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Volcano Reports 44 Percent Increase in Fourth Quarter Revenues

Thursday, March 4, 2010 Corporate News J E 4
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SAN DIEGO, March 3 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 ===== ===== ====== ======

SOURCE Volcano Corporation
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