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Volcano Reports First Quarter Results

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SOURCE Volcano Corporation

SAN DIEGO, May 2, 2014 /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 2014.

For the quarter ended March 31, 2014, Volcano reported revenues of $94.5 million versus revenues of $93.2 million in the same period a year ago. On a constant currency basis, revenues increased four percent year-over-year after adjusting for a negative impact of approximately $2.7 million from foreign currency. Medical segment revenues increased approximately one percent and four percent on a reported and constant currency basis, respectively.

The company reported a net loss on a GAAP basis of $10.9 million, or $0.21 per share, in the first quarter of 2014, versus a net loss of $3.2 million, or $0.06 per share, in the same period a year ago.  Excluding acquisition-related items, amortization of intangibles and non-cash interest expense on convertible notes, net of tax, the company reported a non-GAAP net loss of $0.12 per share compared with non-GAAP earnings per diluted share of $0.02 in the first quarter a year ago.

"The first quarter was marked by important accomplishments in our product pipeline, including the U.S. approval of our iFR® (Instant Wave-Free Ratio™) FFR (Fractional Flow Reserve) and SyncVision™ Co-Registration System technologies for which we are commencing limited market releases during the second quarter. In addition, during the first quarter we initiated the full market release of our Crux IVC (inferior vena cava) filter," said Scott Huennekens, president and chief executive officer.  "We also realized solid growth in our U.S. peripheral business and with our FFR and IVUS (Intravascular Imaging) disposable revenues in Europe," he noted.

"Volcano is off to a good start in 2014 with growth of our core businesses, the roll out of new products and an expanded and realigned sales force that we believe will drive growth acceleration through the remainder of 2014 and into 2015," Huennekens added.

Guidance

The company reaffirmed guidance for full year 2014. Based on current foreign currency exchange rates, it expects revenues on a reported basis will be $413.0-$421.0 million, with revenues on a constant currency basis in the range of $417.0-$425.0 million.

The company said it expects gross margins on a reported basis will be in the range of 64.0-64.5 percent and that operating expenses, including restructuring charges, will be 68.0-69.0 percent of revenues. On a reported basis, the company expects a GAAP net loss of $0.57-$0.60 per share. On a non-GAAP basis, the company expects a net loss per share of $0.16-$0.19. Non-GAAP results exclude acquisition-related expenses, amortization of intangibles and non-cash interest expense, and assume an effective tax rate of 35.0 percent for the GAAP to non-GAAP adjustments. The company expects weighted average basic shares in 2014 will be approximately 51.4 million shares.

For the second quarter of 2014, Volcano expects revenues in the range of $102.0-$104.0million on both a reported and constant currency basis. The company expects a loss per share of $0.13-$0.15 on a GAAP basis and $0.04-$0.06 on a non-GAAP 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 27362765, 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, at (404) 537-3406, passcode 27362765, 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 light and sound 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 www.volcanocorp.com.

Note Regarding the 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 as a measure 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 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 revenues. 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 continuing organic 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, which consist primarily of developed or in-process technology, are valued and amortized over their estimated lives. Volcano believes that since intangible assets represent efforts of the acquired company to build value prior to the acquisition, Volcano management eliminates the impact of the amortization when evaluating its current operating performance.

Exclusion of Non-Cash Interest Expenses: 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, margins, financial results and foreign currency exchange rates for the second quarter and calendar year 2014, its growth and other strategies and ability to execute on these strategies, competitive position, target markets, development of its base business and pipeline, benefits from recent acquisitions and benefits from its products and technologies, including new products. 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 revenues or other projections may turn out to be inaccurate or Volcano may encounter unanticipated difficulty in achieve these 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 reactions 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 clearances for  Volcano's products or devices; the success of Volcano's growth and other strategies; including the integration of recently-acquired business and our ability to integrate businesses from potential future acquisitions; risks associated with Volcano's international operations; timing and achievement of product development milestones; outcome of ongoing and future litigation, investigations or 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 Securities and Exchange Commission, including our 10-K for the year ended December 31, 2013, 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, 


2014


2013

 Assets 




 Current assets: 




 Cash and cash equivalents 

$   129,435


$   107,159

 Short-term available-for-sale investments  

215,540


230,775

 Accounts receivable, net 

77,558


81,962

 Inventories 

67,765


60,970

 Prepaid expenses and other current assets 

26,718


28,525

 Total current assets 

517,016


509,391





 Long-term available-for-sale investments 

22,212


34,750

 Property and equipment, net 

119,479


118,094

 Intangible assets, net 

56,481


58,108

 Goodwill 

55,087


55,087

 Other non-current assets 

65,081


56,489

 Total Assets 

$   835,356


$   831,919





 Liabilities and Stockholders' Equity 




 Current liabilities: 




 Accounts payable 

$      14,839


$      19,137

 Accrued compensation 

25,218


26,918

 Accrued expenses and other current liabilities 

32,422


28,453

 Deferred revenues 

10,145


10,652

 Contingent consideration 

2,196


3,750

 Total current liabilities 

84,820


88,910

 Convertible senior notes 

405,897


401,012

 Other long-term debt 

1,282


1,268

 Deferred revenues 

4,952


5,079

 Contingent consideration, non-current portion 

29,308


29,888

 Other non-current liabilities 

6,227


5,960

 Total liabilities 

532,486


532,117

 Stockholders' equity 

302,870


299,802

 Total Liabilities and Stockholders' Equity 

$   835,356


$   831,919

 

VOLCANO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)











Three Months Ended
March 31,



2014



2013

Revenues


$

94,528



$

93,231

Cost of revenues, excluding amortization of intangibles



35,082




33,127

Gross profit



59,446




60,104

Operating expenses:








Selling, general and administrative



50,311




43,829

Research and development



13,957




15,651

Amortization of intangibles



1,783




834

Acquisition related items



1,036




1,578

Restructuring charges



873




-

Total operating expenses



67,960




61,892

Operating loss



(8,514)




(1,788)

Interest income



316




338

Interest expense



(7,179)




(6,545)

Exchange rate gain (loss)



84




(778)

Other, net



110




1,898

Loss before income tax



(15,183)




(6,875)

Income tax benefit



(4,280)




(3,714)

Net loss


$

(10,903)



$

(3,161)

Net loss per share:








Basic


$

(0.21)



$

(0.06)

Diluted


$

(0.21)



$

(0.06)

Shares used in calculating net loss per share:








Basic



51,967




54,189

Diluted



51,967




54,189

 

VOLCANO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


Three Months Ended
March 31,



2014


2013


Operating activities







Net loss

$

(10,903)


$

(3,161)


Adjustments to reconcile net loss  to net cash used in operating activities:







Depreciation and amortization


7,545



6,123


Amortization of investment premium, net


1,037



631


Accretion of debt discount on convertible senior notes and other long-term debt


4,941



4,572


Accretion of contingent consideration


865



936


Non-cash stock compensation expense


3,865



3,598


Asset impairment related to restructuring


726



-


Gain on sale of other long-term investment


(296)



(1,925)


Effect of exchange rate changes and others


512



4,604


Deferred income taxes


1,005



-


Changes in operating assets and liabilities, net of acquisitions


(12,310)



(23,249)


Net cash used in operating activities


(3,013)



(7,871)


Investing activities







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


(75,725)



(110,520)


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


102,467



67,137


Capital expenditures


(4,787)



(7,290)


Cash paid for intangible assets and other investments


(3,203)



(870)


Proceeds from sale of other long-term investments


296



3,426


Net cash provided by (used in) investing activities


19,048



(48,117)


Financing activities







Proceeds from sale of common stock under employee stock purchase plan


1,850



1,712


Proceeds from exercise of common stock options


7,144



691


Cash paid to settle contingent liability related to acquisition


(2,900)



-


Repayment of capital lease liability


(12)



(11)


Net cash provided by financing activities


6,082



2,392


Effect of exchange rate changes on cash and cash equivalents


159



(724)


Net increase (decrease) in cash and cash equivalents


22,276



(54,320)


Cash and cash equivalents, beginning of period


107,159



330,635


Cash and cash equivalents, end of period

$

129,435


$

276,315


 

VOLCANO CORPORATION

REVENUE SUMMARY

(in millions)

(unaudited)


















Three Months Ended
March 31,


Percentage

Change 


Currency Impact 


Constant Currency

Percentage Change



2014


2013


2013 to 2014


Dollar

Percentage



Medical segment:
















Consoles:
















United States

$   3.6


$   4.7


(25)

%


$      -


-

%


(25)

%


Japan

1.0


1.0


2



(0.1)


(12)



14



Europe

2.4


1.6


52



0.1


6



46



Rest of world

1.5


1.6


(9)



-


-



(9)



Total Consoles

$   8.5


$   8.9


(5)



$      -


-



(5)













-



-



IVUS single-procedure disposables:










-



-



United States

$21.0


$19.3


9

%


$      -


-

%


9

%


Japan

16.4


20.7


(21)



(2.4)


(12)



(9)



Europe

6.5


5.8


14



0.2


4



10



Rest of world

2.7


2.2


22



-


-



22



Total IVUS single-procedure disposables

$46.6


$48.0


(3)



$(2.2)


(5)



2













-



-



FFR single-procedure disposables:










-



-



United States

$13.7


$13.7


8

%


$      -


8

%


-

%


Japan

4.5


4.5


-



(0.6)


(14)



14



Europe

9.5


7.8


20



0.3


4



16



Rest of world

1.2


0.8


47



-


-



47



Total FFR single-procedure disposables

$28.9


$26.8


8



$(0.3)


(1)



9













-



-



Other

$   9.0


$   8.0


13

%


$(0.2)


(3)

%


16

%


Sub-total medical segment

$93.0


$91.7


1



$(2.7)


(3)



4













-



-



Industrial segment

$   1.5


$   1.5


(1)



$      -


-



(1)



Total

$94.5


$93.2


1



$(2.7)


(3)



4



 

VOLCANO CORPORATION

RECONCILIATION OF GAAP RESULTS TO NON-GAAP RESULTS

(in thousands, except per share data)

(Unaudited)















Three Months Ended March 31, 2014

Pre-tax

Adjustments


Net of Tax (1)


Losses Per

Share









 GAAP net loss  



$ (10,903)


$  (0.21)


 Acquisition related items 

1,036


673


0.01


 Amortization of intangibles 

1,783


1,159


0.02


 Non-cash interest expense on convertible notes 

4,924


3,201


0.06


 Non-GAAP net loss 

$  7,743


$   (5,870)


$  (0.12)









 Weighted average shares outstanding-basic 





51,967
















(1) Effective tax rate of 35% applied to non-GAAP adjustments


 

VOLCANO CORPORATION

RECONCILIATION OF GAAP TO NON-GAAP GUIDANCE

(in thousands, except per share data)

(Unaudited)










Q2 2014


Guidance Range


From


To









 GAAP net loss per share-basic 

$  (0.13)


$  (0.15)

 Acquisition related items 

0.01


0.01

 Amortization of intangibles 

0.02


0.02

 Non-cash interest expense 

0.06


0.06

 Non-GAAP net loss per share-basic 

$  (0.04)


$  (0.06)

 Weighted average shares outstanding-basic 

51,300


51,300














2014


Guidance Range


From


To









 GAAP net loss per share-basic 

$  (0.57)


$  (0.60)

 Acquisition related items 

0.06


0.06

 Amortization of intangibles 

0.09


0.09

 Non-cash interest expense 

0.26


0.26

 Non-GAAP net loss per share-basic 

$  (0.16)


$  (0.19)

 Weighted average shares outstanding-basic 

51,400


51,400









Note: Effective tax rate of 35% applied to non-GAAP adjustments

                                                                                                                

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