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Volcano Reports 40 Percent Growth in Quarterly Revenues
Date:11/5/2008

Growth Driven by 78 Percent Increase in IVUS System Sales

SAN DIEGO, Calif., Nov. 5 /PRNewswire-FirstCall/ -- Volcano Corporation (Nasdaq: VOLC), a leader in the development, manufacturing and sales of products for the diagnosis and treatment of coronary and peripheral artery disease, today reported that revenues for the third quarter of 2008 increased 40 percent over those in the third quarter of 2007.

For the quarter ended September 30, 2008, Volcano reported revenues of $44.1 million versus revenues of $31.5 million in the same period a year ago. The company said that its financial performance was driven by a 78 percent increase in intravascular ultrasound (IVUS) system revenues and a 29 percent increase in IVUS disposable revenues year-over-year.

For the third quarter of 2008, the company reported net income on a GAAP basis of $744,000, or $0.01 per diluted share, versus a net loss on a GAAP basis of $652,000 or $0.02 per share, in the third quarter of 2007. Weighted average shares at the end of the quarter were 50.3 million versus 38.7 million a year ago, reflecting the impact of the company's equity offering that was completed in the fourth quarter of 2007.

Excluding stock-based compensation expense of $2.5 million, the company reported net income of $3.3 million, or $0.06 per diluted share. In the third quarter of 2007, excluding stock-based compensation expense of $2.0 million, the company reported net income of $1.3 million, or $0.03 per diluted share. A reconciliation of the company's GAAP and non-GAAP results can be found in today's earnings news release on the company's website at http://www.volcanocorp.com.

For the first nine months of 2008, Volcano reported revenues of $122.2 million, a 35 percent increase over revenues of $90.6 million in the same period a year ago. On a GAAP basis, the company reported a net loss of $15.1 million, or $0.32 per share, compared with a net loss of $2.8 million, or $0.07 per share, in the same period a year ago. Excluding in-process research and development charges of $12.4 million, $2.9 million in due diligence, legal and accounting expenses related to a proposed acquisition that was not consummated, and stock-based compensation expense of $7.0 million, Volcano reported net income of $7.2 million, or $0.14 per diluted share, in the first nine months of 2008. Excluding stock-based compensation expense of $4.7 million, the company reported net income of $1.9 million, or $0.04 per diluted share, in the first nine months of 2007.

"We continue to gain market share across all of our businesses and geographies, while realizing gross margin improvement and leveraging our operating expenses. As a result, we achieved profitability on a GAAP basis in the third quarter of 2008, and have raised our outlook for earnings per share for the full year," said Scott Huennekens, president and chief executive officer.

"Through the first nine months of 2008, we have placed 537 of our IVUS consoles versus 420 in the first nine months a year ago, and now have more than 3,700 of our IVUS and Functional Measurement (FM) consoles placed worldwide. Helping to drive our growth is the leading-edge technology offered by our devices and Volcano's strong sales and market development initiatives. In addition, we are seeing an increasingly favorable environment for percutaneous coronary interventions and an ongoing flow of positive data, including that presented in a number of presentations at the recent Transcatheter Cardiovascular Therapeutics (TCT) meeting," Huennekens noted.

"At the same time," he added, "we continue to be excited about our new product pipeline that will enable us to address markets that are potentially larger than those we are currently serving."

Guidance for 2008

The company updated its guidance for fiscal 2008. It now expects that revenues will be at the upper end of its previous range of $164-$168 million, which represents an increase of approximately 27 to 29 percent over full year revenues in 2007. It now expects gross margin to be in the range of 62-63 percent versus prior guidance of 60-61 percent. The company reiterated that it expects operating expenses, including stock-based compensation, due diligence costs recorded in the first quarter, the in-process research and development costs of $12.4 million incurred in the first half of the year, ongoing expenses associated with the development of technology acquired through the Novelis transaction and approximately $3.1 million of intangible amortization, will be 74-76 percent of revenues. For the full year 2008, the company expects that on a GAAP basis it will record a net loss of $0.30-$0.32 per share versus prior guidance of $0.33-$0.37 per share. The company expects to be profitable on a GAAP basis in the fourth quarter of 2008. Excluding stock-based compensation expense of approximately $10.0 million, due diligence and in- process research and development costs, the company expects to report non-GAAP net income of $0.18-$0.20 per diluted share. This compares with prior guidance for non-GAAP net income of $0.14-$0.18 per share. Weighted average shares outstanding at year-end 2008 are expected to be approximately 47.4 million basic shares and 50.4 million shares on a diluted basis.

Conference Call

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) 325-4761, passcode 8632414, 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 8632414, and via the company's website.

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(TM) tissue characterization and ChromaFlo(R). 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) systems and catheters. Currently, more than 3,700 Volcano IVUS and FM systems are installed worldwide, with approximately half of its revenues coming from outside the United States. For more information, visit the company's website at http://www.volcanocorp.com.

Use of 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 facts and circumstances that vary in frequency and/or impact on continuing operations. Our management believes that these items should be excluded when comparing our current operating results with those of prior periods as stock- based compensation is a non-cash expense, in-process research and development relates to the costs associated with the May 2008 acquisition of Novelis, Inc., and the December 2007 acquisition of CardioSpectra, Inc., and the acquisition due diligence costs incurred in the first quarter of 2008 related to a proposed acquisition that was not consummated, are not reflective of our core operating activities. In addition, our management uses results of operations before certain charges to evaluate the operational performance of the company and as a basis for strategic planning. 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.

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 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 2008, market adoption of the company's technology, the impact of clinical and other technical data, the success and timing of product development and clinical trial programs, growth strategies and 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 here. 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)

(Unaudited)

September 30, December 31,

2008 2007

Assets

Current assets:

Cash and cash equivalents $108,662 $122,913

Short-term available-for-sale

investments 68,049 66,205

Accounts receivable, net 25,036 27,976

Inventories, net 25,698 21,243

Prepaid expenses and other current

assets 4,965 3,997

Total current assets 232,410 242,334

Restricted cash 360 365

Property and equipment, net 19,900 13,692

Intangible assets, net 7,439 9,385

Other non-current assets 886 798

$260,995 $266,574

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable $13,139 $11,077

Accrued compensation 9,502 9,083

Accrued expenses and other current

liabilities 7,441 6,600

Deferred revenues 4,419 5,360

Current maturities of long-term debt 58 120

Total current liabilities 34,559 32,240

Long-term debt 49 78

Deferred license fee 938 1,125

Other 142 194

Total liabilities 35,688 33,637

Stockholders' equity 225,307 232,937

$260,995 $266,574

VOLCANO CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)

Three Months Ended Nine Months Ended

September 30, September 30,

2008 2007 2008 2007

Revenues $44,118 $31,474 $122,242 $90,605

Cost of revenues 16,581 12,285 45,915 35,466

Gross profit 27,537 19,189 76,327 55,139

Operating expenses:

Selling, general and administrative 19,546 16,005 62,405 44,271

Research and development 6,879 4,837 18,823 15,241

In-process research and development - - 12,407 -

Amortization of intangibles 786 751 2,337 2,313

Total operating expenses 27,211 21,593 95,972 61,825

Operating income (loss) 326 (2,404) (19,645) (6,686)

Interest income 1,109 1,213 4,206 3,630

Interest expense (2) (32) (8) (193)

Exchange rate gain (loss) (441) 829 1,091 1,042

Income (loss) before provision for

income taxes 992 (394) (14,356) (2,207)

Provision for income taxes 248 258 707 626

Net income (loss) $744 $(652) $(15,063) $(2,833)

Net income (loss) per share - basic $0.02 $(0.02) $(0.32) $(0.07)

Net income (loss) per share -

diluted $0.01 $(0.02) $(0.32) $(0.07)

Weighted-average shares outstanding

- basic 47,456 38,694 47,236 38,368

Weighted-average shares outstanding

- diluted 50,323 38,694 47,236 38,368

VOLCANO CORPORATION

RECONCILIATION OF GAAP AND NON-GAAP OPERATING RESULTS

(in thousands, except per share data)

(Unaudited)

Three Months Ended September 30, 2008

Stock-based

GAAP compensation Non-GAAP

results expense results

Revenues $44,118 $- $44,118

Cost of revenues 16,581 (222) 16,359

Gross profit 27,537 222 27,759

Operating expenses:

Selling, general and administrative 19,546 (1,798) 17,748

Research and development 6,879 (493) 6,386

Amortization of intangibles 786 - 786

Total operating expenses 27,211 (2,291) 24,920

Operating income 326 2,513 2,839

Interest income 1,109 - 1,109

Interest expense (2) - (2)

Exchange rate loss (441) - (441)

Income before provision for income

taxes 992 2,513 3,505

Provision for income taxes 248 - 248

Net income $744 $2,513 $3,257

Net income per share - basic $0.02 $0.05 $0.07

Net income per share - diluted $0.01 $0.05 $0.06

Weighted-average shares outstanding

- basic 47,456 47,456

Weighted-average shares outstanding

- diluted 50,323 50,323

Three Months Ended September 30, 2007

Stock-based

GAAP compensation Non-GAAP

results expense results

Revenues $31,474 $- $31,474

Cost of revenues 12,285 (181) 12,104

Gross profit 19,189 181 19,370

Operating expenses:

Selling, general and administrative 16,005 (1,437) 14,568

Research and development 4,837 (359) 4,478

Amortization of intangibles 751 - 751

Total operating expenses 21,593 (1,796) 19,797

Operating loss (2,404) 1,977 (427)

Interest income 1,213 - 1,213

Interest expense (32) - (32)

Exchange rate gain 829 - 829

Income (loss) before provision for

income taxes (394) 1,977 1,583

Provision for income taxes 258 - 258

Net income (loss) $(652) $1,977 $1,325

Net income (loss) per share - basic $(0.02) $0.05 $0.03

Net income (loss) per share -

diluted $(0.02) $0.05 $0.03

Weighted-average shares outstanding

- basic 38,694 38,694

Weighted-average shares outstanding

- diluted 38,694 41,710

VOLCANO CORPORATION

RECONCILIATION OF GAAP AND NON-GAAP OPERATING RESULTS

(in thousands, except per share data)

(Unaudited)

Nine Months Ended September 30, 2008

Stock- In-

based process Acquisition

compensa- research due Non-

GAAP tion and diligence GAAP

results expense development costs results

Revenues $122,242 $- $- $- $122,242

Cost of revenues 45,915 (598) - - 45,317

Gross profit 76,327 598 - - 76,925

Operating expenses:

Selling, general and

administrative 62,405 (5,094) - (2,878) 54,433

Research and development 18,823 (1,305) - - 17,518

In-process research and

development 12,407 - (12,407) - -

Amortization of

intangibles 2,337 - - - 2,337

Total operating

expenses 95,972 (6,399) (12,407) (2,878) 74,288

Operating income (loss) (19,645) 6,997 12,407 2,878 2,637

Interest income 4,206 - - - 4,206

Interest expense (8) - - - (8)

Exchange rate gain 1,091 - - - 1,091

Income (loss) before

provision for income

taxes (14,356) 6,997 12,407 2,878 7,926

Provision for income taxes 707 - - - 707

Net income (loss) $(15,063) $6,997 $12,407 $2,878 $7,219

Net income (loss) per share

- basic $(0.32) $0.15 $0.26 $0.06 $0.15

Net income (loss) per share

- diluted $(0.32) $0.14 $0.25 $0.06 $0.14

Weighted-average shares

outstanding - basic 47,236 47,236

Weighted-average shares

outstanding - diluted 47,236 49,859

Nine Months Ended September 30, 2007

Stock- In-

based process Acquisition

compensa- research due Non-

GAAP tion and diligence GAAP

results expense development costs results

Revenues $90,605 $- $- $- $90,605

Cost of revenues 35,466 (434) - - 35,032

Gross profit 55,139 434 - - 55,573

Operating expenses:

Selling, general and

administrative 44,271 (3,486) - - 40,785

Research and development 15,241 (783) - - 14,458

Amortization of

intangibles 2,313 - - - 2,313

Total operating

expenses 61,825 (4,269) - - 57,556

Operating loss (6,686) 4,703 - - (1,983)

Interest income 3,630 - - - 3,630

Interest expense (193) - - - (193)

Exchange rate gain 1,042 - - - 1,042

Income (loss) before

provision for income

taxes (2,207) 4,703 - - 2,496

Provision for income taxes 626 - - - 626

Net income (loss) $(2,833) $4,703 $- $- $1,870

Net income (loss) per share

- basic $(0.07) $0.12 $- $- $0.05

Net income (loss) per share

- diluted $(0.07) $0.11 $- $- $0.04

Weighted-average shares

outstanding - basic 38,368 38,368

Weighted-average shares

outstanding - diluted 38,368 41,739

Use of 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 facts and circumstances that vary in frequency and/or impact on continuing operations. Our management believes that these items should be excluded when comparing our current operating results with those of prior periods as stock- based compensation is a non-cash expense, in-process research and development relates to the costs associated with the May 2008 acquisition of Novelis, Inc. and the December 2007 acquisition of CardioSpectra, Inc., and the acquisition due diligence costs incurred in the first quarter of 2008 related to a proposed acquisition that was not consummated, are not reflective of our core operating activities. In addition, our management uses results of operations before certain charges to evaluate the operational performance of the company and as a basis for strategic planning. 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.

VOLCANO CORPORATION

REVENUE SUMMARY

(in millions)

(Unaudited)

Growth YTD Q3 YTD Q3

Q3 '08 Q3 '07 % '08 '07 Growth

IVUS Systems:

United States $5.6 $3.4 62% $15.3 $11.0 40%

Japan 2.5 0.5 376% 4.9 1.8 172%

Europe 1.8 1.5 24% 5.4 3.5 50%

Rest of World 0.7 0.5 38% 1.9 1.7 14%

Total IVUS Systems $10.6 $5.9 78% $27.5 $18.0 52%

IVUS Disposables:

United States $13.0 $10.1 30% $37.6 $28.8 31%

Japan 8.9 7.5 18% 24.7 20.3 22%

Europe 4.6 3.0 51% 13.0 9.0 44%

Rest of World 0.7 0.5 27% 2.2 1.6 35%

Total IVUS Disposables $27.2 $21.1 29% $77.5 $59.7 30%

FM:

United States $2.3 $1.4 63% $6.3 $4.5 40%

Japan 0.5 0.2 186% 0.9 1.1 -16%

Europe 1.7 1.5 19% 5.1 4.1 24%

Rest of World 0.4 0.2 94% 0.8 0.6 43%

Total FM $4.9 $3.3 51% $13.1 $10.3 28%

Other 1.4 1.2 25% 4.1 2.6 56%

Total $44.1 $31.5 40% $122.2 $90.6 35%


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