VLCM Valcom (MM)

Volcom, Inc. (NASDAQ:VLCM): -- First quarter total revenues increased 31% to $41.6 million -- Company raises full year 2006 earnings guidance to $1.12-$1.14 per share Volcom, Inc. (NASDAQ:VLCM) today announced that for the first quarter ended March 31, 2006, total revenues increased 31.3% to $41.6 million, compared with $31.7 million in the first quarter of 2005. Gross profit as a percentage of total revenues for the first quarter was 51.7%, compared with 51.8% in the first quarter of 2005. "Solid top line growth, margin strength and a focus on controlling expenses drove our 2006 first quarter financial results," said Richard Woolcott, Volcom's president and chief executive officer. "We continue to execute well and are in a great position as a premier brand in the growing action sports industry." Operating income for the first quarter of 2006 increased 10.6% to $6.7 million, compared with $6.0 million for the first quarter of 2005. Operating margin decreased to 16.1% for the first quarter of 2006 from 19.1% in the first quarter of 2005. This decrease primarily reflects spending on certain operational initiatives including the company's rollout of a national in-store display program with its retailers and costs related to the transition of its European operations from a licensee model to direct control, as well as costs associated with its status as a public company such as certain legal and accounting compliance costs and expenses related to stock-based compensation. Income before income taxes for the first quarter of 2006 increased 23.4% to $7.4 million, compared with $6.0 million for the first quarter of 2005. This increase reflects $0.7 million of interest income generated from the company's $81.4 million cash balance. In connection with the completion of its initial public offering in 2005, the company changed its tax status from that of an S corporation to that of a C corporation. Reflecting this change, net income for the first quarter of 2006, which includes a provision for income taxes using a 40.4% tax rate, was $4.4 million, or $0.18 per diluted share. The 40.4% tax rate for the first quarter of 2006 compares to a 1.5% tax rate for the first quarter of 2005, when the company was treated as an S corporation. 2006 Outlook Based on current visibility regarding the remainder of the fiscal year, the company revised upward its fully diluted earnings per share guidance for 2006 from a range of $1.10 to $1.12 to a range of $1.12 to $1.14. The company's 2006 earnings per share guidance includes non-cash stock-based compensation expense of approximately $0.02 cents per share. The company also raised its 2006 annual revenue guidance from an increase of 24% to 26% over last year to an increase of 25% to 27% over last year, and from a range of $198 to $201 million to a range of $200 to $203 million. For the second quarter of 2006, the company currently expects revenues to increase 26% to 27% over the prior year period. The company also said that it expects second quarter fully diluted earnings per share to be $0.23 to $0.24. 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, unseasonable weather that could affect the business environment and the impact of trade safeguards with China. Fully diluted shares outstanding for the full year of 2006 are expected to be approximately 24.6 million. The company will host a conference call today at approximately 4:30 p.m. EDT to discuss its financial results and outlook in further detail. The conference call will be available to interested parties through a live audio Internet broadcast at www.volcom.com and www.earnings.com. About Volcom, Inc. Volcom is an innovative designer, marketer and distributor of premium quality young mens and womens 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 and statements contained under the section entitled 2006 Outlook, 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" 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, unseasonable weather that could affect the business environment 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 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 21, 2006 and 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 SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except share and per share data) Three Months Ended March 31, ---------------------- 2006 2005 ---------------------- Revenues: Product revenues $40,513 $30,685 Licensing revenues 1,083 1,006 ---------------------- Total revenues 41,596 31,691 Cost of goods sold 20,074 15,284 ---------------------- Gross profit 21,522 16,407 Selling, general and administrative expenses 14,836 10,363 ---------------------- Operating income 6,686 6,044 Other income (expense): Interest income (expense), net 737 (2) Foreign currency gain (loss) 3 (23) ---------------------- Total other income (expense) 740 (25) ---------------------- Income before provision for income taxes 7,426 6,019 Provision for income taxes 3,000 88 ---------------------- Net income before equity in earnings of investee 4,426 5,931 Equity in earnings of investee -- 331 ---------------------- Net income $4,426 $6,262 ====================== Net income per share: Basic $0.18 $0.33 Diluted $0.18 $0.32 Weighted average shares outstanding: Basic 24,200,256 19,170,705 Diluted 24,312,946 19,535,964 Pro forma net income data: Income before provision for income taxes, as reported $6,019 Pro forma provision for income taxes 2,588 ----------- Pro forma net income before equity in earnings of investee 3,431 Equity in earnings of investee 331 ----------- Pro forma net income $3,762 =========== Pro forma net income per share: Basic $0.20 Diluted $0.19 Pro forma weighted average shares outstanding: Basic 19,170,705 Diluted 19,535,964 VOLCOM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands) March 31, December 2006 31, 2005 ----------- ----------- Assets Current assets: Cash and cash equivalents $81,430 $71,712 Accounts receivable -- net of allowances 22,860 21,408 Inventories 7,674 10,833 Prepaid expenses and other current assets 844 1,366 Income tax receivable -- 479 Deferred income taxes 1,110 1,110 ----------- ----------- Total current assets 113,918 106,908 ----------- ----------- Property and equipment -- net 4,375 3,467 Investments in unconsolidated investees 298 298 Intangible assets -- net 362 451 Goodwill 158 158 Other assets 109 99 ----------- ----------- Total assets $119,220 $111,381 =========== =========== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $4,476 $5,779 Accrued expenses and other current liabilities 4,299 2,587 Income taxes payable 2,321 -- Current portion of capital lease obligations 74 72 ----------- ----------- Total current liabilities 11,170 8,438 ----------- ----------- Long-term capital lease obligations 164 183 Deferred income taxes 80 80 Stockholders' equity: Common stock 24 24 Additional paid-in capital 85,112 84,418 Retained earnings 22,692 18,266 Accumulated other comprehensive income (22) (28) ----------- ----------- Total stockholders' equity 107,806 102,680 ----------- ----------- Total liabilities and stockholders' equity $119,220 $111,381 =========== =========== VOLCOM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands) Three Months Ended March 31, ----------------- 2006 2005 -------- -------- Cash flows from operating activities: Net income $4,426 $6,262 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 310 117 Equity in earnings of investee -- (331) Provision for doubtful accounts 42 60 Loss on disposal of property and equipment 8 -- Stock-based compensation 207 7 Changes in operating assets and liabilities: Accounts receivable (1,493) (739) Inventories 3,161 (1,365) Prepaid expenses and other current assets 520 (208) Income taxes receivable/payable 2,800 63 Other assets (10) (6) Accounts payable (1,304) (159) Accrued expenses 1,536 1,411 -------- -------- Net cash provided by operating activities 10,203 5,112 -------- -------- Cash flows from investing activities: Purchase of property and equipment (963) (256) -------- -------- Net cash used in investing activities (963) (256) -------- -------- Cash flows from financing activities: Principal payments capital lease obligations (17) (24) Proceeds from exercise of stock options 374 -- Tax benefits related to exercise of stock options 113 -- Distributions to stockholders -- (10,094) -------- -------- Net cash provided by (used in) financing activities 470 (10,118) -------- -------- Effect of exchange rate changes on cash 8 -- -------- -------- Net increase in cash and cash equivalents 9,718 (5,262) Cash and cash equivalents -- Beginning of period 71,712 10,359 -------- -------- Cash and cash equivalents -- End of period $81,430 $5,097 ======== ======== *T