----       ----        ----

     GAAP operating (loss) income   $(6,437)     $326   $(18,844)   $(19,645)
       Stock-based compensation       2,597     2,513      8,162       6,997
       In-process research and
        development                       -         -          -      12,407
       Acquisition due-diligence
        costs                             -         -          -       2,878
       Commissions paid under
        Distributor Termination
        Agreement                     1,408         -      1,408           -
                                      -----       ---      -----         ---
     Non-GAAP operating (loss)
      income                        $(2,432)   $2,839    $(9,274)     $2,637
                                    =======    ======    =======      ======

     GAAP net (loss) income         $(3,998)     $744   $(16,879)   $(15,063)
       Stock-based compensation       2,597     2,513      8,162       6,997
       In-process research and
        development                       -         -          -      12,407
       Acquisition due-diligence
        costs                             -         -          -       2,878
       Commissions paid under
        Distributor Termination
        Agreement                     1,408         -      1,408           -
                                      -----       ---      -----         ---
     Non-GAAP net income (loss)          $7    $3,257    $(7,309)     $7,219
                                         ==    ======    =======      ======

     GAAP net (loss) income per
      share-basic                    $(0.08)    $0.02     $(0.35)     $(0.32)
       Stock-based compensation        0.05      0.05       0.17        0.15
       In-process research and
        development                       -         -          -        0.26
       Acquisition due-diligence
        costs                             -         -          -        0.06
       Commissions paid under
        Distributor Termination
        Agreement                      0.03         -       0.03           -
                                       ----       ---       ----         ---
     Non-GAAP net income (loss) per
      share-basic                     $0.00     $0.07     $(0.15)      $0.15
                                      =====     =====     ======       =====
     Shares used in calculating net
      income (loss) per share-
      basic                          48,506    47,456     48,293      47,236
                                     ======    ======     ======      ======

     GAAP net (loss) income per
      share-diluted                  $(0.08)    $0.01     $(0.35)     $(0.32)
       Stock-based compensation        0.05      0.05       0.17        0.14
       In-process research and
        development                       -         -          -        0.25
       Acquisition due-diligence
        costs                             -         -          -        0.06
       Commissions paid under
        Distributor Termination
        Agreement                      0.03         -       0.03           -
       Adjustment to shares used in
        calculating net income per
        share                             -         -          -        0.01
                                        ---       ---        ---        ----
     Non-GAAP net income (loss) per
      share-diluted                   $0.00     $0.06     $(0.15)      $0.14
                                      =====     =====     ======       =====
     Shares used in calculating net
      income (loss) per share-
      diluted                        50,599    50,323     48,293      49,859
                                     ======    ======     ======      ======



                               VOLCANO CORPORATION
             RECONCILIATION OF GAAP TO NON-GAAP FORWARD LOOKING GUIDANCE
                      (in thousands, except per share data)
                                    (Unaudited)

                                         2009
                                         ----
                                    Guidance Range
                                    --------------
                                     From     To
                                     ----     --
    GAAP net loss per share-basic
      and diluted                   $(0.38) $(0.43)
       Stock-based compensation       0.25    0.25
       Commissions paid under
        Distributor Termination
        Agreement                     0.07    0.07
                                      ----    ----
     Non-GAAP net loss per share-
      basic and diluted             $(0.06) $(0.11)
                                    ======  ======
     Shares used in calculating net
      loss per share-basic and
      diluted                       48,400  48,400
                                    ======  ======



                            VOLCANO CORPORATION
                              REVENUE SUMMARY
                               (in millions)
                                (Unaudited)

                       Three                         Nine
                    months ended    Percentage   months ended  Percentage
                    September 30,     Change     September 30,   Change
                    -------------   -----------  ------------- -----------
                                       2008                       2008
                                        to                         to
                     2009  2008        2009       2009   2008     2009
                     ----  ----        ----       ----   ----     ----
    Medical segment:
      IVUS systems:
        United
         States      $5.6  $5.6         1%        $16.7  $15.3      9%
        Japan         0.1   2.5       (94)          1.5    4.9    (70)
        Europe        2.1   1.8        14           5.8    5.4      9
        Rest of
         world        0.6   0.7       (15)          2.1    1.9      9
                      ---   ---                     ---    ---
      Total IVUS
       systems       $8.4 $10.6       (20)        $26.1  $27.5     (5)

      IVUS disposables:
        United
         States     $15.1 $13.0        16%        $44.4  $37.6     18%
        Japan        10.8   8.9        22          31.8   24.7     29
        Europe        4.6   4.6         0          13.6   13.0      4
        Rest of
         world        0.8   0.7        10           2.4    2.2      9
                      ---   ---                     ---    ---
      Total IVUS
       disposables  $31.3 $27.2        15         $92.2  $77.5     19

      FM:
        United
         States      $4.1  $2.3        76%        $11.7   $6.3     86%
        Japan         0.2   0.5       (64)          0.9    0.9     (3)
        Europe        3.1   1.7        77           7.7    5.1     51
        Rest of
         world        0.2   0.4       (41)          0.9    0.8      6
                      ---   ---                     ---    ---
      Total FM       $7.6  $4.9        53         $21.2  $13.1     61

      Other           2.4   1.4        67%          6.2    4.1     50%
                      ---   ---                     ---    ---
        Sub-total
         medical
         segment    $49.7 $44.1        13        $145.7 $122.2     19

    Telecom segment   4.2     -         -          11.2      -      -
                      ---   ---                    ----    ---
            Total   $53.9 $44.1        22        $156.9 $122.2     28
                    ===== =====                  ====== ======



SOURCE Volcano Corporation


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SOURCE Volcano Corporation
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