VLCM Valcom (MM)

Volcom, Inc. (NASDAQ:VLCM) today announced that for the third quarter ended September 30, 2005, total revenues increased 38% to $51.2 million, compared with $37.2 million in the third quarter of 2004. Gross profit as a percentage of total revenues increased to 51% for the third quarter of 2005 from 48% in the third quarter of 2004. Operating income for the third quarter of 2005 increased 58% to $15.4 million, compared with $9.8 million for the third quarter of 2004. Operating margin increased to 30% for the third quarter of 2005 from 26% in the third quarter of 2004 and 21% in the second quarter of 2005. Considering the change in tax status described below, the company believes that evaluating operating income for quarter-over-quarter comparisons is more reflective of its performance than are net income comparisons. In connection with the completion of its initial public offering, the company changed its tax status from an S corporation to a C corporation. As a result, the company recorded a provision for income taxes for the third quarter of 2005 using a 29.8% tax rate, which reflects the rate necessary to bring the year-to-date provision for income taxes in line with the company's estimated annual effective tax rate of 27.3%. The 29.8% tax rate for the third quarter of 2005 compares to a 1.5% tax rate for the third quarter of 2004 when the company was treated as an S corporation. Net income for the third quarter of 2005, which includes a provision for income taxes using a 29.8% tax rate, increased to $11.3 million, or $0.47 per diluted share. Net income for the third quarter of 2004, which includes a provision for income taxes using a 1.5% tax rate, totaled $10.1 million, or $0.52 per diluted share. Richard Woolcott, Volcom's president and chief executive officer, said, "The third quarter was a great quarter for Volcom. We continued our momentum during the quarter and are pleased to report both strong sales growth and margin." Woolcott added, "We continue to focus our efforts on building our brand worldwide, supporting our core boardsport retailers and delivering quality products on time." 2005 Outlook Based on the company's results for the first three quarters of 2005 and current visibility on the balance of the year, the company has increased its guidance for full year revenue growth. The company now expects 2005 annual revenue growth of 39% to 41%, compared with 2004, up from the previous guidance of 34% to 37% growth announced at the end of the second quarter. The company also expects an annual operating margin of approximately 24% for 2005. Volcom currently plans to address 2006 guidance when it reports its fourth quarter and full year 2005 financial results. In putting forth this outlook, the company reminds investors of the complexity of accurately assessing future revenue growth given the difficulty in predicting fashion trends and consumer preferences, boardsports popularity and participation rates, general economic conditions, and the impact of trade safeguards with China. The company anticipates the total shares outstanding at December 31, 2005, will be approximately 24.4 million. About Volcom, Inc. Volcom is an innovative designer, marketer and distributor of premium quality young men's and women's clothing, accessories and related products. The Volcom brand, symbolized by The Stone, is athlete-driven, creative and forward thinking. Volcom has consistently followed its motto of "youth against establishment," and the brand is inspired by the energy of youth culture. Volcom-branded products are sold throughout the United States and internationally. Volcom's news announcements and SEC filings are available through the company's website at www.volcom.com. Safe Harbor Statement Certain statements in this press release and oral statements made from time to time by representatives of the company are forward-looking statements for purposes of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995, including statements in connection with or related to any discussion of or reference to our future operations, opportunities or financial performance. In particular, statements regarding our guidance, outlook for future business, financial performance, customer demand, growth and profitability all constitute forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue" or the negative of these terms or other comparable terminology. These forward-looking statements are based on management's current expectations but they involve a number of risks and uncertainties. Our actual results and the timing of events could differ materially from those anticipated in the forward-looking statements as a result of risks and uncertainties, including, without limitation, changes in fashion trends and consumer preferences, boardsports popularity and participation rates, general economic conditions and the impact of trade safeguards with China, and additional factors which are detailed in our filings with the Securities and Exchange Commission, including the Risk Factors contained in our Form 10-Q for the quarter ended June 30, 2005, available at www.sec.gov. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Volcom is under no obligation, and expressly disclaims any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. -0- *T VOLCOM, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except share and per share data) Three Months Ended Nine Months Ended September 30, September 30, ----------------------- ----------------------- 2005 2004 2005 2004 ----------------------------------------------- Revenues: Product revenues $50,096 $36,285 $116,259 $80,861 Licensing revenues 1,096 928 2,477 1,956 ----------- ----------- ----------- ----------- Total revenues 51,192 37,213 118,736 82,817 Cost of goods sold 25,082 19,312 57,522 42,343 ----------- ----------- ----------- ----------- Gross profit 26,110 17,901 61,214 40,474 Selling, general and administrative expenses 10,669 8,107 32,090 22,440 ----------- ----------- ----------- ----------- Operating income 15,441 9,794 29,124 18,034 Other (expense) income: Interest expense, net 463 (1) 461 (5) Dividend income from cost method investee -- -- 11 -- Foreign currency gain loss 171 18 54 (52) ----------- ----------- ----------- ----------- Total other (expense) income 634 17 526 (57) ----------- ----------- ----------- ----------- Income before provision for income taxes 16,075 9,811 29,650 17,977 Provision for income taxes 4,783 139 7,797 271 ----------- ----------- ----------- ----------- Net income before equity in earnings of investee 11,292 9,672 21,853 17,706 Equity in earnings of investee -- 431 331 663 ----------- ----------- ----------- ----------- Net income $11,292 $10,103 $22,184 $18,369 =========== =========== =========== =========== Net income per share: Basic $0.47 $0.53 $1.07 $0.96 Diluted $0.47 $0.52 $1.06 $0.94 Weighted average shares outstanding: Basic 23,939,141 19,170,705 20,762,988 19,132,694 Diluted 24,065,665 19,535,137 20,998,798 19,534,364 Pro forma net income data: Income before provision for income taxes, as reported $16,075 $9,811 $29,650 $17,977 Pro forma provision for income taxes 6,551 3,998 12,217 7,596 ----------- ----------- ----------- ----------- Pro forma net income before equity in earnings of investee 9,524 5,813 17,433 10,381 Equity in earnings of investee -- 431 331 663 ----------- ----------- ----------- ----------- Pro forma net income $9,524 $6,244 $17,764 $11,044 =========== =========== =========== =========== Pro forma net income per share: Basic $0.40 $0.33 $0.86 $0.58 Diluted $0.40 $0.32 $0.85 $0.57 Pro forma weighted average shares outstanding: Basic 23,939,141 19,170,705 20,762,988 19,132,694 Diluted 24,065,665 19,535,137 20,998,798 19,534,364 VOLCOM, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except share data) September 30, December 31, 2005 2004 ---------------- -------------- Assets Current assets: Cash and cash equivalents $65,687 $10,359 Accounts receivable -- net of allowances 27,781 16,680 Inventories 11,566 5,620 Prepaid expenses and other current assets 942 483 Deferred income taxes 540 9 ---------------- -------------- Total current assets 106,516 33,151 ---------------- -------------- Property and equipment -- net 3,402 1,063 Investments in unconsolidated investees 298 1,627 Other assets 98 45 ---------------- -------------- Total assets $110,314 $35,886 ================ ============== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $6,906 $4,893 Accrued expenses and other current liabilities 3,026 1,132 Income taxes payable 4,466 -- Current portion of capital lease obligations 71 85 ---------------- -------------- Total current liabilities 14,469 6,110 ---------------- -------------- Long-term capital lease obligations 202 256 Deferred income taxes 121 18 Stockholders' equity: Common stock 24 19 Additional paid-in capital 84,385 1,081 Retained earnings 11,113 28,133 Other comprehensive income -- 269 ---------------- -------------- Total stockholders' equity 95,522 29,502 ---------------- -------------- Total liabilities and stockholders' equity $110,314 $35,886 ================ ============== VOLCOM, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands) Nine Months Ended June 30, ------------------------------- 2005 2004 ---------------- -------------- Cash flows from operating activities: Net income $22,184 $18,369 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 406 230 Equity in earnings of investee (331) (436) Provision for doubtful accounts 89 65 Loss on disposal of property and equipment 30 -- Tax benefits related to exercise of stock options 2,833 -- Stock-based compensation 145 23 Deferred income taxes (428) 2 Changes in operating assets and liabilities: Accounts receivable (11,190) (8,549) Inventories (5,946) (1,537) Prepaid expenses and other current assets (459) (296) Other assets (53) (9) Accounts payable 2,013 927 Accrued expenses 1,894 1,222 Income taxes payable 4,466 (15) ---------------- -------------- Net cash provided by operating activities 15,653 9,996 ---------------- -------------- Cash flows from investing activities: Purchase of property and equipment (2,775) (478) Proceeds from sale of equity method investee 1,391 -- Purchase of additional shares in cost method investee -- (261) ---------------- -------------- Net cash used in investing activities (1,384) (739) ---------------- -------------- Cash flows from financing activities: Principal payments capital lease obligations (68) (43) Proceeds from initial public offering, net of offering costs 80,131 -- Proceeds from exercise of stock options 200 5 Distributions to stockholders (39,204) (11,375) --------------- -------------- Net cash provided by (used in) financing activities 41,059 (11,413) ---------------- -------------- Net decrease in cash and cash equivalents 55,328 (2,156) Cash and cash equivalents -- Beginning of period 10,359 5,079 ---------------- -------------- Cash and cash equivalents -- End of period $65,687 $2,923 ================ ============== *T