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Volcano Reports 2008 Results

Volcano Corporation (Volcano) has reported revenues of $171.5 million for the full year of 2008, compared with revenues of $130.6 million in the previous year-end. It has also reported a GAAP net loss of $13.7 million, or $0.29 per share, for the full year of 2008, compared with the GAAP net loss of $26.6 million, or $0.66 per share, in the previous year-end.

Revenues in the fourth quarter of 2008 were $49.3 million against revenues of $40.0 million in the same period a year ago. The company said that the growth in revenues in the fourth quarter was driven by a 20% increase in intravascular ultrasound (IVUS) revenues and increased adoption of its Functional Measurement (FM) offerings.

For the fourth quarter of 2008, the company reported GAAP net income of $1.4 million, or $0.03 per diluted share, against a net loss on a GAAP basis of $23.7 million, or $0.53 per share, in the same period of 2007. Included in the results for the fourth quarter of 2007 were in-process research and development charges of $26.2 million related to Volcano’s acquisition of CardioSpectra, Inc., that was completed in December 2007. Weighted average shares for the fourth quarter of 2008 were 50.3 million against 44.9 million a year ago, reflecting the impact of the company’s equity offering that was completed in the fourth quarter of 2007.

Excluding stock-based compensation expense of $2.5 million and in-process research and development charges of $274,000, the company reported net income of $4.2 million, or $0.08 per diluted share, in the fourth quarter of 2008. In the fourth quarter of 2007, excluding stock-based compensation expense of $2.0 million and the in-process research and development charge of $26.2 million, the company reported net income of $4.4 million, or $0.09 per diluted share. A reconciliation of the company’s GAAP and non-GAAP results can be found in today’s earnings news release on the company’s website at www.volcanocorp.com.

Excluding in-process research and development charges of $12.7 million, stock-based compensation expense of $9.5 million and $2.9 million in due diligence, legal and accounting expenses related to a proposed acquisition that was not consummated, Volcano reported net income of $11.4 million, or $0.23 per diluted share, in 2008. Excluding in-process research and development charges of $26.2 million and stock-based compensation expense of $6.7 million, Volcano reported net income of $6.3 million, or $0.15 per diluted share, in 2007.

“Volcano concluded 2008 in a very strong manner, executing on our market expansion and technology innovation initiatives, as well as our product pipeline development programs – both through our internal efforts and the three key acquisitions we completed during the year,” said Scott Huennekens, president and chief executive officer.

“As evidenced by our revenue growth, we continued to increase the market presence of our IVUS offerings, placing 330 IVUS consoles during the quarter against 177 in the fourth quarter of 2007, or an increase of 86%. Importantly, most of these 330 IVUS consoles were multi-modality with FM capability as well. In total, we placed 867 IVUS consoles in 2008 against 597 in 2007, an increase of 45%, and also experienced a commensurate growth in our IVUS disposable revenues, which grew 18% against the fourth quarter of 2007 and 26% for the year. In addition, our FM business grew 36% in the quarter against the fourth quarter of 2007. We also achieved gross margin improvement and leveraged our operating expenses, which enabled us to be profitable on a GAAP basis in the quarter.

“The patients and company are benefiting,” he continued, “from a continuing favorable environment for percutaneous coronary interventions, the proliferation of IVUS and FM integrated systems and the release of positive data, including the recent publication of trial data from FAME (Fractional Flow Reserve vs. Angiography for Multivessel Evaluation) in The New England Journal of Medicine that we believe will be a catalyst for our FM business going forward.

“We continue to build out our direct sales force in the U.S. and Europe and implement our direct distribution strategy in Japan. We also achieved significant progress with our future OCT, forward-looking IVUS and image guided therapy offerings designed to complement our multi-modality platform strategy and address markets that are potentially larger than those we currently serve. The first of the new forward-looking IVUS devices is expected to be introduced later this year,” Huennekens noted.

Outlook for 2009

The company provided the following financial outlook for 2009

For its base IVUS and FM businesses, the company expects revenues of $203-$207 million, an increase of 18-21% over IVUS and FM revenues in 2008. Gross margin for its IVUS and FM business is expected to be in the range of 63-64%. Operating expenses related to its IVUS and FM businesses, including stock-based compensation expense and about $3.2 million of intangible amortization, are expected to be 63-64% of revenues. These expectations reflect increased SG&A spending to build out the company’s presence in Japan to support its direct distribution strategy, the build out of its sales force in the U.. and Europe, infrastructure spending and a modest increase in research and development spending to fund product development programs, clinical trials and regulatory activities.

Revenues attributable to Axsun Technologies, Inc., which the company acquired at the end of 2008 and will operate as a wholly-owned subsidiary, are expected to be in the range of $15-$16 million, with about 85% generated by Axsun’s industrial segment. Gross margin at Axsun is expected to be in the range of 24-25%. Operating expenses are expected to be 44-45% of revenues. Major spending at Axsun during 2009 will include research and development programs to develop lower cost platforms and new devices and systems for medical imaging applications, as well as market development initiatives.

On a consolidated basis, Volcano expects total revenues in fiscal 2009 of $218-$223 million, an increase of 27-30% over revenues in 2008. Gross margin is expected to be in the range of 60-62%, reflecting the dilutive effect of the Axsun business. Operating expenses, including stock-based compensation expense of about $13.3 million and about $4.1 million of intangible amortization, is expected to be 62-63% of revenues.

On a GAAP basis, the company expects to report a net loss of $0.05-$0.08 per share. Based on the expected timing for investments in the company described earlier and the anticipated growth trajectory for revenues, the company expects to show a GAAP net loss in the first half of 2009, and GAAP net income in the second half of 2009.

Excluding stock-based compensation expense of about $13.3 million, Volcano expects to report net income of $0.19-$0.21 per diluted share. The company expects that operating income in 2009, excluding stock-based compensation expense, due diligence costs and in-process research and development expenses, will be roughly double the $5.4 million of 2008.

The company said that excluding stock-based compensation expense, in-process research and development and acquisition due diligence costs, it expects results on a per diluted share basis will be impacted roughly $0.02-$0.04 per share against the net income of $0.23 per diluted share of 2008, due primarily to the contributions of interest income and the exchange rate gain in 2008 that are not expected to occur in 2009.

The company said that weighted average shares outstanding at year-end 2009 are expected to be about 48.2 million basic shares and 50.5 million diluted shares.