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Volcano Reports 35 Percent Increase in Third Quarter Revenues; Records $9.6 Million Improvement in Year-Over-Year GAAP Profitability
Date:11/3/2010

SAN DIEGO, Nov. 3, 2010 /PRNewswire-FirstCall/ -- Volcano Corporation (Nasdaq: VOLC), a leading developer and manufacturer of precision intravascular diagnosis and therapy guidance tools designed to enhance the treatment of coronary and peripheral vascular disease, said today that revenues in the third quarter of 2010 increased 35 percent over revenues in the same period a year ago. The company's profitability on a GAAP basis improved $9.6 million year-over-year as it reported net income of $5.6 million in the third quarter of 2010.

For the quarter ended September 30, 2010, Volcano reported revenues of $72.9 million, compared to revenues of $53.9 million in the third quarter of fiscal 2009. The company reported net income on a GAAP basis of $5.6 million, or $0.10 per diluted share, in the third quarter of 2010, versus a GAAP net loss of $4.0 million, or $0.08 per share, in the third quarter of 2009.

Excluding stock-based compensation of $3.0 million, the company reported net income of $8.6 million, or $0.16 per diluted share, in the third quarter of 2010. Excluding stock-based compensation expense of $2.6 million and $1.4 million in commissions to a former distributor, the company reported net income of $7,000, or $0.00 per diluted share, in the third quarter of 2009.

For the first nine months of 2010, Volcano reported revenues of $212.9 million, a 36 percent increase over revenues of $156.9 million in the same period a year ago. The company reported GAAP net income of $7.0 million, or $0.13 per diluted share, in the first nine months of 2010. This compares with a GAAP net loss of $16.9 million, or $0.35 per share, in the same period of 2009. Excluding stock-based compensation expense of $9.2 million, Volcano reported net income of $16.3 million, or $0.31 per diluted share, in the first nine months of 2010. In the first nine months of 2009, excluding stock-based compensation expense of $8.2 million and $1.4 million in commissions to the former distributor, Volcano reported a net loss of $7.3 million, or $0.15 per share.

"Volcano continued to realize operational excellence with our base business by executing our market share and market penetration strategies with our multi-modality platform, while also laying the foundation for long-term growth," said Scott Huennekens, president and chief executive officer of Volcano.

"We generated a 36 percent increase in IVUS (Intravascular Ultrasound) disposable revenues, while our FM (Functional Measurement) revenues increased 51 percent versus a year ago. Helping to facilitate our growth is the increased clinical and economic pressure to prove the appropriateness and benefits of percutaneous coronary intervention (PCI) procedures, which is elevating the need for our technology," he added.

Other recent developments included:

  • The company announced an agreement to end its distribution program with Fukuda Denshi Co., Ltd., in Japan. This transition is expected to take effect on December 1, 2010. "With the completion of this transition, we will be addressing 95 percent of our current business in Japan on a direct basis. In addition to accruing economic benefits from direct pricing for our offerings, we will also be in a stronger position to build closer relationships in the market and facilitate the roll-out of our future offerings," Huennekens noted.
  • Volcano priced a $115 million offering of 2.875 percent convertible senior notes due 2015, with net proceeds to the company of approximately $100 million. A portion of the proceeds from this offering will be used to fund the company's manufacturing expansion in Costa Rica.
  • The company began shipping its VIBE RX Vascular Imaging Balloon Catheter in Europe following receipt of a CE Mark. VIBE can quickly access, prepare and treat challenging lesions and provide precise, targeted balloon dilation with immediate confirmation of interventional results.
  • The company participated in the 2010 Transcatheter Cardiovascular Therapeutics (TCT) meeting at which more than 120 presentations and live cases featuring IVUS, FFR (Fractional Flow Reserve) and OCT (Optical Coherence Tomography) technology. "It was evident that there was growing recognition among clinicians attending TCT that they can improve PCI procedures through the use of these more precise diagnosis and therapy guidance tools, reinforcing our position that angiography alone is not enough," Huennekens noted.

  • Guidance for 2010

    The company provided updated guidance for fiscal 2010. It continues to expect revenues will be in the range of $286-$290 million and that gross margins will be 62-63 percent. It now expects operating expenses as a percent of revenues will be 58-60 percent versus prior guidance of 59-61 percent of revenues. The company now expects earnings per share on a GAAP basis will be in the range of $0.14-$0.16, compared with prior guidance of $0.02-$0.04 per share. Excluding anticipated stock-based compensation expense of $12.5 million, the company expects earnings per share will be in the range of $0.38-$0.40. The company expects weighted average shares for the year of approximately 53 million.

    Conference Call Information

    The company will hold a conference call at 2 p.m., Pacific Daylight Time (5 p.m., Eastern Daylight Time), today. The teleconference call can be accessed by calling (631) 291-4555, passcode 16944667, 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 10, at (706) 645-9291, passcode 16944667, and via the company's website.

    About Volcano Corporation

    Volcano Corporation is revolutionizing the medical device industry with a broad suite of technologies that make imaging and therapy simpler, more informative and less invasive. Our products empower physicians around the world with a new generation of analytical tools that deliver more meaningful information—using sound and light as the guiding elements. Founded in cardiovascular care and expanding into other specialties, Volcano is changing the assumption about what is possible in improving patient outcomes by combining imaging and therapy together. For more information, visit the company's website at 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 (GAAP) in the United States 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. In addition, stock-based compensation is a non-cash expense. Finally, our management team uses results of operations before certain charges to evaluate the operational performance of the company 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 measures to their most directly comparable GAAP financial measures 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 2010, market adoption of the company's technology, growth strategies, timing and achievement of product development milestones, outcome of ongoing litigation, the impact and benefits of market development, product introductions, sales and transition to a direct sales effort in Japan. 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 current report on Form 8-K filed on September 13, 2010 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 disclaims any 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 31,20102009 Assets Current assets: Cash and cash equivalents

    $
    28,717$
    56,055 Short-term available-for-sale investments  

    82,74166,028 Accounts receivable, net

    54,03651,171 Inventories

    39,77837,710 Prepaid expenses and other current assets

    5,9735,892 Total current assets

    311,245216,856 Restricted cash

    620554 Long-term available-for-sale investments

    22,019- Property and equipment, net

    53,67544,734 Intangible assets, net

    16,81811,623 Goodwill

    2,487931 Other non-current assets

    3,2152,036$
    410,079$
    276,734 Liabilities and Stockholders' Equity Current liabilities: Accounts payable

    $
    3,026$
    3,840 Accrued compensation

    12,57814,142 Accrued expenses and other current liabilities

    15,28825,275 Deferred revenues

    5,7474,881 Current maturities of long-term debt

    5150 Total current liabilities

    46,69058,188 Long-term debt

    90,148110 Deferred revenues

    2,3642,376 Other

    3,5161,245 Total liabilities

    142,71861,919 Stockholders' equity

    267,361214,815$
    410,079$
    276,734VOLCANO CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share data)(Unaudited)Three Months Ended
    September 30,Nine Months Ended
    September 30,2010200920102009Revenues$

    72,886$

    53,852$

    212,910$

    156,853Cost of revenues25,95521,77879,68664,913Gross profit46,93132,074133,22491,940Operating expenses:Selling, general and administrative29,56528,27292,72679,805Research and development10,1859,18129,63727,816In-process research and development--65-Amortization of intangibles6271,0581,8213,163Total operating expenses40,37738,511124,249110,784Operating income (loss)6,554(6,437)8,975(18,844)Interest income106142274640Interest expense(249)(1)(267)(4)Exchange rate (loss) gain (91)2,419(635)2,162Other--(19)-Income (loss) before provision for income taxes6,320(3,877)8,328(16,046)Provision for income taxes7351211,363833Net income (loss)$

    5,585$

    (3,998)$

    6,965$

    (16,879)Net income (loss) per share:Basic$

    0.11$

    (0.08)$

    0.14$

    (0.35)Diluted$

    0.10$

    (0.08)$

    0.13$

    (0.35)Shares used in calculating net income (loss) per share:Basic50,81048,50650,33948,293Diluted53,27848,50653,03248,293VOLCANO CORPORATIONRECONCILIATION OF GAAP RESULTS TO NON-GAAP RESULTS(in thousands, except per share data)(Unaudited)Three Months Ended
    September 30,Nine Months Ended
    September 30,2010200920102009 GAAP operating income (loss)

    $   6,554$ (6,437)$   8,975$ (18,844) Stock-based compensation

    3,0472,5979,2388,162 In-process research and development

    --65- Commissions paid under Distributor Termination Agreement

    -1,408-1,408 Non-GAAP operating income (loss)

    $   9,601$ (2,432)$ 18,278$   (9,274) GAAP net income (loss)

    $   5,585$ (3,998)$   6,965$ (16,879) Stock-based compensation

    3,0472,5979,2388,162 In-process research and development

    --65- Commissions paid under Distributor Termination Agreement

    -1,408-1,408 Non-GAAP net income (loss) income

    $   8,632$
    7$ 16,268$   (7,309) GAAP net income (loss) per share—basic

    $
    .11$   (0.08)$
    .14$
    (0.35) Stock-based compensation

    0.060.050.180.17 In-process research and development

    ---- Commissions paid under Distributor Termination Agreement

    -0.03-0.03 Non-GAAP net income (loss) per share—basic

    $
    .17$
    .00$
    .32$
    (0.15) Shares used in calculating net income (loss) per share—basic

    50,81048,50650,33948,293 GAAP net income (loss) per share—diluted

    $
    .10$   (0.08)$
    .13$
    (0.35) Stock-based compensation

    0.060.050.170.17 In-process research and development

    ---- Commissions paid under Distributor Termination Agreement

    -0.03-0.03 Non-GAAP net income (loss) per share—diluted

    $
    .16$
    .00$
    .31$
    (0.15) Shares used in calculating net income (loss) per share—diluted

    53,27850,59953,03248,293VOLCANO CORPORATIONRECONCILIATION OF GAAP TO NON-GAAP FORWARD LOOKING GUIDANCE(in thousands, except per share data)(Unaudited)2010Guidance RangeFromTo GAAP operating income

    $ 11,621$ 12,683 Stock-based compensation expense

    12,49012,490 Non-GAAP operating income

    $ 24,111$ 25,173 GAAP net income

    $   7,434$   8,496 Stock-based compensation expense

    12,49012,490 Non-GAAP net income

    $ 19,924$ 20,986 GAAP net income per share—diluted

    $
    .14$
    .16 Stock-based compensation

    0.240.24 Non-GAAP net income per share—diluted

    $
    .38$
    .40 Shares used in calculating net income per share—diluted

    53,10353,103VOLCANO CORPORATIONREVENUE SUMMARY(in millions)(unaudited)Three Months Ended
    September 30,Percentage Change Nine Months Ended
    September 30,Percentage Change 201020092009 to 2010201020092009 to 2010Medical segment:Consoles:United States

    $  5.7$  5.62

    %$  17.3$  16.73

    %Japan

    0.30.2641.61.57Europe

    1.32.1(37)5.26.0(13)Rest of world

    0.80.7203.52.261Total Consoles

    $  8.1$  8.6(5)$  27.6$  26.45IVUS single-procedure disposables:United States

    $17.6$15.216

    %$  51.0$  43.816

    %Japan

    19.010.87652.231.864Europe

    4.84.6515.313.613Rest of world

    1.20.7693.62.452Total IVUS single-procedure disposables

    $42.6$31.336$122.1$  91.633FM single-procedure disposables:United States

    $  6.3$  3.958

    %$  17.6$  11.651

    %Japan

    0.80.23462.30.9161Europe

    3.73.11911.37.649Rest of world

    0.50.21761.30.869Total FM single-procedure disposables

    $11.3$  7.452$  32.5$  20.956Other

    $  4.72.495

    %$  12.76.887

    %Sub-total medical segment

    $66.7$49.734$194.9$145.734Industrial segment

    $  6.24.247$  18.011.260Total

    $72.9$53.935$212.9$156.936
    '/>"/>

    SOURCE Volcano Corporation
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