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Volcano Reports Record Third Quarter Revenues
Date:11/8/2007

Company Cites Disposable Revenue Growth, Expanding Installed Base and

Release of Favorable Data Around the Use of IVUS

SAN DIEGO, Nov. 8 /PRNewswire-FirstCall/ -- Volcano Corporation (Nasdaq: VOLC), a leading provider of intravascular ultrasound (IVUS) and functional measurement (FM) products designed to enhance the diagnosis and treatment of vascular and structural heart diseases, today reported results for the third quarter and first nine months of fiscal 2007.

For the quarter ended September 30, 2007, Volcano reported record revenues of $31.5 million, a 13 percent increase over revenues of $27.8 million in the third quarter a year ago.

For the third quarter of 2007, the company reported a net loss on a GAAP basis of $652,000, or $0.02 per share, compared with net income of $501,000, or $0.01 per diluted share, in the same period a year ago. Excluding stock-based compensation expense of $2.0 million, the company reported net income of $1.3 million, or $0.03 per diluted share. Excluding stock-based compensation expense of $809,000, the company reported net income of $1.3 million, or $0.04 per diluted share, in the third quarter of 2006. Weighted average basic shares outstanding in the quarter were 38.7 million compared with 33.0 million in the third quarter of 2006. A reconciliation of the company's GAAP to non-GAAP results can be found in today's earnings news release on the company's website at http://www.volcanocorp.com.

Volcano ended the quarter with $92.4 million in cash and cash equivalents and short-term available-for-sale investments. This balance does not include the proceeds from the company's stock offering complles 751 - 751

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

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

Interest expense (32) - (32)

Interest and other income, net 2,042 - 2,042

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

Three Months Ended September 30, 2006

Stock-based

compensation Non-GAAP

GAAP results expense results

Revenues $27,782 $- $27,782

Cost of revenues 10,560 (103) 10,457

Gross profit 17,222 103 17,325

Operating expenses:

Selling, general

and administrative 11,769 (573) 11,196

Research and development 3,965 (133) 3,832

Amortization of intangibles 781 - 781

Total operating expenses 16,515 (706) 15,809

Operating income 707 809 1,516

Interest expense (144) - (144)

Interest and other income, net 192 - 192

Income before provision for income

taxes 755 809 1,564

Provision for income taxes 254 - 254

Net income $501 $809 $1,310

Net income per share - basic $0.02 $0.02 $0.04

Net income per share - diluted $0.01 $0.02 $0.04

Weighted-average shares

outstanding - basic 32,976 32,976

Weighted-average shares

outstanding - diluted 36,900 36,900

VOLCANO CORPORATION

RECONCILIATION OF GAAP AND NON-GAAP OPERATING RESULTS

(in thousands, except per share data)

(Unaudited)

Nine Months Ended September 30, 2007

Stock-based Write-off of Non-

GAAP compensation deferred debt GAAP

results expense issuance 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 expense (193) - - (193)

Interest and other

income, net 4,672 - - 4,672

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

Nine Months Ended September 30, 2006

Stock-based Write-off of Non-

GAAP compensation deferred debt GAAP

results expense issuance costs results

Revenues $73,517 $- $- $73,517

Cost of revenues 30,248 (239) - 30,009

Gross profit 43,269 239 - 43,508

Operating expenses:

Selling, general

and administrative 35,027 (1,680) - 33,347

Research and

development 12,835 (375) - 12,460

Amortization of

intangibles 2,332 - - 2,332

Total operating

expenses 50,194 (2,055) - 48,139

Operating loss (6,925) 2,294 - (4,631)

Interest expense (3,910) - 1,246 (2,664)

Interest and other

income, net 1,072 - - 1,072

Loss before provision

for income taxes (9,763) 2,294 1,246 (6,223)

Provision for income taxes 273 - - 273

Net loss $(10,036) $2,294 $1,246 $(6,496)

Net loss per share - basic

and diluted $(0.60) $0.14 $0.07 $(0.39)

Weighted-average shares

outstanding - basic and

diluted 16,744 16,744

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 the write-off of deferred debt issuance costs, which resulted from the repayment of certain debt in connection with our initial public offering, will not impact future operating results, and stock-based compensation is a non-cash expense. 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 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)

Q3 '07 Q3 '06

IVUS Systems:

United States $3.4 $3.2

Japan 0.5 3.0

Europe 1.5 0.7

Rest of World 0.5 0.9

Total IVUS Systems $5.9 $7.8

IVUS Disposables:

United States $10.1 $7.8

Japan 7.5 6.8

Europe 3.0 1.9

Rest of World 0.5 0.5

Total IVUS Disposables $21.1 $17.0

FM:

United States $1.4 $1.2

Japan 0.2 0.2

Europe 1.5 0.7

Rest of World 0.2 0.1

Total FM $3.3 $2.2

Other 1.2 0.8

Total $31.5 $27.8

eted on October 23, 2007, which generated proceeds of approximately $123 million, after deducting underwriting commissions and discounts, but before expenses.

"Our third quarter results represent record revenues for the company and reflect our success at growing sales of our IVUS disposables and expanding our installed base of IVUS consoles. IVUS disposable revenues grew 24 percent globally and 28 percent in the United States year-over-year. Through the first three quarters of 2007, we have placed more IVUS consoles than we did in all of last year. In addition, our year-to-date growth has occurred across all our geographies," said Scott Huennekens, president and chief executive officer of Volcano.

"We believe the growth of our IVUS activity reflects several factors, including the ongoing release of favorable data regarding the value of IVUS in stenting procedures. There were a number of presentations at the recent Transcatheter Cardiovascular Therapeutics (TCT) meeting demonstrating that IVUS can assist interventional cardiologists in providing a more complete diagnosis and prevent stent placement-related complications. In addition, the integration and ease of use provided by our s5 consoles is facilitating adoption of IVUS within the clinical community," Huennekens continued.

"We are further encouraged by recent comments from stent manufacturers suggesting that stenting activity is beginning to rebound and data showing that U.S. PCI volume grew in the third quarter versus the second quarter of this year. We believe that we will benefit from these trends," he added.

During the quarter, the company announced a market alliance with Philips Electronics Japan to promote Volcano's s5i IVUS system with Philips cardiovascular X-ray equipment. The company also said that it expects to have regulatory clearance in the United States for its Revolution rotational catheter on the s5 with Fractional Flow Reserve (FFR) in January 2008, and expects to have regulatory approval in Europe later this year. In Japan, the company has recently launched the Revolution on its IVG IVUS console.

With respect to clinical trial activities, the company said recent highlights included:

-- At TCT, Volcano announced sponsorship of the first major study designed

to examine the role of IVUS in accurate stent placement and reduction

of clinical events. This sub-study is part of the ADAPT-DES study being

administered by the Cardiology Research Foundation, which will explore

outcomes for patients with coronary artery disease treated with

drug-eluting stents (DES). IVUS will be used in a 3,000 patient

sub-study to explore the potential benefits of IVUS-guided PCI to

reduce clinical events.

-- Also at TCT, Drs. Gregg Stone and Marty Leon provided data

demonstrating that IVUS can reduce thrombosis risk with DES and

restonsis and thrombosis risk with bare metal stents. In addition, Dr.

Renu Virmani provided data indicating that IVUS can address many of the

procedural, device and lesion factors contributing to late stent

thrombosis.

-- Baseline data on 700 PROSPECT trial patients was presented at TCT. Key

findings demonstrated the value of IVUS in the characterization of

major coronary arteries and that IVUS found at least one thin cap

fibroatheroma (TCFA) in 28 percent of patients.

For the first nine months of fiscal 2007, revenues were $90.6 million, a 23 percent increase over revenues of $73.5 million in the same period a year ago. On a GAAP basis, the company reported a net loss of $2.8 million, or $0.07 per share, versus a loss of $10.0 million, or $0.60 per share, in the same period a year ago. Included in the results for 2006 is a write-off of $1.2 million, or $0.07 per share, related to deferred debt issuance costs as a result of the company's initial public offering. 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. Excluding stock-based compensation expense of $2.3 million and the write-off of $1.2 million, the company reported a loss of $6.5 million, or $0.39 per share, in the same period a year ago.

Guidance for 2007

Volcano is providing updated guidance for fiscal 2007. It currently expects that revenues will be in the range of $126-$128 million versus prior guidance for revenues of approximately $125 million. Gross margin for the year is expected to be 59-61 percent versus prior guidance of 60-61 percent. Operating expenses for fiscal 2007 are expected to be 67-68 percent of revenues, as the company intends to continue to accelerate its plan to increase its sales force and to build out its infrastructure to support future growth. This compares with prior guidance for operating expenses of 67-69 percent of revenues. The company expects to report a net loss on a GAAP basis of $0.09-$0.12 per share, compared with prior guidance for a loss of approximately $0.14 per share. Weighted average basic shares outstanding are expected to be approximately 40.0 million shares. This compares with prior guidance for 38.8 million basic shares. Excluding stock-based compensation, Volcano expects to report net income of $0.05-$0.07 per diluted share, assuming approximately 43.4 million weighted average diluted shares outstanding at year end. This compares with prior guidance for net income of approximately $0.04 per diluted share.

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) 325-4887, passcode 2329894, or via the company's website at http://www.volcanocorp.com. Please dial in or access the website 10-15 minutes prior to the beginning of the call. A replay of the conference call will be available until November 15 at (719) 457-0820, passcode 2329894 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 diseases 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) IVUS tissue characterization and ChromaFlo(R). Volcano also provides functional measurement (FM) consoles and single-use pressure and flow guide wires. Currently, more than 2,900 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 Measure

This news 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 the write-off of deferred debt issuance costs, which results from the repayment of certain debt in connection with our initial public offering, will not impact future operating results, and stock-based compensation is a non-cash expense. 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 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 news release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Any statements in this news 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 2007, regulatory approvals and the impact of obtaining regulatory approvals, market adoption of the company's technology, the impact of clinical and other technical data, the safety and efficacy of the company's products, the success and timing of product development and clinical trial programs, market development and product sales and use. 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 were made, or to reflect the occurrence of unanticipated events.

VOLCANO CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(Unaudited)

September 30, December 31,

2007 2006

Assets

Current assets:

Cash and cash equivalents $49,579 $77,738

Short-term available-for-sale

investments 42,781 17,787

Accounts receivable, net 22,801 21,575

Inventories 20,687 13,423

Prepaid expenses and other

current assets 3,646 2,208

Total current assets 139,494 132,731

Restricted cash 361 352

Property and equipment, net 12,552 9,333

Intangible assets, net 9,831 11,946

Other non-current assets 720 363

$162,958 $154,725

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable $11,832 $8,209

Accrued compensation 7,223 5,993

Accrued expenses and other

current liabilities 5,839 5,292

Deferred revenues 4,241 2,675

Current maturities of

long-term debt 322 1,654

Total current liabilities 29,457 23,823

Long-term debt 90 66

Deferred license fee 1,188 1,375

Other 219 279

Total liabilities 30,954 25,543

Stockholders' equity 132,004 129,182

$162,958 $154,725

VOLCANO CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)

Three Months Ended Nine Months Ended

September 30, September 30,

2007 2006 2007 2006

Revenues $31,474 $27,782 $90,605 $73,517

Cost of revenues 12,285 10,560 35,466 30,248

Gross profit 19,189 17,222 55,139 43,269

Operating expenses:

Selling, general and

administrative 16,005 11,769 44,271 35,027

Research and development 4,837 3,965 15,241 12,835

Amortization of intangibles 751 781 2,313 2,332

Total operating expenses 21,593 16,515 61,825 50,194

Operating income (loss) (2,404) 707 (6,686) (6,925)

Interest expense (32) (144) (193) (3,910)

Interest and other income, net 2,042 192 4,672 1,072

Income (loss) before provision

for income taxes (394) 755 (2,207) (9,763)

Provision for income taxes 258 254 626 273

Net income (loss) $(652) $501 $(2,833) $(10,036)

Net income (loss) per

share - basic $(0.02) $0.02 $(0.07) $(0.60)

Net income (loss) per

share - diluted $(0.02) $0.01 $(0.07) $(0.60)

Weighted-average shares

outstanding - basic 38,694 32,976 38,368 16,744

Weighted-average shares

outstanding - diluted 38,694 36,900 38,368 16,744

VOLCANO CORPORATION

RECONCILIATION OF GAAP AND NON-GAAP OPERATING RESULTS

(in thousands, except per share data)

(Unaudited)

Three Months Ended September 30, 2007

Stock-based

compensation Non-GAAP

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 intangib
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SOURCE Volcano Corporation
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