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Volcano Beats, Revenues In Line

Zacks Equity Research

Volcano Corporation (NasdaqGS:VOLC - News) reported an EPS of 9 cents in the second quarter of fiscal 2011, way above the Zacks Consensus Estimate of 3 cents but a penny lower than the previous fiscal. Revenues increased 14.3% year over year to reach $84 million during the quarter and were in line with the Zacks Consensus Estimate.

While revenues from Consoles declined 9% to $9.8 million, strong growth has been witnessed in Intravascular Ultrasound (:IVUS), up 22% to $50 million and Functional Measurement (:FM) single-procedure disposables, up 54% to $16.6 million. Industrial segment recorded a 59% decline in revenues to $2.7 million.

Volcano recorded a robust quarter with respect to its operations in Japan, as activities returned to normal following the natural disaster in March. As a result, the company recorded a 31% rise in IVUS revenues from Japan.

With the recent launch of Vibe RX balloon catheter in Japan, the company expects to experience higher growth going forward. Japan is the largest IVUS market in the world and creation of a direct sales force enabled the company to provide more focused service and support to the market.

Meanwhile, the US market recorded a growth of 15% in IVUS disposable sales. Europe and Rest of World (:ROW) countries posted growth rates of 20% and 11%, respectively. FM sales in Europe were the highest (70% to $6.3 million) followed by Japan (up 50% to $1 million), US (up 46% to $8.7 million) and in ROW (up 43% to $0.6 million).

Gross margin of Volcano Corporation was 68.2% in the quarter, compared with 63.1% in the second quarter of 2010. This was primarily due to a 1.2% decline in cost of revenues. Operating expenses (excluding amortization of intangibles) increased 23% to $48.8 million due to an 18% rise in selling, general and administrative expenses coupled with a 38.8% increase in research and development expenses. Despite the rise in operating expenses, margin improved by 100 basis points to 10.1%.

Volcano Corporation’s bottom line was however impacted by higher interest expense, which was $2.1 million in the quarter compared to $11,000 in the year-ago period. This is due to higher debt burden of the company that went up to $93.4 million in the quarter. Earlier, in September 2010, Volcano had raised $100 million through the issuance of $115 million of 2.875% convertible senior notes due September 1, 2015.


Volcano Corporation reiterated its outlook for fiscal 2011. The company still expects to gross revenues of $342–$347 million resulting in an EPS of 19-21 cents. Gross margin is now expected at 65-66% (previous guidance of 64-65%) while operating expenses should be around 58−60% (57−59%) of revenues.


Volcano continues to execute strategies to drive sales in the IVUS/FM market backed by new product launches and product enhancements. Moreover, increased acceptance of the Vibe vascular imaging balloon catheter in Europe and product launches in Japan should provide further upside to the company.

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