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Volcano Reports 1st Quarter Revenues of $49 Million; IVUS and FM Businesses Grew 24%

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Volcano Corporation

May 5, 2009 -- San Diego -Volcano Corporation (Nasdaq: VOLC), a leader in the development, manufacturing and sales of products for the diagnosis and treatment of coronary and peripheral artery disease, today reported revenues of $49.0 million for the first quarter of fiscal 2009.

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The results for the quarter ended March 31, 2009, represent a 34 percent increase over revenues of $36.6 million in the first quarter of 2008. The revenues for the first quarter of 2009 include $3.7 million from Axsun Technologies, Inc., which Volcano acquired at the end of 2008 and for which the company recorded no revenues in the first quarter a year ago.

The company said revenue growth was driven by a 24 percent increase in revenues from its intravascular ultrasound (IVUS) and Functional Measurement (FM) offerings.

For the first quarter of 2009, the company reported a GAAP net loss of $7.6 million, or $0.16 per share, versus a GAAP net loss of $2.3 million, or $0.05 per share, in the same period in 2008. Weighted average shares for the first quarter of 2009 were 48.0 million.

Excluding stock-based compensation expense of $2.7 million, the company reported a net loss of $4.9 million, or $0.10 per share, in the first quarter of 2009. Excluding acquisition-related costs of $2.9 million, stock-based compensation expense of $2.1 million and in-process research and development expenses of $175,000, Volcano reported net income of $2.8 million, or $0.06 per diluted share, in the first quarter of 2008. 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

"In spite of a difficult U.S. capital equipment environment, we continued our successful market expansion programs for Volcano's IVUS and FM offerings during the quarter as we placed 210 IVUS consoles, nearly double the consoles placed in the same period a year ago. In addition, our combined IVUS and FM revenues increased 24 percent versus the first quarter of 2008, including an 82 percent increase in FM disposable revenues," said Scott Huennekens, president and chief executive officer of Volcano.

"Helping to drive adoption were the technology leadership of our offerings, our expanded sales force and the ongoing release of data that demonstrate the value of using IVUS and FM to diagnose and treat patients," he added.

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Scott Huennekens

The company said that it is also accelerating its direct sales program in Japan and is in negotiations with Goodman, its largest Japanese distributor, regarding the transition, and expects to discontinue distribution through Goodman over the next two quarters.

"We feel very positive about our market position and the momentum we have in Japan," Huennekens noted. "We now have nearly 40 sales representatives in the market and expect to add significantly to our infrastructure in Japan during the balance of the year as we move to assume direct control of our sales and marketing efforts there," he continued.

The company reconfirmed prior guidance for revenues of $218-$223 million and gross margin of 60-62 percent in fiscal 2009. It said that given the acceleration of its direct sales program in Japan and ongoing transition negotiations with Goodman, it is currently not able to determine the timing and impact on operating expenses and net income. As a result, Volcano is not providing guidance for total consolidated operating expenses, operating income or earnings per share. Regardless of the outcome of negotiations with Goodman, the company expects increased operating expenses related to the expansion of its sales force infrastructure, including further increased sales and marketing expenses in Japan, expanded clinical trial activity and costs related to litigation.

Conference Call
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 (719) 325-4826, passcode 5095234, or via the company's website at 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 May 14, at (719) 457-0820, passcode 5095234, and via the company's website.

Volcano Corporation
Volcano Corporation (NASDAQ: VOLC) offers a broad suite of devices designed to facilitate endovascular procedures, enhance the diagnosis of vascular and structural heart disease and guide optimal therapies. The company's intravascular ultrasound (IVUS) product line includes ultrasound consoles that can be integrated directly into virtually any modern cath lab. Volcano IVUS offers unique features, including both single-use phased array and rotational IVUS imaging catheters, and advanced functionality options, such as VH(TM) IVUS tissue characterization and ChromaFlo(R). Volcano also provides functional measurement (FM) consoles and single-use pressure and flow guide wires and is developing a line of ultra-high resolution Optical Coherence Tomography (OCT) systems and catheters. Currently, more than 4,200 Volcano IVUS and FM systems are installed worldwide and approximately half of Volcano's revenues are derived from outside the United States. Volcano also develops and manufactures optical monitors, lasers and optical engines used in OCT imaging systems and advanced photonic components and subsystems used in spectroscopy and other industrial applications. For more information, visit the company's website at

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 factors 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 stock-based compensation is a non-cash expense and in-process research and development and acquisition-related costs are not reflective of core operating activities. 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 note that the non-GAAP financial measures used by the company may not be the same non-GAAP financial measures, and may not be calculated in the same manner, as those of other companies. Investors should consider these non-GAAP measures in addition to, and not as a substitute for, financial performance 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. Any statements in this release regarding Volcano's business that are not historical facts may be considered "forward-looking statements," including statements regarding the company's financial guidance for 2009; market adoption of the company's technology; the impact of clinical and other technical data; the timing of the company's direct sales program in Japan, including impact on revenue, expenses and income; the outcome, and impact to the company, of discussions with Goodman regarding the transition to discontinue distribution through Goodman; growth strategies and market development and product sales. 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 and adversely from the statements contained herein. Some of the potential risks and uncertainties that could cause actual results to differ from the results predicted are detailed in the company's annual report on Form 10-K, quarterly reports on Form 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 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
                                (in thousands)

                                                     March 31,   December 31,
                                                       2009         2008
                                                       ----         ----
     Current assets:
       Cash and cash equivalents                     $106,532     $100,949
       Short-term available-for-sale
        investments                                    37,360       48,941
       Accounts receivable, net                        35,984       41,795
       Inventories                                     31,147       28,936
       Prepaid expenses and other current assets        4,736        5,869
                                                        -----        -----
         Total current assets                         215,759      226,490
     Restricted cash                                      288          327
     Property and equipment, net                       31,874       30,007
     Intangible assets, net                            14,648       15,636
     Goodwill                                             901          842
     Other non-current assets                           1,959        2,177
                                                        -----        -----
                                                     $265,429     $275,479
                                                     ========     ========

     Liabilities and Stockholders' Equity
     Current liabilities:
       Accounts payable                               $14,174      $14,867
       Accrued compensation                            10,084       12,690
       Accrued expenses and other current
        liabilities                                     8,833       10,745
       Deferred revenues                                5,224        5,872
       Short-term debt                                      -          151
       Current maturities of long-term debt                58           57
                                                           --           --
         Total current liabilities                     38,373       44,382
     Long-term debt                                        20           34
     Deferred license fee from a related party            813          875
     Other                                                648          456
                                                          ---          ---
         Total liabilities                             39,854       45,747
     Stockholders' equity                             225,575      229,732
                                                      -------      -------
                                                     $265,429     $275,479
                                                     ========     ========

                              VOLCANO CORPORATION
                     (in thousands, except per share data)

                                                           Three Months
                                                          Ended March 31,
                                                           2009     2008
                                                           ----     ----

     Revenues                                            $48,959  $36,647
     Cost of revenues                                     20,649   13,629
                                                          ------   ------
         Gross profit                                     28,310   23,018
     Operating expenses:
      Selling, general and administrative                 25,080   22,059
      Research and development                             8,769    5,637
      In-process research and development                      -      175
      Amortization of intangibles                          1,052      773
                                                           -----      ---
        Total operating expenses                          34,901   28,644
                                                          ------   ------
     Operating loss                                       (6,591)  (5,626)
       Interest income                                       301    1,833
       Interest expense                                       (2)      (4)
       Exchange rate (loss) gain                          (1,128)   1,679
                                                          ------    -----
         Loss before provision for income taxes           (7,420)  (2,118)
       Provision for income taxes                            194      208
                                                             ---      ---
     Net loss                                            $(7,614) $(2,326)
                                                         =======  =======
     Net loss per share-basic and diluted                 $(0.16)  $(0.05)
                                                          ======   ======
     Shares used in calculating net loss per share-basic
      and diluted                                         48,032   47,030
                                                          ======   ======

                              VOLCANO CORPORATION
              Reconciliation of GAAP Results to Non-GAAP Results
                     (in thousands, except per share data)

                                                           Three Months
                                                          Ended March 31,
                                                           2009     2008
                                                           ----     ----

     GAAP operating loss                                 $(6,591) $(5,626)
       Stock-based compensation                            2,715    2,061
       In-process research and development                     -      175
       Acquisition due-diligence costs                         -    2,878
                                                             ---    -----
     Non-GAAP operating loss                             $(3,876)   $(512)
                                                         =======    =====

     GAAP net loss                                       $(7,614) $(2,326)
       Stock-based compensation                            2,715    2,061
       In-process research and development                     -      175
       Acquisition due-diligence costs                         -    2,878
                                                             ---    -----
     Non-GAAP net (loss) income                          $(4,899)  $2,788
                                                         =======   ======

     GAAP net loss per share-basic                        $(0.16)  $(0.05)
       Stock-based compensation                             0.06     0.04
       In-process research and development                     -     0.01
       Acquisition due-diligence costs                         -     0.06
                                                             ---     ----
     Non-GAAP net (loss) income per share-basic           $(0.10)   $0.06
                                                          ======    =====
     Shares used in calculating net income per share-
      basic                                               48,032   47,030
                                                          ======   ======

     GAAP net loss per share-diluted                      $(0.16)  $(0.05)
       Stock-based compensation                             0.06     0.04
       In-process research and development                     -        -
       Acquisition due-diligence costs                         -     0.06
       Adjustment to shares used in calculating net
        income per share                                       -     0.01
                                                             ---     ----
     Non-GAAP net (loss) income per share-diluted         $(0.10)   $0.06
                                                          ======    =====
     Shares used in calculating net income per share-
      diluted                                             48,032   49,698
                                                          ======   ======

                    VOLCANO CORPORATION
                      REVENUE SUMMARY
                       (in millions)

                                 ended     Percentage
                               March 31,     Change
                               ----------  ----------
                               2009  2008 2008 to 2009
                               ----  ---- ------------
    Medical segment:
      IVUS systems:
        United States          $5.0  $3.8          33%
        Japan                   1.2   0.9          28
        Europe                  1.6   1.2          35
        Rest of world           0.7   0.5          27
                                ---   ---
      Total IVUS systems       $8.5  $6.4          32

      IVUS disposables:
        United States         $14.3 $11.6          23%
        Japan                  10.0   8.8          13
        Europe                  4.0   4.0           -
        Rest of world           0.8   0.8           6
                                ---   ---
      Total IVUS disposables  $29.1 $25.2          16

        United States          $3.6  $1.9          93%
        Japan                   0.3   0.2          33
        Europe                  2.1   1.5          41
        Rest of world           0.3   0.1          80
                                ---   ---
      Total FM                 $6.3  $3.7          68

      Other                     1.7   1.3          32%
                                ---   ---
        Sub-total medical
         segment              $45.6 $36.6          24

    Telecom segment             3.4     -           -
                                ---   ---
            Total             $49.0 $36.6          34
                              ===== =====

Source: Volcano Corporation