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Volcano Announces First Quarter Results

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SAN DIEGO, May 2, 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 first quarter of 2013.

For the quarter ended March 31, 2013, Volcano reported revenues of $93.2 million, an increase of three percent on a reported basis versus the same period a year ago and eight percent on a constant currency basis after adjusting for a five percent negative impact from foreign currency. Medical segment revenues increased four percent and nine percent on a reported and constant currency basis, respectively.

The company reported a net loss on a GAAP basis of $3.2 million, or $0.06 per share, in the first quarter of 2013, versus net income of $271,000, or $0.00 per diluted share, in the same period a year ago. The results for the first quarter of 2013 include net interest expense of $6.2 million versus $1.2 million a year ago, reflecting the company's convertible debt offering completed in the fourth quarter of 2012. In addition, the company recorded other income of $1.9 million in the first quarter of 2013 related to the proceeds from the sale of a strategic investment. The company also recorded an exchange rate loss of $778,000 in the first quarter of 2013 compared to $175,000 in the first quarter a year ago.

Excluding acquisition related items, amortization of intangibles and non-cash interest expense on convertible notes, net of tax, the company reported non-GAAP earnings per diluted share of $0.02.

"Our results for the quarter reflect continued solid growth for our FFR (Fractional Flow Reserve) disposable revenues, which increased 33 percent and 36 percent year-over-year on a reported and constant currency basis, respectively. However, our intravascular imaging business continued to be impacted negatively by pressure on PCI's, especially in the U.S.," said Scott Huenekkens, president and chief executive officer of Volcano.

Guidance for 2013

The company provided updated guidance for 2013. Based on current foreign currency exchange rates, it now expects revenues on a reported basis of $394.0-$400.0 million. The new expectations for revenues on a reported basis compare with prior expectations of $406.0-$412.0 million. The company said roughly two-thirds of the reduction in expectations for revenues on a reported basis reflects the impact of foreign currency exchange rates, with the balance due to reduced expectations around PCI volume. The company said it expects revenues in 2013 on a constant currency basis will be in the range of $418.0-$424.0 million.

With respect to its outlook for 2013 on a reported basis, the company expects gross margins will be in the range of 64.5-65.0 percent and that operating expenses will be 65-66 percent of revenues. On a reported basis, the company expects a net loss on a GAAP basis of $0.26-$0.28 per share. This assumes an expected tax benefit of approximately $0.20 per share, based on an annual tax rate of 38.5 percent, combined with a $1 million R&D tax credit from 2012 that was recorded in the first quarter. On a reported basis, the company expects non-GAAP net income of $0.03-$0.05 per diluted share in 2013. Non-GAAP results exclude acquisition-related expenses, amortization of intangibles and non-cash interest expense, and assume an effective tax rate of 38 percent for the GAAP to non-GAAP adjustments. 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.

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 can be accessed by calling (631) 291-4555, passcode 34024703, 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 May 9, 2013, at (404) 537-3406, passcode 34024703, and via the company's website at http://www.volcanocorp.com.

About Volcano

Volcano Corporation (Nasdaq: VOLC) 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 efforts of 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 authoritative guidance for convertible debt accounting, Volcano management believes that 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' 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 expected revenues, revenue growth and financial results for the year ending December 31, 2013, its 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 and  benefits from its products and technologies. 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 be inaccurate or Volcano may encounter unanticipated difficulty 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 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 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 project 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 10-K for the year ended December 31, 2012, and other filings made with the Securities and Exchange Commission, 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) 

 (unaudited) 






 March 31, 


 December 31, 


2013


2012

 Assets 




 Current assets: 




 Cash and cash equivalents 

$   276,315


$          330,635

 Short-term available-for-sale investments  

132,289


140,960

 Accounts receivable, net 

71,003


76,348

 Inventories 

57,157


52,811

 Prepaid expenses and other current assets 

26,939


21,773

 Total current assets 

563,703


622,527

 Restricted cash 

692


711

 Long-term available-for-sale investments 

95,783


44,385

 Property and equipment, net 

106,067


104,385

 Intangible assets, net 

50,605


50,657

 Goodwill 

51,577


51,577

 Other non-current assets 

26,712


28,102

 Total Assets 

$   895,139


$          902,344





 Liabilities and Stockholders' Equity 




 Current liabilities: 




 Accounts payable 

$      12,195


$             16,284

 Accrued compensation 

19,055


23,227

 Accrued expenses and other current liabilities 

17,314


23,476

 Deferred revenues 

9,383


9,789

 Contingent consideration 

2,936


2,908

 Current maturities of long-term debt 

57


53

 Total current liabilities 

60,940


75,737

 Convertible senior notes 

386,835


382,300

 Other long-term debt 

1,174


1,119

 Deferred revenues 

4,399


4,661

 Contingent consideration, non-current portion 

28,231


27,323

 Other non-current liabilities 

2,744


2,859

 Total liabilities 

484,323


493,999

 Stockholders' equity 

410,816


408,345

 Total Liabilities and Stockholders' Equity 

$   895,139


$          902,344

 

VOLCANO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)













Three Months Ended
March 31,





2013



2012



Revenues


$

93,231



$

90,360



Cost of revenues, excluding amortization of intangibles



33,127




29,573



Gross profit



60,104




60,787



Operating expenses:










Selling, general and administrative



43,829




44,345



Research and development



15,651




13,649



Amortization of intangibles



834




872



Acquisition-related items



1,578




-



Total operating expenses



61,892




58,866



Operating (loss) income



(1,788)




1,921



Interest income



338




230



Interest expense



(6,545)




(1,472)



Exchange rate loss



(778)




(175)



Other, net



1,898




(96)



(Loss) income before income tax



(6,875)




408



Income tax (benefit) expense



(3,714)




137



Net (loss) income


$

(3,161)



$

271



Net (loss) income per share:










Basic


$

(0.06)



$

0.01



Diluted


$

(0.06)



$

-



Shares used in calculating net (loss) income per share:










Basic



54,189




52,929



Diluted



54,189




54,985



 

VOLCANO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


Three Months Ended
March 31,



2013


2012


Operating activities







Net (loss) income

$

(3,161)


$

271


Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:







Depreciation and amortization


6,123



5,791


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


631



269


Accretion of debt discount on convertible senior notes


4,572



1,212


Accretion of contingent consideration


936



-


Non-cash stock-based compensation expense


3,598



3,617


Gain on other long-term investment


(1,925)



-


Effect of exchange rate changes and others


4,604



306


Changes in operating assets and liabilities


(23,249)



(961)


Net cash (used in) provided by operating activities


(7,871)



10,505


Investing activities







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


(110,520)



(110,762)


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


67,137



67,577


Capital expenditures


(7,290)



(14,437)


Cash paid for other intangible assets and investments


(870)



(758)


Proceeds from sale of long-term investments


3,426



-


Net cash used in investing activities


(48,117)



(58,380)


Financing activities







Repayment of capital lease liability


(11)



(22)


Proceeds from sale of common stock under employee stock purchase plan


1,712



1,899


Proceeds from exercise of common stock options


691



2,988


Net cash provided by financing activities


2,392



4,865


Effect of exchange rate changes on cash and cash equivalents


(724)



(562)


Net decrease in cash and cash equivalents


(54,320)



(43,572)


Cash and cash equivalents, beginning of period


330,635



107,016


Cash and cash equivalents, end of period

$

276,315


$

63,444


 

VOLCANO CORPORATION

REVENUE SUMMARY

(in millions)

(unaudited)

















Three Months Ended
March 31,


Percentage Change
2012 to 2013


Currency Impact 


Constant Currency

Percentage Change











2013


2012



Dollar

Percentage


Medical segment:















Consoles:















United States

$   4.7


$   5.2


(8)

%


$      -


-

%


(8)

%

Japan

1.0


0.9


7



(0.1)


(16)



23


Europe

1.6


1.1


48



-


(1)



49


Rest of world

1.6


0.9


73



-


-



73


Total Consoles

$   8.9


$   8.1


10



$(0.1)


(2)



12

















IVUS single-procedure disposables:















United States

$19.3


$19.7


(2)

%


$      -


-

%


(2)

%

Japan

20.7


26.6


(22)



(3.2)


(12)



(10)


Europe

5.8


5.4


7



-


-



7


Rest of world

2.2


1.8


20



-


-



20


Total IVUS single-procedure disposables

$48.0


$53.5


(10)



$(3.2)


(6)



(4)

















FFR single-procedure disposables:















United States

$13.7


$11.7


17

%


$      -


-

%


17

%

Japan

4.5


1.8


150



(0.7)


(38)



188


Europe

7.8


6.2


27



-


-



27


Rest of world

0.8


0.5


68



-


-



68


Total FFR single-procedure disposables

$26.8


$20.2


33



$(0.7)


(3)



36

















Other

$   8.0


$   6.6


20

%


$(0.2)


(4)

%


24

%

Sub-total medical segment

$91.7


$88.4


4



$(4.2)


(5)



9

















Industrial segment

$   1.5


$   2.0


(25)



-


(1)



(24)


Total

$93.2


$90.4


3



$(4.2)


(5)



8


 

VOLCANO CORPORATION

RECONCILIATION OF GAAP RESULTS TO NON-GAAP RESULTS

(in thousands, except per share data)

(Unaudited)















Three Months Ended March 31, 2013

Pre-tax Adjustments


Net of Tax (1)


Earnings Per Share









 GAAP net loss 



$           (3,161)


$     (0.06)


 Acquisition related items 

1,578


978


0.02


 Amortization of intangibles 

834


517


0.01


 Non-cash interest expense on convertible notes 

4,572


2,835


0.05


 Non-GAAP net income income 

$           6,984


$             1,169


$       0.02









 Weighted average shares outstanding—diluted 





54,189
















(1) Effective tax rate of 38% applied to non-GAAP adjustments




 

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 

$  (0.28)


$  (0.26)

 GAAP net loss per share—diluted 

$  (0.28)


$  (0.26)

 Acquisition related items 

$    0.06


$    0.06

 Amortization of intangibles 

$    0.04


$    0.04

 Non-cash interest expense 

$    0.21


$    0.21

 Non-GAAP net income per share—diluted 

$    0.03


$    0.05

 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



RELATED LINKS
http://www.volcanocorp.com

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