February 21, 2013

Volcano Announces Record Fourth Quarter Revenues

SAN DIEGO, Feb. 21, 2013 /PRNewswire/ -- Volcano Corporation (Nasdaq: VOLC), a leading developer and manufacturer of precision guided therapy tools designed to enhance the diagnosis and treatment of coronary and peripheral vascular disease, today reported results for the fourth quarter of 2012.

For the quarter ended December 31, 2012, Volcano reported record quarterly revenues of $102.5 million, an increase of 10 percent on a reported basis versus the same period a year ago and 12 percent on a constant currency basis after adjusting for a two percent negative impact from foreign currency. Medical segment revenues increased 10 percent on a reported basis and 12 percent on a constant currency basis versus the fourth quarter a year ago.

The company reported net income on a GAAP basis of $2.5 million, or $0.04 per diluted share, in the fourth quarter of 2012, versus net income of $29.4 million, or $0.54 per diluted share, in the fourth quarter of 2011. The results for the fourth quarter of 2012 include a benefit of $4.9 million, or $0.09 per diluted share, related to the release of a portion of the company's deferred tax valuation allowance. The results for the fourth quarter of 2011 include a similar benefit of $22.0 million, or $0.40 per diluted share.

For the full year 2012, Volcano reported revenues of $381.9 million, an increase of 11 percent on a reported basis and 12 percent on a constant currency basis over revenues of $343.5 million in 2011. Medical segment revenues increased 12 percent on a reported basis and 13 percent on a constant currency basis and industrial segment revenues declined three percent year-over-year.

The company reported net income on a GAAP basis of $8.0 million, or $0.15 per diluted share, in 2012. This compares with GAAP net income of $38.1 million, or $0.70 per diluted share, in 2011. The results for both periods include the benefits related to a portion of the company's deferred tax valuation allowance referenced above.

"We continued to execute our growth strategy in 2012, delivering a double digit increase in revenues, led by a 45 percent increase in annual revenues on a constant currency basis in our FFR (Fractional Flow Reserve) disposable business. Our FFR technology is emblematic of our Functional PCI strategy that provides solutions for healthcare providers seeking both improved clinical and economic outcomes," said Scott Huennekens, president and chief executive officer.

"At the same time, we continued to position the company for long-term growth by targeting addressable markets that are double the size of those we address today through the growth of our base business, development of our pipeline and implementation of business expansion strategies."

"During the fourth quarter," he continued, "we realized two important milestones in this strategy with our acquisitions of Sync-RX and Crux Biomedical. Sync-RX provides us advanced imaging technology that we will incorporate into our multi-modality platform, while Crux brings Volcano a novel inferior vena cava (IVC) filter and related offerings, and is indicative of our strategy to move beyond intravascular imaging to a wide variety of diagnostic and therapeutic solutions for both coronary and peripheral applications."

Guidance for 2013

The company provided guidance for fiscal 2013. It expects revenues will be in the range of $422.0-$428.0 million. It expects gross margins will be in the range of 65-66 percent and operating expenses will be 61-62 percent of revenues. The company expects a net loss on a GAAP basis of $0.10-$0.14 per share in 2013 and non-GAAP net income of $0.16-$0.20 per diluted share in 2013. Non-GAAP results exclude acquisition-related expenses, amortization of intangibles and non-cash interest expense. The company expects weighted average basic shares in 2013 will be approximately 54.4 million shares and approximately 56.2 million shares on a diluted basis. All guidance for 2013 is provided on a constant currency basis.

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 (631 291-4555, passcode 90659548, 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 February 28 at (404) 537-3406, passcode 90659548, and via the company's website at http://www.volcanocorp.com.

About Volcano

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.

Note Regarding Use of Non-GAAP Financial Measures

The presentation of non-GAAP financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. The company uses non-GAAP financial measures for financial and operational decision making and as a means to compare period-to-period results. The company believes that they provide useful information about operating results, enhance the overall understanding of operating results and future prospects, and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making.

Constant Currency Basis Revenue Changes: Volcano reports changes in revenue on a constant currency basis, which is a non-GAAP financial measure. Volcano believes that investors' understanding of the company's short-term and long-term financial results is enhanced by taking into consideration the impact of foreign currency translation on revenue. In addition, Volcano's management uses results of operations before currency translation to evaluate the operational performance of Volcano and as a basis for strategic planning.

Volcano reports its expectations of earnings per share performance excluding certain expenses described below; for additional details please see the "Reconciliation of GAAP to non-GAAP EPS Guidance" table in this press release. This accompanying table has more details on the GAAP financial measures that are most directly comparable to non-GAAP financial measures and the related reconciliations between these financial measures.

Exclusion of Acquisition-related Expenses: Volcano excludes acquisition-related expenses because it does not consider these acquisition-related costs and adjustments to be related to the organic continuing operations of the acquired businesses and are generally not relevant to assessing or estimating the long-term performance of the acquired assets. In addition, the size, complexity and/or volume of past acquisitions, which often drive the magnitude of acquisition-related costs, may not be indicative of the size, complexity and/or volume of future acquisitions.

Exclusion of Amortization of Intangibles: Volcano excludes amortization of intangibles because it is a non-cash expense relating primarily to acquisitions. At the time of an acquisition, the intangible assets of the acquired company, such as technology and supplier agreements, are valued and amortized over their estimated lives. Volcano believes that since intangibles represent costs incurred by the acquired company to build value prior to acquisition, Volcano management eliminates the impact of the amortization when evaluating its current operating performance.

Exclusion of Non-cash Interest Expense: In addition to disclosing the financial statement impact of the Financial Accounting Standards Board authoritative guidance for convertible debt accounting, Volcano management believes that investors may find it useful to consider excluding the impact of this authoritative guidance because it is non-cash in nature, may provide meaningful supplemental information regarding elements of the company's borrowing costs in order to properly understand its operational performance and liquidity, and facilitates comparisons to competitors' operating results.

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 Volcano's growth and other strategies and ability to execute on those strategies, competitive positioning, target markets, development of its base business and pipeline, benefits from recent acquisitions, benefits from its products and technologies and financial guidance. Forward-looking statements are based on management's current expectations and are subject to risks and uncertainties that may cause Volcano's actual results to differ materially and adversely from statements contained herein. Some of the potential risks and uncertainties that could cause actual results to differ include the risk that Volcano's revenue, expense, earnings, earnings per share, margin or other  projections may turn out to be inaccurate or Volcano may encounter unanticipated difficultly in achieving those projections; global and regional macroeconomic conditions, generally, and in the medical device and telecom industries specifically; currency exchange rate fluctuations; the effect of competitive factors and the company's reaction to those factors; purchasing decisions with respect to the company's products; the pace and extent of market adoption of the company's products and technologies; uncertainty in the process of obtaining regulatory approval or clearance for Volcano's products or devices; the success of Volcano's growth and other strategies including integration of recently-acquired businesses and our ability to integrate businesses from any future acquisitions; risks associated with Volcano's international operations; timing and achievement of product development milestones; outcome of ongoing or future litigation, investigations and claims; the impact and benefits of market development and the related size of Volcano's addressable markets; our ability to protect our intellectual property; dependence upon third parties; unexpected new data, safety and technical issues; market conditions and  other risks inherent to medical and/or telecom device development and commercialization. These and additional risks and uncertainties are more fully described in Volcano's filings made with the Securities and Exchange Commission, including our prospectus supplement on Form 424b2,  and other filings made with the Securities and Exchange Commission. Additional information will also be set forth in our Form 10-K that will be filed for the year ended December 31, 2012, which should be read in conjunction with these financial results. 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)







December 31,


December 31,


2012


2011

Assets




Current assets:




Cash and cash equivalents

$ 330,635


$ 107,016

Short-term available-for-sale investments

140,960


112,327

Accounts receivable, net

76,348


69,469

Inventories

52,811


41,306

Prepaid expenses and other current assets

21,773


19,939

Total current assets

622,527


350,057

Restricted cash

711


692

Long-term available-for-sale investments

44,385


30,919

Property and equipment, net

104,385


81,097

Intangible assets, net

50,657


15,245

Goodwill

51,577


2,487

Other non-current assets

28,102


16,227

Total Assets

$ 902,344


$ 496,724





Liabilities and Stockholders' Equity




Current liabilities:




Accounts payable

$ 16,284


$ 12,911

Accrued compensation

23,227


20,251

Accrued expenses and other current liabilities

23,476


16,689

Deferred revenues

9,789


7,077

Contingent consideration

2,908


-

Current maturities of long-term debt

53


72

Total current liabilities

75,737


57,000

Convertible senior notes

382,300


95,663

Other long-term debt

1,119


74

Deferred revenues

4,661


3,168

Contingent consideration, non-current portion

27,323


-

Other non-current liabilities

2,859


1,582

Total liabilities

493,999


157,487

Stockholders' equity

408,345


339,237

Total Liabilities and Stockholders' Equity

$ 902,344


$ 496,724

 

VOLCANO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)



















Three Months Ended

December 31,



Year Ended

December 31,



2012



2011



2012



2011

Revenues


$

102,477



$

92,748



$

381,866



$

343,546

Cost of revenues, excluding amortization of intangibles



34,118




30,358




128,915




114,533

Gross profit



68,359




62,390




252,951




229,013

Operating expenses:
















Selling, general and administrative



45,759




40,075




172,794




147,057

Research and development



14,909




12,761




55,469




53,098

Amortization of intangibles



770




875




3,240




3,447

Acquisition related items



1,858




-




1,858




-

Total operating expenses



63,296




53,711




233,361




203,602

Operating income



5,063




8,679




19,590




25,411

Interest income



246




207




902




908

Interest expense



(2,982)




(1,212)




(7,975)




(7,107)

Exchange rate (loss) gain



(257)




184




(576)




(997)

Loss from debt extinguishment



(4,969)




-




(4,969)




-

Other, net



2,749




(110)




2,717




(112)

Income (loss) before income tax



(151)




7,748




9,689




18,103

Income tax expense (benefit)



(2,628)




(21,674)




1,667




(19,990)

Net income


$

2,477



$

29,422



$

8,022



$

38,093

Net income per share:
















Basic


$

0.05



$

0.56



$

0.15



$

0.73

Diluted


$

0.04



$

0.54



$

0.15



$

0.70

Shares used in calculating net income per share:
















Basic



53,924




52,634




53,475




52,300

Diluted



55,371




54,459




55,195




54,596

 

VOLCANO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


Year Ended

December 31,


2012


2011

Operating activities






Net income

$

8,022


$

38,093

Adjustments to reconcile net income to net cash provided by operating activities:






Depreciation and amortization


23,503



23,214

Amortization (accretion) of investment premium (discount), net


3,256



3,805

Accretion of debt discount on convertible senior notes


5,743



4,668

Loss on debt extinguishment


4,969



-

Acquisition related items


231




Non-cash stock-based compensation expense


15,079



12,991

Other non-cash adjustments


907



(2,350)

Deferred income taxes


1,009



(22,771)

Changes in operating assets and liabilities


(12,901)



(14,054)

Net cash provided by operating activities


49,818



43,596

Investing activities






Purchase of short-term and long-term available-for-sale investments


(298,260)



(310,573)

Sale or maturity of short-term and long-term available-for-sale securities


252,937



365,639

Capital expenditures


(43,842)



(43,248)

Cash paid for acquisitions, net of cash acquired


(54,462)



-

Cash paid for other intangible assets and investments


(5,824)



(3,482)

Proceeds from sale of long-term investments


1,500



2,355

Procceds from foreign currency exchange contracts


1,260



(3,962)

Payment for foreign currency exchange contracts


(525)



-

Net cash provided by (used in) investing activities


(147,216)



6,729

Financing activities






Repayment of capital lease liability


(90)



(51)

Proceeds from issuance of the 1.75% convertible senior notes due 2017


460,000



-







Payment of debt issuance costs in connection with the 1.75% convertible senior notes


(14,611)



-

Purchase of call options in connection with the 1.75% convertible senior notes


(89,798)



-







Proceeds from warrants issuance in connection with the 1.75% convertible senior notes


53,686



-

Repurchase of a portion of 2.875% convertible senior notes due 2015


(104,832)



-

Retirement of call options in connection with the retirement of a portion of 2.875% convertible senior notes


15,156



-

Retirement of warrants in connection with the retirement of a portion of 2.875% convertible senior notes


(11,603)



-

Proceeds from sale of common stock under employee stock purchase plan


3,880



3,554

Proceeds from exercise of common stock options


9,932



9,472

Tax benefit related to stock-based compensation


34



165

Net cash provided by financing activities


321,754



13,140

Effect of exchange rate changes on cash and cash equivalents


(737)



122

Net (decrease) increase in cash and cash equivalents


223,619



63,587

Cash and cash equivalents, beginning of period


107,016



43,429

Cash and cash equivalents, end of period

$

330,635


$

107,016

 

VOLCANO CORPORATION

REVENUE SUMMARY

(in millions)

(unaudited)



Three Months Ended

December 31,


Percentage Change


Currency Impact


Constant Currency Percentage Change



2012


2011


2011 to 2012


Dollar

Percentage



Medical segment:
















Consoles:
















United States

$ 7.1


$ 8.2


(14)

%


$ -


-

%


(14)

%


Japan

1.1


0.5


136



-


-



148



Europe

2.1


1.8


18



(0.1)


(6)



24



Rest of world

1.9


1.0


80



-


-



80



Total Consoles

$12.2


$ 11.5


5



$ (0.1)


(2)



7



















IVUS single-procedure disposables:
















United States

$ 20.2


$ 19.8


2

%


$ -


-

%


2

%


Japan

25.4


26.5


(4)



(0.8)


(3)



(1)



Europe

5.0


5.8


(13)



(0.2)


(4)



(9)



Rest of world

1.6


1.5


8



-


-



8



Total IVUS single-procedure disposables

$ 52.2


$ 53.6


(3)



$ (1.0)


(2)



(1)



















FFR single-procedure disposables:
















United States

$ 14.4


$ 10.7


34

%


$ -


-

%


34

%


Japan

5.0


1.6


222



(0.2)


(10)



232



Europe

7.2


6.2


15



(0.3)


(6)



21



Rest of world

0.7


0.6


16





-



16



Total FFR single-procedure disposables

$ 27.2


$ 19.1


42



$ (0.5)


(3)



45



















Other

$ 8.4


$ 7.0


21

%


$ (0.2)


(1)

%


22

%


Sub-total medical segment

$ 100.0


$ 91.2


10



$ (1.8)


(2)



12



















Industrial segment

$ 2.5


$ 1.5


63



-


-



63



Total

$ 102.5


$ 92.7


10



$ (1.8)


(2)



12



 

VOLCANO CORPORATION

REVENUE SUMMARY

(in millions)

(unaudited)

















Year Ended

December 31,


Percentage Change


Currency Impact


Constant Currency Percentage Change


2012


2011


2011 to 2012


Dollar

Percentage


Medical segment:















Consoles:















United States

$ 24.9


$ 25.9


(4)

%


$ -


-

%


(4)

%

Japan

3.2


2.2


46



-


-



46


Europe

6.3


8.1


(22)



(0.6)


(8)



(14)


Rest of world

6.3


4.8


30



-


-



30


Total Consoles

$ 40.7


$ 41.0


(1)



$(0.6)


(2)



1

















IVUS single-procedure disposables:















United States

$ 79.4


$ 76.0


4

%


$ -


-

%


4

%

Japan

99.1


95.0


4



0.6


-



4


Europe

20.7


23.7


(13)



(1.8)


(8)



(5)


Rest of world

6.7


6.3


7



-


-



7


Total IVUS single-procedure disposables

$ 205.9


$ 201.0


2



$(1.2)


(1)



3

















FFR single-procedure disposables:















United States

$ 51.7


$ 36.8


40

%


$ -


-

%


40

%

Japan

13.9


4.9


186



(0.1)


(1)



187


Europe

26.2


23.2


13



(2.3)


(10)



23


Rest of world

3.1


2.1


41



-


-



41


Total FFR single-procedure disposables

$ 94.9


$ 67.0


41



$(2.4)


(4)



45

















Other

$ 29.7


$ 23.5


26

%


$(0.2)


(1)

%


27

%

Sub-total medical segment

$ 371.2


$ 332.5


12



$(4.4)


(1)



13

















Industrial segment

$ 10.7


$ 11.0


(3)



$ -


-



(3)


Total

$ 381.9


$ 343.5


11



$(4.4)


(1)



12


 

VOLCANO CORPORATION

RECONCILIATION OF GAAP TO NON-GAAP EPS GUIDANCE

(in thousands, except per share data)

(Unaudited)






2013


Guidance Range


From


To









GAAP net loss per share—basic

$ (0.14)


$ (0.10)

GAAP net loss per share—diluted

$ (0.14)


$ (0.10)

Acquisition related items

0.05


0.05

Amortization of intangibles

0.04


0.04

Non-cash interest expense

0.21


0.21

Non-GAAP net income per share—diluted

$ 0.16


$ 0.20

Weighted average shares outstanding—basic

54,400


54,400

Weighted average shares outstanding—diluted

56,200


56,200









Note: Effective tax rate of 38% applied to non-GAAP adjustments



 

SOURCE Volcano Corporation

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