Volcano (VOLC) 8-K Volcano Corporation Reports Record Quarterly Revenues; First Profitable Quarter on Gaap Basis

Exhibit 99.1

VOLCANO CORPORATION REPORTS RECORD QUARTERLY REVENUES;
FIRST PROFITABLE QUARTER ON GAAP BASIS

      (RANCHO CORDOVA, CA), November 1, 2006—Volcano Corporation (NASDAQ: VOLC), a leading provider of intravascular ultrasound (IVUS) and functional measurement (FM) products designed to enhance the diagnosis and treatment of vascular and structural heart diseases, today announced results for the third quarter and first nine months of 2006.

      For the quarter ended September 30, 2006, Volcano reported record quarterly revenues of $27.8 million, a three percent increase over revenues of $26.9 million in the third quarter a year ago, and a seven percent increase over revenues of $25.9 million in the second quarter of 2006.

      Volcano reported its first-ever quarterly profit on a GAAP basis in the third quarter of 2006, with net income of $501,000, or $0.01 per diluted share. This compares with a net loss of $1.8 million, or $0.27 per share, in the third quarter of 2005. The company recorded non-cash, stock-based compensation expense of $809,000 during the quarter compared with $359,000 in the same quarter a year ago. Excluding stock-based compensation expense, Volcano reported net income of $1.3 million, or $0.04 per diluted share, versus a loss of $1.5 million, or $0.22 per share in the third quarter of 2005. Weighted average diluted shares outstanding were 36.9 million in the third quarter of 2006 compared with 6.7 million in the same period a year ago. The increase reflects the conversion of preferred stock to common stock, the exercise of warrants and the company’s initial public offering in June 2006.

      “Volcano had a very solid quarter as we not only produced record quarterly revenues and profitability, but also hit key milestones in our product development and clinical trial programs,” said Scott Huennekens, president and chief executive officer.

      “Our revenues for the quarter reflect the impact of initial shipment activity of the s5 IVUS console to Japan and an 11 percent increase in IVUS disposable revenues world-wide over the third quarter of last year. In addition, our gross margin for the quarter was 62 percent versus 50 percent in the third quarter of last year and 56 percent in the prior quarter, reflecting sales of our lower cost, PC-based IVUS consoles and product cost reduction programs,” he continued.

      The company said it had also realized several important operational milestones during the quarter, including:

• The shipment of the first s5 IVUS consoles to Japan, for which the company recorded $2.8 million in revenues during the third quarter.

• The initial installations of Volcano’s s5i in the United States and Europe. The s5i is Volcano’s first IVUS system that can be integrated into virtually any new or

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	existing cath lab configuration and incorporates real time VH designed to enhance the interpretation of IVUS images.
•	The first shipments of the s5i GE Innova IVUS, which is Volcano’s IVUS configuration specifically designed for integration into GE’s Innova Cath Labs.
•	The launch of the Revolution Catheter, a 45 MHz high frequency rotational IVUS catheter. Volcano is the only company offering clinicians both phased array and rotational IVUS catheters.

      “The ability to achieve key product introduction milestones at or ahead of schedule, as well as substantial progress on our key partnership and clinical initiatives—such as GE and Paieon—to develop exciting new solutions, is integral to our strategy of building market share and advancing adoption of IVUS in the clinical community,” Huennekens noted.

      The company noted that the use of IVUS was highlighted in a number of clinical presentations and live cases at the recent Transcatheter Cardiovascular Therapeutics (TCT) meeting.

      “The study findings presented at TCT are very encouraging and demonstrate the valuable role that IVUS can play in the diagnosis and understanding of coronary artery disease to optimize systemic and focal therapies, the optimization of stent placement and the potential to diagnose coronary plaques that are likely to progress and cause clinical events. We believe that the continued release of favorable IVUS clinical data will demonstrate its value to clinicians and their patients and result in broader use of IVUS,” Huennekens stated.

      A clinical update on the initial 250 PROSPECT trial patients was provided by the principle investigator Dr. Gregg Stone. His interim findings included that three-vessel IVUS VH imaging is feasible in most patients and that IVUS helps identify severe plaque lesions.

      For the first nine months of 2006, Volcano reported revenues of $73.5 million, a nine percent increase over revenues of $67.2 million in the same period a year ago. For the first nine months of 2006, Volcano reported a net loss on a GAAP basis of $10.0 million, or $0.60 per share, versus a loss of $8.3 million, or $1.25 per share, in the first nine months of 2005. Excluding a non-recurring, non-cash charge of $1.2 million related to the early extinguishment of debt and stock-based compensation expense of $2.3 million, the company reported a loss of $6.5 million, or $0.39 per share in the first nine months of 2006. In the first nine months of 2005, excluding stock-based compensation expense of $1.5 million, the company reported a loss of $6.9 million, or $1.04 per share. Weighted average shares outstanding were 16.7 million in the first nine months of 2006 compared with 6.7 million in the first nine months of 2005. Volcano completed its IPO in June 2006, selling 7.8 million shares—including the underwriters’ overallotment option—and raised net proceeds of approximately $54.5 million.

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Guidance for 2006

      Volcano expects revenues of $98.0 million for fiscal 2006. This compares with prior guidance for revenues of $94.0 million. The company expects that gross margin for 2006 will be in the range of 58-59 percent on a GAAP basis, compared with prior guidance of 56-57 percent. The company expects to report a net loss on a GAAP basis of $0.58-$0.60 per share, assuming 20.8 million weighted average shares outstanding. This compares to prior guidance of a net loss of $0.75 per share. This guidance includes a non-recurring, non-cash charge of $1.2 million related to the debt repayment, and non-cash, stock-based compensation expense of approximately $3.1 million. Excluding the non-recurring charge related to the debt repayment and stock-based compensation expense, the company expects to report a net loss of $0.38-$0.40 per share. This compares with prior guidance of a net loss of $0.54 per share.

Conference Call

      The company will hold a conference call today at 2 p.m., Pacific Standard Time (5 p.m., Eastern Standard Time). The teleconference can be accessed by calling (913) 981-4911, or via the investor relations section of the company’s website at www.volcanocorp.com. Please dial in or access the website 10-15 minutes prior the beginning of the call. A replay of the conference call will be available until November 8 at (719) 457-0820, passcode 4959341, and via the company’s website.

Volcano Corporation

      Volcano Corporation, which completed its IPO in June 2006, offers a broad suite of devices designed to facilitate endovascular procedures. Volcano’s products are designed to enhance the diagnosis of vascular and structural heart diseases and guide therapies. The company’s IVUS (intravascular ultrasound) product line includes ultrasound consoles that can be integrated directly into virtually any modern cath lab and single-use phased array and rotational IVUS imaging catheters. Volcano also has unique advanced functionally options such as VH (virtual histology) tissue characterization and IVUS and angiography co-registration. Volcano also provides functional measurement (FM) consoles and single-use pressure and flow guide wires. Currently, more than 2,300 Volcano IVUS and FM systems are installed worldwide, with approximately half of its revenues coming from outside the United States. For more information, visit the company’s website at www.volcanocorp.com.

Use of Non-GAAP Financial Measures

      This press release includes certain non-GAAP financial information as defined by the U.S. Securities and Exchange Commission Regulation G. Pursuant to the requirements of this regulation, a reconciliation of this non-GAAP financial information to our financial statements as prepared under generally accepted accounting principles in the United States (GAAP) is included in this press release. Non-GAAP financial

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measures provide an indication of our performance before certain charges. Our management believes that in order to properly understand our short-term and long-term financial trends, investors may wish to consider the impact of these charges. These charges result from facts and circumstances that vary in frequency and/or impact on continuing operations. Our management believes that these items should be excluded when comparing our current operating results with those of prior periods as the write-off of deferred debt issuance costs, which results from the repayment of certain debt in connection with our initial public offering, will not impact future operating results, and stock-based compensation is a non-cash expense. In addition, our management uses results of operations before these certain charges to evaluate the operational performance of the company and as a basis for strategic planning. Investors should consider these non-GAAP measures in addition to, and not as a substitute for, financial measures in accordance with GAAP.

Forward-Looking Statements

      This press release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Statements in this press release regarding Volcano’s business that are not historical facts may be “forward-looking statements” that involve risks and uncertainties. Specifically, statements regarding the company’s financial guidance for 2006, expectations and outcomes regarding product development and clinical trial programs, market development and product use, regulatory approvals and current and potential partnerships are forward-looking statements involving risks and uncertainties. Forward-looking statements are based on management’s current, preliminary expectations and are subject to risks and uncertainties, which may cause Volcano’s results to differ materially from the statements contained herein. The potential risks and uncertainties that could cause actual results to differ from the results predicted are detailed in the company’s 10-Q and other filings made with the Securities and Exchange Commission. Undue reliance should not be placed on forward-looking statements, which speak only as of the date they are made. Volcano undertakes no obligation to update publicly any forward-looking statements to reflect new information, events or circumstances after the date they were made, or to reflect the occurrence of unanticipated events.

Contacts:

John Dahldorf
Chief Financial Officer
Volcano Corporation
(916) 638-8008
or
Neal Rosen
Kalt Rosen & Co.
(415) 397-2686

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VOLCANO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)

	December 31,			September 30,
	2005			2006
Assets
Current assets:
Cash and cash equivalents	$	15,219		$	25,074
Accounts receivable, net		16,001			22,381
Inventories		10,155			12,194
Prepaid expenses and other current assets		1,416			2,493
Total current assets		42,791			62,142
Restricted cash		309			347
Property and equipment, net		9,885			8,921
Intangible assets, net		14,645			12,585
Other non-current assets		838			390
	$	68,468		$	84,385
Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable	$	11,119		$	8,123
Accrued compensation		4,437			5,595
Accrued expenses and other current liabilities		4,955			4,660
Deferred revenues		2,173			2,265
Current maturities of long-term debt		3,114			1,557
Total current liabilities		25,798			22,200
Long-term debt		27,236			247
Deferred license fee from a related party		1,625			1,438
Other		217			292
Total liabilities		54,876			24,177
Convertible preferred stock		63,060			—
Stockholders’ equity (deficit)		(49,468	)		60,208
	$	68,468		$	84,385

VOLCANO CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2005			2006			2005			2006
Revenues	$	26,948		$	27,782		$	67,198		$	73,517
Cost of revenues		13,497			10,560			32,836			30,248
Gross profit		13,451			17,222			34,362			43,269
Operating expenses:
Selling, general and administrative		8,861			11,769			25,406			35,027
Research and development		4,348			3,965			10,623			12,835
Amortization of intangibles		770			781			2,280			2,332
Total operating expenses		13,979			16,515			38,309			50,194
Operating income (loss)		(528	)		707			(3,947	)		(6,925	)
Interest expense		(1,321	)		(144	)		(3,999	)		(3,910	)
Interest and other income (expense), net		47			192			(349	)		1,072
Income (loss) before provision for income taxes		(1,802	)		755			(8,295	)		(9,763	)
Provision for income taxes		29			254			49			273
Net income (loss)	$	(1,831	)	$	501		$	(8,344	)	$	(10,036	)
Net income (loss) per share — basic	$	(0.27	)	$	0.02		$	(1.25	)	$	(0.60	)
Net income (loss) per share — diluted	$	(0.27	)	$	0.01		$	(1.25	)	$	(0.60	)
Weighted-average shares outstanding — basic		6,700			32,976			6,650			16,744
Weighted-average shares outstanding — diluted		6,700			36,900			6,650			16,744

VOLCANO CORPORATION
RECONCILIATION OF GAAP AND NON-GAAP OPERATING RESULTS
(in thousands, except per share data)
(Unaudited)

	Three Months Ended September 2006
				Stock-based
				compensation
	GAAP results			expense			Non-GAAP results
Revenues	$	27,782		$	—		$	27,782
Cost of revenues		10,560			(103	)		10,457
Gross profit		17,222			103			17,325
Operating expenses:
Selling, general and administrative		11,769			(573	)		11,196
Research and development		3,965			(133	)		3,832
Amortization of intangibles		781			—			781
Total operating expenses		16,515			(706	)		15,809
Operating income		707			809			1,516
Interest expense		(144	)		—			(144	)
Interest and other income, net		192			—			192
Income before provision for income taxes		755			809			1,564
Provision for income taxes		254			—			254
Net income	$	501		$	809		$	1,310
Net income per share — basic	$	0.02		$	0.02		$	0.04
Net income per share — diluted	$	0.01		$	0.02		$	0.04
Weighted-average shares outstanding — basic		32,976						32,976
Weighted-average shares outstanding — diluted		36,900						36,900

	Three Months Ended September 2005
				Stock-based
				compensation
	GAAP results			expense			Non-GAAP results
Revenues	$	26,948		$	—		$	26,948
Cost of revenues		13,497			(65	)		13,432
Gross profit		13,451			65			13,516
Operating expenses:
Selling, general and administrative		8,861			(219	)		8,642
Research and development		4,348			(75	)		4,273
Amortization of intangibles		770			—			770
Total operating expenses		13,979			(294	)		13,685
Operating income (loss)		(528	)		359			(169	)
Interest expense		(1,321	)		—			(1,321	)
Interest and other income, net		47			—			47
Income (loss) before provision for income taxes		(1,802	)		359			(1,443	)
Provision for income taxes		29			—			29
Net income (loss)	$	(1,831	)	$	359		$	(1,472	)
Net income (loss) per share — basic	$	(0.27	)	$	0.05		$	(0.22	)
Net income (loss) per share — diluted	$	(0.27	)	$	0.05		$	(0.22	)
Weighted-average shares outstanding — basic		6,700						6,700
Weighted-average shares outstanding — diluted		6,700						6,700

VOLCANO CORPORATION
RECONCILIATION OF GAAP AND NON-GAAP OPERATING RESULTS
(in thousands, except per share data)
(Unaudited)

	Nine Months Ended September 2006
				Stock-based			Write-off of
				compensation			deferred debt
	GAAP results			expense			issuance costs		Non-GAAP results
Revenues	$	73,517		$	—		$	—	$	73,517
Cost of revenues		30,248			(239	)		—		30,009
Gross profit		43,269			239			—		43,508
Operating expenses:
Selling, general and administrative		35,027			(1,680	)		—		33,347
Research and development		12,835			(375	)		—		12,460
Amortization of intangibles		2,332			—			—		2,332
Total operating expenses		50,194			(2,055	)		—		48,139
Operating income (loss)		(6,925	)		2,294			—		(4,631	)
Interest expense		(3,910	)		—			1,246		(2,664	)
Interest and other income, net		1,072			—			—		1,072
Income (loss) before provision for income taxes		(9,763	)		2,294			1,246		(6,223	)
Provision for income taxes		273			—			—		273
Net income (loss)	$	(10,036	)	$	2,294		$	1,246	$	(6,496	)
Net income (loss) per share — basic	$	(0.60	)	$	0.14		$	0.07	$	(0.39	)
Net income (loss) per share — diluted	$	(0.60	)	$	0.14		$	0.07	$	(0.39	)
Weighted-average shares outstanding — basic		16,744								16,744
Weighted-average shares outstanding — diluted		16,744								16,744

	Nine Months Ended September 2005
				Stock-based			Write-off of
				compensation			deferred debt
	GAAP results			expense			issuance costs		Non-GAAP results
Revenues	$	67,198		$	—		$	—	$	67,198
Cost of revenues		32,836			(193	)		—		32,643
Gross profit		34,362			193			—		34,555
Operating expenses:
Selling, general and administrative		25,406			(1,013	)		—		24,393
Research and development		10,623			(248	)		—		10,375
Amortization of intangibles		2,280			—			—		2,280
Total operating expenses		38,309			(1,261	)		—		37,048
Operating income (loss)		(3,947	)		1,454			—		(2,493	)
Interest expense		(3,999	)					—		(3,999	)
Interest and other income (expense), net		(349	)		—			—		(349	)
Income (loss) before provision for income taxes		(8,295	)		1,454			—		(6,841	)
Provision for income taxes		49			—			—		49
Net income (loss)	$	(8,344	)	$	1,454		$	—	$	(6,890	)
Net income (loss) per share — basic	$	(1.25	)	$	0.22		$	—	$	(1.04	)
Net income (loss) per share — diluted	$	(1.25	)	$	0.22		$	—	$	(1.04	)
Weighted-average shares outstanding — basic		6,650								6,650
Weighted-average shares outstanding — diluted		6,650								6,650

Use of Non-GAAP Financial Measures

This press release includes certain non-GAAP financial information as defined by the U.S. Securities and Exchange Commission Regulation G. Pursuant to the requirements of this regulation, a reconciliation of this non-GAAP financial information to our financial statements as prepared under generally accepted accounting principles in the United States (GAAP) is included in this press release. Non-GAAP financial measures provide an indication of our performance before certain charges. Our management believes that in order to properly understand our short-term and long-term financial trends, investors may wish to consider the impact of these charges. These charges result from facts and circumstances that vary in frequency and/or impact on continuing operations. Our management believes that these items should be excluded when comparing our current operating results with those of prior periods as the write-off of deferred debt issuance costs, which resulted from the repayment of certain debt in connection with our initial public offering, will not impact future operating results, and stock-based compensation is a non-cash expense. In addition, our management uses results of operations before certain charges to evaluate the operational performance of the company and as a basis for strategic planning. Investors should consider these non-GAAP measures in addition to, and not as a substitute for, financial performance measures in accordance with GAAP.