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Volcano Reports 44 Percent Increase in Fourth Quarter Revenues
Date:3/3/2010

SAN DIEGO, March 3 /PRNewswire-FirstCall/ -- Volcano Corporation (Nasdaq: VOLC), a leading developer and manufacturer of precision intravascular therapy guidance tools designed to enhance the diagnosis and treatment of coronary and peripheral vascular disease, said today that revenues for the quarter ended December 31, 2009, were $71.0 million, an increase of 44 percent versus revenues of $49.3 million in the fourth quarter a year ago. Revenues for the fourth quarter of 2009 included $5.8 million from Axsun Technologies, Inc., which Volcano acquired in the fourth quarter of 2008, and contributed $578,000 in revenues in the fourth quarter a year ago.

For the fourth quarter of 2009, the company reported a GAAP net loss of $12.1 million, or $0.25 per share, versus GAAP net income of $1.4 million, or $0.03 per diluted share, in the fourth quarter of 2008. Included in the results for the fourth quarter of 2009 are in-process research and development charges of $14.0 million resulting from milestones related to the CardioSpectra, Inc. and Novelis, Inc. acquisitions.

Excluding stock-based compensation expense of $2.7 million, the in-process research and development charges of $14.0 million and sales commissions of $2.3 million paid to a former distributor in Japan, Volcano reported non-GAAP net income of $7.0 million, or $0.14 per diluted share. In the fourth quarter of 2008, excluding stock-based compensation expense of $2.5 million and in-process research and development charges of $274,000, the company reported non-GAAP net income of $4.2 million, or $0.08 per diluted share. A reconciliation of the company's GAAP to non-GAAP results is included below.

For all of fiscal 2009, Volcano reported revenues of $227.9 million, a 33 percent increase over revenues of $171.5 million in fiscal 2008. Revenues for fiscal 2009 included $17.9 million from Axsun, versus revenues of $578,000 in 2008. The company reported a GAAP net loss of $29.0 million, or $0.60 per share, in fiscal 2009, compared with a GAAP net loss of $13.7 million, or $0.29 per share, in 2008. Excluding stock-based compensation expense of $10.9 million, in-process research and development charges of $14.0 million and sales commissions of $3.7 million paid to a former distributor in Japan, Volcano reported a non-GAAP net loss of $347,000, or $0.01 per share, in 2009. Excluding in-process research and development costs of $12.7 million related to the Novelis and CardioSpectra acquisitions, stock-based compensation expense of $9.5 million and $2.9 million in due diligence, legal and accounting expenses related to an acquisition that was not consummated, Volcano reported non-GAAP net income of $11.4 million, or $0.23 per diluted share, in 2008.

"Volcano finished 2009 with a strong performance as the company continued to execute on its strategies designed to generate revenue growth through expansion of our installed base, market share growth and increased market penetration for our core intravascular ultrasound (IVUS) and functional measurement (FM) offerings. Total IVUS disposable revenues for the quarter increased 29 percent year-over-year and our FM disposable revenues for the quarter increased 92 percent year-over-year, including an 81 percent increase in the U.S. We also continued our global sales force expansion program and benefited from the first full quarter of our direct sales initiative in Japan as IVUS disposable revenues increased 43 percent versus the fourth quarter a year ago," said Scott Huennekens, president and chief executive officer.

Huennekens noted that despite a challenging capital equipment environment, the company placed more than 1,000 new multi-modality systems in 2009, the most of any year in the company's history, and now has more than 5,000 consoles placed worldwide.

"We have also achieved important milestones in our product expansion strategy with the recent acquisition of the Xtract Thrombus Aspiration Catheter product line from Lumen Biomedical, which is used for clot removal, and receiving FDA clearance to market our Eagle Eye Platinum digital IVUS catheter, an enhanced version of the top selling IVUS catheter in the U.S.," Huennekens noted. "During 2010," he continued, "we plan to introduce the initial offerings from our product pipeline, including the launch of our IVUS-guided therapy device in Europe and Japan, and our first Forward-Looking IVUS, or FL.IVUS, device for use in coronary and peripheral arteries.

"Our technology innovation, market development, clinical and product initiatives have fueled our growth during 2009 and leave us well positioned for a strong 2010 marked by excellent revenue growth and GAAP profitability," Huennekens said.

Guidance for 2010

The company provided the following financial guidance for 2010.

On a consolidated basis, Volcano expects total revenues in fiscal 2010 of $277-$282 million, an increase of approximately 22 percent over revenues in 2009. The expected revenues for 2010 include approximately $20 million in revenues from Axsun Technologies, Inc., the company's wholly-owned subsidiary.

Overall company gross margins are expected to be in the range of 62-63 percent. Total operating expenses, including stock-based compensation expense of approximately $13.3 million, are expected to be 59-61 percent of revenues. Net interest income for 2010 is expected to be approximately $450,000. On a GAAP basis, the company expects to report net income of $0.05-$0.10 per diluted share. Weighted average shares on a diluted basis at the end of 2010 are expected to be 52.5 million shares. Expected operating expenses in the first half of 2010 reflect costs associated with the anticipated commercial launch of the company's IVUS-guided therapy and FL.IVUS devices. Based on the expected timing of these investments and the anticipated growth trajectory for revenues, the company expects to be profitable on a GAAP basis beginning in the third quarter of fiscal 2010 and profitable on a GAAP basis for all of fiscal 2010.

Excluding stock-based compensation expense of approximately $13.3 million, Volcano expects to report net income of $0.30-$0.35 per diluted share for fiscal 2010.  

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) 325-4867, passcode 6208547, 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 March 10, at (719) 457-0820, passcode 6208547, 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 digital 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) systems and catheters. Currently, more than 5,000 Volcano IVUS and FM systems are installed worldwide, and more than half of Volcano's revenues are derived from outside the United States. Volcano's wholly-owned subsidiary, Axsun Technologies, Inc., develops and manufactures optical monitors, lasers and optical engines used in telecommunications, medical imaging, spectroscopy, and other industrial applications. 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, including in-process research and development charges  related to 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 sales commissions paid to a former distributor in Japan. 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, 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 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, market development and product introductions and 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)                        
                              (Unaudited)                          
                                                                   
                                                     December 31,  
                                                     ------------  
                                                    2009     2008
                                                    ----     ----
    Assets                                                        
     Current assets:                                               
       Cash and cash equivalents                   $56,055 $100,949
       Short-term available-for-sale                               
        investments                                 66,028   48,941
       Accounts receivable, net                     51,171   41,795
       Inventories                                  37,710   28,936
       Prepaid expenses and other current assets     5,892    5,869
                                                     -----    -----
         Total current assets                      216,856  226,490
     Restricted cash                                   554      327
     Property and equipment, net                    44,734   30,007
     Intangible assets, net                         11,623   15,636
     Goodwill                                          931      842
     Other non-current assets                        2,036    2,177
                                                     -----    -----
                                                  $276,734 $275,479
                                                  ======== ========
                                                                   
     Liabilities and Stockholders' Equity                          
     Current liabilities:                                          
       Accounts payable                            $13,840  $14,867
       Accrued compensation                         14,142   12,690
       Accrued expenses and other current                          
        liabilities                                 25,275   10,745
       Deferred revenues                             4,881    4,833
       Short-term debt                                   -      151
       Current maturities of long-term debt             50       57
                                                       ---      ---
         Total current liabilities                  58,188   43,343
     Long-term debt                                    110       34
     Deferred revenues                               2,376    1,914
     Other                                           1,245      456
                                                     -----      ---
         Total liabilities                          61,919   45,747
     Stockholders' equity                          214,815  229,732
                                                   -------  -------
                                                  $276,734 $275,479
                                                  ======== ========
    
    
    
                               VOLCANO CORPORATION                           
                      CONSOLIDATED STATEMENTS OF OPERATIONS                  
                      (in thousands, except per share data)                  
                                   (Unaudited)                               
                                          
                                              Three 
                                           Months Ended        Years Ended    
                                           December 31,        December 31,   
                                           ------------        ------------   
                                          2009     2008      2009      2008
                                          ----     ----      ----      ----
      Revenues                          $71,014  $49,253  $227,867  $171,495 
      Cost of revenues                   26,576   18,378    91,489    64,293 
                                         ------   ------    ------    ------ 
      Gross profit                       44,438   30,875   136,378   107,202 
      Operating expenses:                                                    
        Selling, general and                                                 
         administrative                  31,793   21,964   111,598    84,369 
        Research and development          9,556    7,867    37,372    26,690 
        In-process research and                                              
         development                     14,030      274    14,030    12,681 
        Amortization of intangibles       1,061      788     4,224     3,125 
                                          -----      ---     -----     ----- 
              Total operating expenses   56,440   30,893   167,224   126,865 
                                         ------   ------   -------   ------- 
      Operating (loss) income           (12,002)     (18)  (30,846)  (19,663)
      Interest income                       116      622       756     4,828 
      Interest expense                       (1)    (105)       (5)     (113)
      Exchange rate gain (loss)             166      718     2,328     1,809 
      Other, net                              -       54         -        54 
                                            ---      ---       ---       --- 
      (Loss) income before provision                                         
       for income taxes                 (11,721)   1,271   (27,767)  (13,085)
      Provision for (Benefit from)                                           
       income taxes                         354      (87)    1,187       620 
                                            ---      ---     -----       --- 
      Net (loss) income                $(12,075)  $1,358  $(28,954) $(13,705)
                                       ========   ======  ========  ======== 
      Net (loss) income per share:                                           
        Basic                            $(0.25)   $0.03    $(0.60)   $(0.29)
                                         ======    =====    ======    ====== 
        Diluted                          $(0.25)   $0.03    $(0.60)   $(0.29)
                                         ======    =====    ======    ====== 
      Shares used in calculating
       net (loss) income per share:                
        Basic                            48,718   47,793    48,400    47,376 
                                         ======   ======    ======    ====== 
        Diluted                          48,718   50,286    48,400    47,376 
                                         ======   ======    ======    ====== 
    
    
    
                               VOLCANO CORPORATION                           
                RECONCILIATION OF GAAP RESULTS TO NON-GAAP RESULTS           
                      (in thousands, except per share data)                  
                                  (Unaudited)                               
                                                                             
                                               Three                       
                                           Months Ended      Years Ended     
                                           December 31,      December 31,    
                                           ------------      ------------    
                                           2009    2008      2009    2008 
                                           ----    ----      ----    ---- 
                                                                             
     GAAP operating (loss) income       $(12,002)   $(18) $(30,846) $(19,663)
       Stock-based compensation            2,722   2,541    10,885     9,537 
       In-process research and                                               
        development                       14,030     274    14,030    12,681 
       Acquisition due-diligence costs         -       -         -     2,878 
       Commission expense related to                                         
        Distributor Termination                                              
        Agreement                          2,284       -     3,692         - 
                                           -----     ---     -----       --- 
     Non-GAAP operating income (loss)     $7,034  $2,797   $(2,239)   $5,433 
                                          ======  ======   =======    ====== 
                                                                             
     GAAP net (loss) income             $(12,075) $1,358  $(28,954) $(13,705)
       Stock-based compensation            2,722   2,541    10,885     9,537 
       In-process research and                                               
        development                       14,030     274    14,030    12,681 
       Acquisition due-diligence costs         -       -         -     2,878 
       Commission expense related to                                         
        Distributor Termination                                              
        Agreement                          2,284       -     3,692         - 
                                           -----     ---     -----       --- 
     Non-GAAP net income (loss)           $6,961  $4,173     $(347)  $11,391 
                                          ======  ======     =====   ======= 
                                                                             
     GAAP net (loss) income per share-                                       
      basic                               $(0.25)  $0.03    $(0.60)   $(0.29)
       Stock-based compensation             0.05    0.05      0.22      0.20 
       In-process research and                                               
        development                         0.29    0.01      0.29      0.27 
       Acquisition due-diligence costs         -       -         -      0.06 
       Commission expense related to                                         
        Distributor Termination                                              
        Agreement                           0.05       -      0.08         - 
                                            ----     ---      ----       --- 
     Non-GAAP net income (loss) per                                          
      share-basic                          $0.14   $0.09    $(0.01)    $0.24 
                                           =====   =====    ======     ===== 
     Shares used in calculating net                                          
      income (loss) per share-basic       48,718  47,793    48,400    47,376 
                                          ======  ======    ======    ====== 
                                                                             
     GAAP net (loss) income per share-                                       
      diluted                             $(0.25)  $0.03    $(0.60)   $(0.29)
       Stock-based compensation             0.05    0.04      0.22      0.19 
       In-process research and                                               
        development                         0.28    0.01      0.29      0.25 
       Acquisition due-diligence costs         -       -         -      0.06 
       Commission expense related to                                         
        Distributor Termination                                              
        Agreement                           0.04       -      0.08         - 
       Adjustment to shares used in                                          
        calculating net income per                                           
        share                               0.02       -         -      0.02 
                                            ----     ---       ---      ---- 
     Non-GAAP net income (loss) per                                          
      share-diluted                        $0.14   $0.08    $(0.01)    $0.23 
                                           =====   =====    ======     ===== 
     Shares used in calculating net                                          
      income (loss) per share-diluted     50,928  50,286    48,400    49,954 
                                          ======  ======    ======    ====== 
    
    
    
                         VOLCANO CORPORATION                
    RECONCILIATION OF GAAP TO NON-GAAP FORWARD LOOKING GUIDANCE                     
               (in thousands, except per share data)       
                            (Unaudited)                    
                                                       
                                              2010
                                              ----
                                         Guidance Range
                                         --------------
                                          From     To  
                                          ----     --  
                                                       
     GAAP operating income               $3,878  $6,486
       Stock-based compensation                        
        expense                          13,300  13,300
                                         ------  ------
     Non-GAAP operating income          $17,178 $19,786
                                        ======= =======
                                                       
     GAAP net income                     $2,627  $5,235
       Stock-based compensation                        
        expense                          13,300  13,300
                                         ------  ------
     Non-GAAP net income                $15,927 $18,535
                                        ======= =======
                                                       
     GAAP net income per share-diluted    $0.05   $0.10
       Stock-based compensation            0.25    0.25
                                           ----    ----
     Non-GAAP net income per share-                    
      diluted                             $0.30   $0.35
                                          =====   =====
     Shares used in calculating net                    
      income per share-diluted           52,525  52,525
                                         ======  ======
    
    
    
                               VOLCANO CORPORATION                           
                                 REVENUE SUMMARY                             
                                  (in millions)                              
                                   (Unaudited)                               
                                                                             
                             Three                                      
                          months ended Percentage   Years ended   Percentage 
                          December 31,   Change     December 31,    Change   
                          ------------ ----------   ------------  ---------- 
                                          2008                       2008    
                           2009  2008    to 2009     2009   2008    to 2009  
                           ----  ----   --------     ----   ----   --------  
    Medical segment:                                                         
      Consoles:                                                              
        United States      $7.9  $7.0      14%      $24.6  $22.9       8%
        Japan               0.6   0.8     (25)        2.1    5.7     (63)
        Europe              3.3   3.0      12         9.3    8.6       8 
        Rest of world       1.2   0.8      47         3.4    2.9      16 
                            ---   ---                 ---    ---         
      Total consoles      $13.0 $11.6      13       $39.4  $40.1      (2)
                                                                     
      IVUS single
       procedure
       disposables:                                 
        United States     $16.6 $14.3      16%      $61.0  $51.9      17%
        Japan              16.2  11.3      43        48.0   36.0      33 
        Europe              5.3   4.1      30        18.9   17.1      10 
        Rest of world       1.1   0.7      47         3.5    2.9      18 
                            ---   ---                 ---    ---         
      Total IVUS single                                              
       procedure                                                     
       disposables        $39.2 $30.4      29      $131.4 $107.9      22 
                                                                     
      FM single
       procedure
       disposables:                                   
        United States      $5.4  $3.0      81%      $17.1   $8.7      97%
        Japan               0.6   0.4      45         1.4    1.3      13 
        Europe              3.9   1.8     114        11.5    6.6      72 
        Rest of world       0.3   0.1     182         1.1    0.8      47 
                            ---   ---                 ---    ---         
      Total FM single                                                
       procedure                                                     
       disposables        $10.2  $5.3      92       $31.1  $17.4      79 
                                                                     
      Other                 3.6   1.4     162%        9.8    5.5      78%
                            ---   ---                 ---    ---         
        Sub-total                                                    
         medical segment  $66.0 $48.7      36      $211.7 $170.9      24 
                                                                     
    Telecom segment         5.0   0.6     761        16.2    0.6   2,697 
                            ---   ---                ----    ---         
            Total         $71.0 $49.3      44      $227.9 $171.5      33 
                          ===== =====              ====== ======         
    
    
    

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