Volcano Reports Second Quarter Results

                    Volcano Reports Second Quarter Results

COMPANY ANNOUNCES LITIGATION SETTLEMENT AGREEMENT WITH ST. JUDE MEDICAL AND
PLAN TO DIVEST AXSUN TECHNOLOGIES SUBSIDIARY

PR Newswire

SAN DIEGO, Aug. 7, 2014

SAN DIEGO, Aug. 7, 2014 /PRNewswire/ -- Volcano Corporation (Nasdaq: VOLC), a
leading company focused on improving patient and economic outcomes on a global
basis by developing and delivering innovative minimally invasive coronary and
peripheral visualization, physiology diagnostics and therapies, today reported
results for the second quarter and first six months of 2014.

The company also announced today that it will be seeking a divestiture of its
Axsun Technologies, Inc. subsidiary. In addition, the company said that it and
St. Jude Medical, Inc., (NYSE: STJ) have agreed to settle all existing
litigation between the two companies.

For the quarter ended June 30, 2014, Volcano reported revenues of $102.6
million versus revenues of $101.3 million in the same period a year ago.
Foreign currency exchange rates did not have a material impact on revenues
during the quarter. Medical segment revenues increased approximately two
percent on a reported basis.

The company reported net income on a GAAP basis of $282,000, or $0.01 per
diluted share, in the second quarter of 2014, versus a net loss of $2.4
million, or $0.04 per share, in the same period a year ago. The results for
the second quarter of 2014 included an acquisition-related benefit of $7.2
million related to an adjustment to a contingent liability resulting in a net
benefit of $6.4 million, while the results for the second quarter of 2013
included a gain on a strategic investment of $2.2 million. Excluding
acquisition-related items, amortization of intangibles and non-cash interest
expense on convertible notes, net of tax, the company reported non-GAAP net
income of $0.01 per diluted share, compared with non-GAAP earnings per diluted
share of $0.03 in the second quarter a year ago.

For the first six months of 2014, Volcano reported revenues of $197.1 million
versus revenues of $194.6 million in the first six months of 2013. On a
constant currency basis, revenues increased three percent year-over-year after
adjusting for a negative impact of approximately $2.7 million from foreign
currency. Medical segment revenues increased approximately two and three
percent on a reported and constant currency basis, respectively, versus the
first six months of 2013.

For the first six months of 2014, the company reported a net loss on a GAAP
basis of $10.6 million, or $0.21 per share, versus a net loss of $5.5 million,
or $0.10 per share, in the same period a year ago. The results for the first
six months of 2014 included a net acquisition-related benefit of $5.4 million,
while the results for the first six months of 2013 included other income of
$4.2 million. 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 $0.10 per share in the first six months of
2014, compared with non-GAAP net earnings per diluted share of $0.06 in the
first six months of 2013.

"Our results for the quarter reflect continued expansion of our IVUS
(Intravascular Ultrasound) peripheral business in the U.S. and strong growth
for our FFR (Fractional Flow Reserve) disposable business in Japan and
Europe," said Scott Huennekens, president and chief executive officer. "These
gains helped offset the impact of the continued decline in our coronary IVUS
disposable activity."

"The second quarter was highlighted by the acquisition of AtheroMed, Inc., and
its Phoenix® Atherectomy System used in the treatment of peripheral artery
disease," he continued. "We are on track to initiate a limited market release
of the Phoenix device later this year and a full market release in early 2015.
In addition, during the quarter we began the roll out of our iFR® (Instant
Wave-Free Ratio™) FFR offering and SyncVision™ Co- Registration System in the
U.S.," he added.

With respect to the planned Axsun divestiture, Huennekens said, "This decision
was driven by our long-term strategy to focus on coronary imaging and
physiology leadership, peripheral expansion, profitability and business scale.
The Axsun business and financial model is no longer a strategic fit with
Volcano. We greatly appreciate the significant contributions of the Axsun team
to Volcano over the past several years."

Under terms of the settlement with St. Jude Medical, the parties have agreed
to dismiss their lawsuits with prejudice, with neither party admitting
liability to the other. Each party will be granted a release of liability for
alleged misconduct, granted a license to all patents-in-suite and granted a
covenant not to sue as to various current and future products. As part of the
settlement agreement, no financial payments will be made to either party by
the other.

"We are pleased with the resolution of these litigation matters and believe
this settlement will enable us to better focus on the needs of doctors and
patients," Huennekens said.

Guidance

The company provided updated guidance for the full year 2014. Based on current
foreign currency exchange rates, it expects revenues on a reported basis will
be $397.0-$401.0 million, with revenues on a constant currency basis in the
range of $401.0-$405.0 million. The company said it expects gross margins will
be in the range of 63.0-63.5 percent and that operating expenses, including
restructuring charges, will be 65.5-66.5 percent of revenues. On a reported
basis, the company expects a GAAP net loss of $0.52-$0.55 per share. The
company is maintaining its prior guidance for a net loss per share of
$0.16-$0.19 on a non-GAAP basis. The company said it has been able to offset
its revised outlook for revenues with expense reprioritization initiatives
related to SG&A and R&D expenses, resulting in expected lower operating
expenses as a percentage of revenues. 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.

For the third quarter of 2014, Volcano expects revenues in the range of
$95.0-$97.0 million on a reported and $95.5-$97.5 million constant currency
basis. It expects gross margins will be in the range of 62.0-62.5 percent and
that operating expenses will be in the range of 69.0-70.0 percent of revenues.
The company expects a net loss per share of $0.17-$0.19 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 66540992, 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 August 10, at (404) 537-3406, passcode 66540992, and via the
company's website at http://www.volcanocorp.com.

About Volcano Corporation

Through its multi-modality platform, Volcano Corporation is the global leader
in intravascular imaging for coronary and peripheral applications, and
physiology. The company also offers a suite of peripheral therapeutic devices.
The company's broad range of technologiesmakes imaging and therapy simpler,
more informative and less invasive and offers physicians and their patients
around the world with industry-leading tools that aid diagnosis and guide and
provide therapy. Founded in cardiovascular care and expanding into other
specialties, Volcano is focused on improving patient and economic outcomes.
For more information, visit the company's website at 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 is appropriate 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 third and fourth quarter and calendar
year 2014, its growth and other strategies and ability to execute on these
strategies, the potential Axsun divestiture, competitive position, target
markets, development of its base business and pipeline, product launches,
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 risks that
Volcano's revenues or other projections may turn out to be inaccurate or
Volcano may encounter unanticipated difficulty in achieving 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 ofobtaining 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
businesses and our ability to integrate businesses from potential future
acquisitions; risks associated with Volcano's international operations; the
ability to divest Axsun, if at all, and in a timely or beneficial manner;
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 fully
described in Volcano's filings made with the Securities and Exchange
Commission, including our 10-Q for the quarter ended March 31, 2014, 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)
                                           June 30,     December 31,
                                           2014           2013
Assets
Current assets:
Cash and cash equivalents                $   56,182  $     107,159
Short-term available-for-sale             149,981        230,775
investments
Accounts receivable, net                 85,097         81,962
Inventories                              72,170         60,970
Prepaid expenses and other current        24,960         28,525
assets
Total current assets                     388,390        509,391
Long-term available-for-sale investments 35,510         34,750
Property and equipment, net              122,471        118,094
Intangible assets, net                   126,970        58,108
Goodwill                                 150,882        55,087
Other non-current assets                 56,330         56,489
Total Assets                             $  880,553    $     831,919
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable                         $   13,207  $       19,137
Accrued compensation                     28,277         26,918
Accrued expenses and other current        29,979         28,453
liabilities
Deferred revenues                        11,119         10,652
Contingent consideration                 14,450         3,750
Total current liabilities                97,032         88,910
Convertible senior notes                 410,868        401,012
Other long-term debt                     1,208          1,268
Deferred revenues                        4,802          5,079
Contingent consideration, non-current     52,984         29,888
portion
Other non-current liabilities            6,523          5,960
Total liabilities                        573,417        532,117
Stockholders' equity                     307,136        299,802
Total Liabilities and Stockholders'       $  880,553    $     831,919
Equity







VOLCANO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
                               Three Months Ended      Six Months Ended
                               June 30,                June 30,
                               2014        2013        2014         2013
Revenues                       $ 102,605   $ 101,344   $ 197,133    $ 194,575
Cost of revenues, excluding      37,711      36,039      72,794       69,166
amortization of intangibles
Gross profit                     64,894      65,305      124,339      125,409
Operating expenses:
Selling, general and             49,353      45,734      99,664       89,563
administrative
Research and development         13,700      17,954      27,657       33,605
Amortization of intangibles      1,818       820         3,601        1,654
Acquisition related items        (6,441)     911         (5,405)      2,489
Restructuring items              (841)       -           32           -
Total operating expenses         57,589      65,419      125,549      127,311
Operating income (loss)          7,305       (114)       (1,210)      (1,902)
Interest income                  281         305         596          643
Interest expense                 (7,320)     (6,607)     (14,498)     (13,152)
Exchange rate (loss) gain       (13)        (301)       71           (1,079)
Other, net                       14          2,279       124          4,177
Income (loss) before income      267         (4,438)     (14,917)     (11,313)
tax
Income tax benefit               (15)        (2,050)     (4,295)      (5,764)
Net income (loss)              $ 282       $ (2,388)   $ (10,622)   $ (5,549)
Net income (loss) per share:
Basic                          $ 0.01      $ (0.04)    $ (0.21)     $ (0.10)
Diluted                        $ 0.01      $ (0.04)    $ (0.21)     $ (0.10)
Shares used in calculating
net income (loss) per share:
Basic                            51,300      54,574      51,630       54,389
Diluted                          51,674      54,574      51,630       54,389







VOLCANO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
                                                     Six Months Ended
                                                     June 30,
                                                     2014         2013
Operating activities
Net loss                                             $ (10,622)   $ (5,549)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization                          15,212       12,223
Amortization of investment premium, net                1,866        1,378
Accretion of debt discount on convertible senior       9,881        9,341
notes and other long-term debt
Changes in contingent consideration                    (6,204)      1,656
Non-cash stock compensation expense                    7,515        7,847
Asset impairment related to restructuring              818          -
Gain on sale of other long-term investment             (365)        (1,925)
Effect of exchange rate changes and others             (953)        9,139
Deferred income taxes                                  1,014        -
Changes in operating assets and liabilities, net of    (20,103)     (32,583)
acquisitions
Net cash (used in) provided by operating activities    (1,941)      1,527
Investing activities
Purchase of short-term and long-term                   (120,514)    (154,887)
available-for-sale securities
Sale or maturity of short-term and long-term           198,621      139,494
available-for-sale securities
Capital expenditures                                   (14,661)     (18,490)
Cash paid for intangible assets and other              (4,941)      (1,692)
investments
Proceeds from sale of other long-term investments      365          3,426
Cash paid for acquisitions, net of cash acquired       (114,791)    -
Net cash used in investing activities                  (55,921)     (32,149)
Financing activities
Repayment of capital lease liability                   (19)         (15)
Cash paid to settle contingent liability related to    (2,900)      -
acquisition
Proceeds from sale of common stock under employee      1,851        1,713
stock purchase plan
Proceeds from exercise of common stock options         7,691        1,185
Net cash provided by financing activities              6,623        2,883
Effect of exchange rate changes on cash and cash       262          (1,136)
equivalents
Net decrease in cash and cash equivalents              (50,977)     (28,875)
Cash and cash equivalents, beginning of period         107,159      330,635
Cash and cash equivalents, end of period             $ 56,182     $ 301,760





VOLCANO CORPORATION
REVENUE SUMMARY
(in millions)
(unaudited)
                   Three Months    Percentage                      Constant
                   Ended           Change     Currency Impact    Currency
                   June 30,                                        Percentage
                   2014    2013    2013 to     Dollar  Percentage  Change
                                   2014
Medical segment:
Consoles:
United States      $     $     (18)   %    $     -      %    (18)   %
                   5.7     6.9                 -
Japan              0.2     0.1     16          -       (4)         20
Europe             3.1     2.7     17          0.2     6           11
Rest of world      1.2     1.8     (35)        -       -           (35)
Total Consoles     $      $      (12)        $      1           (13)
                   10.2    11.5                0.2
IVUS
single-procedure
disposables:
United States      $      $      10     %    $     -      %    10     %
                   22.7    20.7                -
Japan              15.8    20.6    (23)        (0.9)   (4)         (19)
Europe             6.9     6.4     9           0.4     6           3
Rest of world      2.9     2.2     33          -       -           33
Total IVUS         $      $ 
single-procedure   48.3    49.9    (3)         $(0.5)  (1)         (2)
disposables
FFR
single-procedure
disposables:
United States      $      $      2      %    $     -      %    2      %
                   15.2    15.1                -
Japan              5.5     4.4     23          (0.3)   (6)         29
Europe             10.6    8.0     32          0.6     7           25
Rest of world      0.8     1.2     (33)        -       -           (33)
Total FFR          $      $                  $ 
single-procedure   32.1    28.7    12          0.3     1           11
disposables
Other              $      $     13     %    $(0.1)  (1)    %    14     %
                   10.2    8.9
Sub-total medical  $100.7  $      2           $(0.1)  -           2
segment                    99.0
Industrial segment $     $     (19)        $     -           (19)
                   1.9     2.3                 -
Total              $102.6  $101.3  1           $(0.1)  -           1





VOLCANO CORPORATION
REVENUE SUMMARY
(in millions)
(unaudited)
                   Six Months      Percentage                      Constant
                   Ended           Change     Currency Impact    Currency
                   June 30,                                        Percentage
                   2014    2013    2013 to     Dollar  Percentage  Change
                                   2014
Medical segment:
Consoles:
United States      $     $      (21)   %    $     -      %    (21)   %
                   9.3     11.7                -
Japan              1.2     1.1     4           (0.1)   (11)        15
Europe             5.5     4.2     30          0.3     6           24
Rest of world      2.7     3.5     (23)        -       -           (23)
Total Consoles     $      $      (9)         $      1           (10)
                   18.7    20.5                0.2
IVUS
single-procedure
disposables:
United States      $      $      10     %    $     -      %    10     %
                   43.7    40.0                -
Japan              32.2    41.3    (22)        (3.2)   (8)         (14)
Europe             13.5    12.2    11          0.6     5           6
Rest of world      5.6     4.4     27          -       -           27
Total IVUS         $      $ 
single-procedure   95.0    97.8    (3)         $(2.6)  (3)         -
disposables
FFR
single-procedure
disposables:
United States      $      $      1      %    $     -      %    1      %
                   28.9    28.7                -
Japan              9.9     8.9     12          (0.9)   (10)        22
Europe             20.0    15.9    26          0.9     5           21
Rest of world      2.0     2.0     -           -       -           -
Total FFR          $      $                  $  
single-procedure   60.9    55.5    10          -      -           10
disposables
Other              $      $      13     %    $(0.3)  (2)    %    15     %
                   19.2    16.9
Sub-total medical  $193.7  $190.7  2           $(2.7)  (1)         3
segment
Industrial segment $     $     (12)        $     -           (12)
                   3.4     3.8                 -
Total              $197.1  $194.6  1           $(2.7)  (2)         3







VOLCANO CORPORATION
RECONCILIATION OF GAAP RESULTS TO NON-GAAP RESULTS
(in thousands, except per share data)
(Unaudited)
Three Months Ended June 30,   Pre-tax                           Earnings /
2014                          Adjustments       Net of Tax (1)  (Loss) Per
                                                                Share
GAAP net income                               $         $      
                                                  282             0.01
Acquisition related items   (6,441)           (4,187)         (0.08)
Amortization of intangibles 1,818             1,182           0.02
Non-cash interest expense on 5,011             3,257           0.06
convertible notes
Non-GAAP net income         $           $         $      
                              388                 534             0.01
Weighted average shares                                        51,674
outstanding—diluted
Six Months Ended June 30,     Pre-tax                           Earnings /
2014                          Adjustments       Net of Tax (1)  (Loss) Per
                                                                Share
GAAP net loss                                 $            $      
                                                (10,622)          (0.21)
Acquisition related items   (5,405)           (3,513)         (0.07)
Amortization of intangibles 3,601             2,341           0.05
Non-cash interest expense on 9,935             6,458           0.13
convertible notes
Non-GAAP net loss           $     8,131  $          $      
                                                (5,336)            (0.10)
Weighted average shares                                        51,630
outstanding—basic
(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)
                                                 Q3 2014
                                                 Guidance Range
                                                 From            To
GAAP net loss per share—basic                  $ (0.17)       $ (0.19)
Acquisition related items                      0.03            0.03
Amortization of intangibles                    0.04            0.04
Non-cash interest expense                      0.06            0.06
Non-GAAP net loss per share—basic              $ (0.04)       $ (0.06)
Weighted average shares outstanding—basic      51,415          51,415
                                                 2014
                                                 Guidance Range
                                                 From            To
GAAP net loss per share—basic                  $ (0.52)       $ (0.55)
Acquisition related items                      (0.02)          (0.02)
Amortization of intangibles                    0.12            0.12
Non-cash interest expense                      0.26            0.26
Non-GAAP net loss per share—basic              $ (0.16)       $ (0.19)
Weighted average shares outstanding—basic      51,440          51,440
Note: Effective tax rate of 35% applied to non-GAAP adjustments







SOURCE Volcano Corporation

Website: http://www.volcanocorp.com
Contact: John Dahldorf, Chief Financial Officer, Volcano Corporation, (858)
720-4020, or Neal B. Rosen, (650) 458-3014
 
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