VLCM Valcom (MM)

Volcom, Inc. (NASDAQ:VLCM) today announced that for the second quarter ended June 30, 2007, total revenues increased 25% to $57.7 million, compared with $46.1 million in the second quarter of 2006. �We continue to see strong demand for the Volcom brand across all channels of distribution,� said Richard Woolcott, Volcom�s president and chief executive officer. �Our other key focus has been our European operations that are now up and running. We believe we are on track for a solid year.� Gross profit as a percentage of total revenues for the second quarter of 2007 was 48.2%, compared with 49.8% in the second quarter of 2006, primarily reflecting initial shipments to Europe that contained low margin sample product. Selling, General and Administrative expenses for the quarter were $18.9 million versus $13.2 million in the comparable period last year as the company continued its investment in building its European infrastructure to take direct control of the brand in the region in the second half of the year. Operating income for the second quarter of 2007 was $8.8 million, compared with $9.7 million for the second quarter of 2006. Operating margin was 15.3% for the second quarter of 2007, compared with 21.0% in the second quarter of 2006. As previously reported, the company incurred pretax losses related to its recently established European operations of approximately $2.4 million in the second quarter, equal to approximately $0.06 per diluted share. Net income for the second quarter of 2007 was 6.2 million, or $0.25 per diluted share. This compares with $6.5 million, or $0.27 per diluted share for the second quarter of 2006. 2007 Third Quarter and Full Year Outlook Reflecting the acceleration of certain revenue recognized in the second quarter and the deferral of some expenses to the third quarter, the company currently expects revenues to be approximately $89 million to $91 million and fully diluted earnings per share to be $0.53 to $0.55 in the 2007 third quarter. Based on current visibility regarding the remainder of the year, the company is reaffirming its 2007 revenue guidance of an increase of 34% to 36% over 2006, equating to total revenues ranging from $275 to $280 million. Additionally, the company is maintaining its previously issued diluted earnings per share guidance for 2007 at a range of $1.47 to $1.50. 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 future financial performance contained under the section entitled 2007 Outlook, and Mr. Woolcott�s statements regarding being �on track for a solid year� constitute forward-looking statements. 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, sales of our products by key retailers, including Pacific Sunwear, our sales in Europe, the success of our new product categories, changes in fashion trends and consumer preferences, general economic conditions, 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 (the �SEC�) 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. VOLCOM, INC. AND SUBSIDIARIES � CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except share and per share data) � Three Months Ended June 30, Six Months Ended June 30, � 2007 � 2006 � 2007 � 2006 Revenues: Product revenues $ 56,901 $ 45,492 $ 106,326 $ 86,005 Licensing revenues � 780 � 559 � 2,173 � 1,642 Total revenues 57,681 46,051 108,499 87,647 Cost of goods sold � 29,888 � 23,137 � 54,299 � 43,211 Gross profit 27,793 22,914 54,200 44,436 Selling, general and administrative expenses 18,944 � 13,224 � 37,289 � 28,060 Operating income 8,849 9,690 16,911 16,376 Other income: Interest income, net 1,057 977 2,139 1,715 Dividend income from cost method investee � 3 � 3 Foreign currency gain � 493 � 259 � 531 � 262 Total other income � 1,550 � 1,239 � 2,670 � 1,980 Income before provision for income taxes 10,399 10,929 19,581 18,356 Provision for income taxes � 4,179 � 4,397 � 7,879 � 7,398 Net income $ 6,220 $ 6,532 $ 11,702 $ 10,958 � Net income per share: Basic $ 0.25 $ 0.27 $ 0.48 $ 0.45 Diluted $ 0.25 $ 0.27 $ 0.48 $ 0.45 Weighted average shares outstanding: Basic 24,297,839 24,214,523 24,285,874 24,207,537 Diluted 24,436,998 24,310,679 24,406,187 24,311,960 VOLCOM, INC. AND SUBSIDIARIES � CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands) � � June 30, 2007 December 31, 2006 Assets Current assets: Cash and cash equivalents $ 84,933 $ 85,414 Accounts receivable � net of allowances 41,282 34,175 Inventories 19,387 13,185 Prepaid expenses and other current assets 1,776 1,383 Income tax receivable 22 � Deferred income taxes � 2,508 � 2,353 Total current assets � 149,908 � 136,510 Property and equipment � net 20,383 11,527 Investments in unconsolidated investees 298 298 Deferred income taxes 675 660 Intangible assets � net 361 386 Goodwill 158 158 Other assets � 236 � 209 Total assets $ 172,019 $ 149,748 � Liabilities and Stockholders� Equity Current liabilities: Accounts payable $ 16,992 $ 8,764 Accrued expenses and other current liabilities 7,452 6,175 Income taxes payable � 424 Current portion of capital lease obligations � 80 � 78 Total current liabilities � 24,524 � 15,441 Long-term capital lease obligations 65 106 Other long-term liabilities 195 204 Income taxes payable � non-current 129 � Stockholders� equity: Common stock 24 24 Additional paid-in capital 88,233 86,773 Retained earnings 58,593 47,019 Accumulated other comprehensive income � 256 � 181 Total stockholders� equity � 147,106 � 133,997 Total liabilities and stockholders� equity $ 172,019 $ 149,748 VOLCOM, INC. AND SUBSIDIARIES � CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands) � � Six Months Ended June 30, � 2007 � � 2006 � Cash flows from operating activities: Net income $ 11,702 $ 10,958 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,206 630 Provision for doubtful accounts 437 76 Tax benefits related to exercise of stock options (293 ) (124 ) Loss on disposal of property and equipment 16 8 Stock-based compensation 441 399 Deferred income taxes (155 ) � Changes in operating assets and liabilities: Accounts receivable (7,488 ) (8,416 ) Inventories (6,122 ) (341 ) Prepaid expenses and other current assets (386 ) 255 Income taxes receivable/payable (148 ) 2,049 Other assets (27 ) (117 ) Accounts payable 8,133 5,407 Accrued expenses 641 3,081 Other long-term liabilities � (15 ) � � � Net cash provided by operating activities � 7,942 � � 13,865 � � Cash flows from investing activities: Purchase of property and equipment (9,735 ) (2,611 ) Business acquisitions, net of cash acquired � (168 ) Proceeds from sale of property and equipment � 15 � � � � Net cash used in investing activities � (9,720 ) � (2,779 ) � Cash flows from financing activities: Principal payments capital lease obligations (39 ) (35 ) Proceeds from government grants 112 � Proceeds from exercise of stock options 722 411 Tax benefits related to exercise of stock options � 293 � � 124 � Net cash provided by financing activities � 1,088 � � 500 � � Effect of exchange rate changes on cash � 209 � � 38 � � Net increase in cash and cash equivalents (481 ) 11,624 Cash and cash equivalents � Beginning of period � 85,414 � � 71,712 � Cash and cash equivalents � End of period $ 84,933 � $ 83,336 �