Volcano Posts Wider Loss – Analyst Blog

Volcano Corporation (VOLC) reported a first quarter loss of 8 cents per share, wider than the Zacks Consensus Estimate of a loss of 3 cents, but below the year-ago loss of 16 cents. First quarter revenues increased 36% from the year-ago period, with growth being driven by an increase in intravascular ultrasound disposable revenues in Japan, growth in US functional measurement (FM) disposable sales and increased market penetration in Europe. 

 

First quarter revenues came in at $66.6 million, including a foreign exchange benefit of $900,000. While the medical segment contributed $61.4 million to revenues, the industrial segment accounted for the rest. Industrial segment sales rose 52% mainly due to higher sales to international telecommunications customers. The company recorded revenue growth across all key geographic markets.

 

Intravascular ultrasound (IVUS) disposables revenues increased 32.4% to $38.6 million during the quarter. IVUS disposable revenues jumped 58% to $15.8 million in Japan. Japan is the largest IVUS market in the world and the establishment of a direct sales force should allow Volcano to provide more focused service and support to the market. Encouraging clinical data and increased sales efforts should help drive growth in Japan.

 

Meanwhile, the US market recorded a growth of 15.5% in IVUS disposable sales. IVUS disposable sales increased 32% in Europe during the quarter.

 

FM sales continued to grow at a strong pace with sales coming in at $10.5 million, up 69%. The increased availability of FFR technology, which has been incorporated into the company’s multi-modality console, helped boost growth. 

 

Data showing that the use of IVUS and FM devices not only enhances patient care but also has a meaningful impact on the cost of health care should help drive demand for these products.

 

Operating expenses increased 24.8% to $43.5 million, mainly due to higher selling, general and administrative expenses. We expect operating expenses to increase due to sales force expansion, expansion of sales and marketing programs in other geographies, and spending associated with clinical studies. The company is looking to introduce five product enhancements or new offerings in the remainder of 2010.

 

 

Volcano has reaffirmed its previously issued guidance for 2010. The company expects 2010 earnings in the range of 5 to 10 cents on total revenues of $277−$282 million. The revenue guidance includes $20 million in revenues from Axsun. Revenues from the core IVUS and FM segments are expected to grow at least 20% in 2010. Excluding stock-based compensation expense of approximately $13.3 million, Volcano expects earnings in the range of 30−35 cents in 2010.

 

 

We currently have a Neutral recommendation on Volcano. The company continues to execute in driving strong top-line growth in the IVUS/FM market thanks to new product launches, product enhancements and support from partners in marketing and distribution agreements.

 

Volcano’s ability to sustain its strong revenue growth appears promising as a result of market share gains, successful execution of its growth strategies, and strong R&D emphasis. Positive clinical data on IVUS/FM should also help drive demand.

 

However, competition remains tough. While Volcano’s primary IVUS competitor is Boston Scientific (BSX), it also competes with Terumo Corporation in Japan. Meanwhile, St. Jude Medical (STJ) is the company’s main competitor in the FM market.