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Digirad Corporation Reports Financial Results for the First Quarter Ended March 31, 2017

  • Company pays down $1.3 million on its credit facility during the quarter
  • Announces 2017 financial guidance
  • Announces cash dividend of $0.05 cents per share

SUWANEE, Ga., April 28, 2017 (GLOBE NEWSWIRE) -- Digirad Corporation (Nasdaq:DRAD) today reported its financial results for the first quarter ended March 31, 2017.

Total revenues for the first quarter were $29.1 million, compared to $31.2 million in the first quarter of the prior year.

Net loss for the first quarter was $2.1 million, or $0.10 net loss per diluted share, compared to net income of $11.6 million, or $0.58 net income per diluted share in the same period in the prior year. Non-GAAP adjusted net loss for the first quarter was $0.2 million, or $0.01 adjusted net loss per diluted share, compared to adjusted net income of $1.3 million, or $0.07 adjusted net income per diluted share in the same period in the prior year. Non-GAAP adjusted EBITDA for the first quarter was $1.8 million, compared to $3.7 million in the same period in the prior year.

Operating cash flow for the first quarter was $1.9 million, compared to $0.7 million in the prior year. Non-GAAP free cash flow was $1.4 million for the first quarter, compared to negative $0.3 million in the same period in the prior year.

Digirad President and CEO Matt Molchan said, “Overall, our core businesses are performing well and within our expectations.  Seasonality impacts us each year in the first quarter, with a little more impact this year than in the prior year.”  Molchan continued, “We have had some challenges recently in our Mobile Healthcare services business, but believe these problems to be confined to the provisional service offering of this business segment. We have addressed these challenges by changing our leadership, operations and sales approach in our Mobile Healthcare services business, focusing on our core customers and improving delivery of our high-quality healthcare services.  With these changes, we are very confident that we will improve on the recent results, and expect to resume growth in 2018. We continue to expect more cash generation in 2017 than in 2016, which we will use to pay down debt and fund our ongoing dividend, both of which we believe deliver value to shareholders.”

The Company also announced a cash dividend of $0.05 cents per share that will be paid on May 30, 2017, to shareholders of record on May 15, 2017.

2017 Financial Guidance

/EIN News/ -- The Company announced its financial guidance for 2017, which is to generate revenues of approximately $125 million, non-GAAP adjusted EBITDA of between $14 and $15 million, adjusted net income per diluted share of between $0.10 and $0.15, and free cash flow of between $9 and $10 million.

Conference Call Information

A conference call is scheduled for 11:00 a.m. EDT on April 28, 2017 to discuss the results and management's outlook. The call may be accessed by dialing 1-877-407-9039 (international callers: +1-201-689-8470) five minutes prior to the scheduled start time and referencing Digirad. A simultaneous webcast of the call may be accessed online from the Events & Presentations link on the Investor Relations page at http://drad.client.shareholder.com; an archived replay of the webcast will be available within 15 minutes of the end of the conference call.

Use of Non-GAAP Financial Measures by Digirad Corporation

This Digirad news release presents the non-GAAP financial measures “adjusted net income (loss),” “adjusted net income (loss) per diluted share,” “adjusted EBITDA”, and "free cash flow". The most directly comparable measure for these non-GAAP financial measures are net income (loss), net income (loss) per diluted share, and operating cash flow. The Company has included below unaudited adjusted financial information, which presents the Company's results of operations after excluding acquired intangible asset amortization, goodwill impairment, acquisition related contingent consideration adjustments, investment impairment loss, transaction and integration costs associated with DMS Health Technologies, and non-recurring related income tax adjustments.  Further excluded in the measure of adjusted EBITDA are interest, taxes, depreciation, amortization and stock-based compensation.  Free cash flow is calculated by subtracting cash paid for capital expenditures from operating cash flow.

A discussion of the reasons why management believes that the presentation of non-GAAP financial measures provides useful information to investors regarding Digirad's financial condition and results of operations is included as Exhibit 99.2 to Digirad's report on Form 8-K filed with the Securities and Exchange Commission on April 28, 2017.

About Digirad Corporation

Digirad delivers convenient, effective, and efficient healthcare solutions on an as needed, when needed, and where needed basis.  Digirad’s diverse portfolio of mobile healthcare solutions and medical equipment and services, including diagnostic imaging and patient monitoring, provides hospitals, physician practices, and imaging centers through the United States access to technology and services necessary to provide exceptional patient care in the rapidly changing healthcare environment.  For more information, please visit www.digirad.com

Forward-Looking Statements

This press release contains statements that are forward-looking statements as defined within the Private Securities Litigation Reform Act of 1995. Some of these forward-looking statements can be identified by the use of forward-looking words such as “believes,” “expects,” “may,” “will,” “should,” “seek,” “approximately,” “intends,” “plans,” “estimates,” or “anticipates,” or the negative of those words or other comparable terminology, or in specific statements such as the Company's ability to deliver value to customers, the ability to grow and generate positive cash flow, the ability to execute on restructuring activities, and ability to successfully execute acquisitions. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements made. These risks are detailed in Digirad's filings with the U.S. Securities and Exchange Commission, including the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports. Readers are cautioned to not place undue reliance on these forward-looking statements, which speak only as of the date hereof. All forward-looking statements are qualified in their entirety by this cautionary statement, and Digirad undertakes no obligation to revise or update the forward-looking statements contained herein.

(Financial tables follow)

 
Digirad Corporation
Condensed Consolidated Statements of Operations
(Unaudited)
 
  Three Months Ended
  March 31,
(in thousands, except per share amounts) 2017   2016
       
Revenues:      
Services $ 22,874     $ 24,005  
Product and product-related 6,206     7,152  
Total revenues 29,080     31,157  
Cost of revenues:      
Services 18,455     18,506  
Product and product-related 3,518     3,586  
Total cost of revenues 21,973     22,092  
       
Gross profit 7,107     9,065  
Total gross profit percentage 24.4 %   29.1 %
Services gross profit percentage 19.3 %   22.9 %
Product and product-related gross profit percentage 43.3 %   49.9 %
       
Operating expenses:      
Marketing and sales 2,400     2,625  
General and administrative 5,104     6,414  
Amortization of intangible assets 578     579  
Total operating expenses 8,082     9,618  
       
Loss from operations (975 )   (553 )
       
Other expense:      
Other income, net     71  
Interest expense, net (315 )   (370 )
Total other expense (315 )   (299 )
       
Loss before income taxes (1,290 )   (852 )
Income tax (expense) benefit (786 )   12,461  
Net (loss) income $ (2,076 )   $ 11,609  
       
Net (loss) income per share:      
Basic $ (0.10 )   $ 0.60  
Diluted $ (0.10 )   $ 0.58  
Dividends declared per common share $ 0.05     $ 0.05  
       
Weighted average shares outstanding – basic 19,933     19,448  
Weighted average shares outstanding – diluted 19,933     19,943  


Digirad Corporation
Condensed Consolidated Balance Sheets
(Unaudited)
 
(in thousands) March 31,
 2017
  December 31, 2016
Assets:      
Current assets:      
Cash and cash equivalents $ 1,913     $ 2,203  
Securities available-for-sale 17     917  
Accounts receivable, net 13,633     14,503  
Inventories, net 5,942     5,987  
Restricted cash 3,283     1,376  
Other current assets 1,771     2,093  
 Total current assets 26,559     27,079  
Property and equipment, net 31,250     31,407  
Intangible assets, net 11,050     11,628  
Goodwill 6,237     6,237  
Deferred tax assets 26,831     27,019  
Restricted cash 100     2,100  
Other assets 799     793  
Total assets $ 102,826     $ 106,263  
       
Liabilities:      
Current liabilities:      
Accounts payable $ 6,110     $ 6,514  
Accrued compensation 3,920     3,962  
Accrued warranty 170     196  
Deferred revenue 3,314     3,123  
Current portion of long-term debt 5,358     5,358  
Other current liabilities 3,070     3,520  
Total current liabilities 21,942     22,673  
Long-term debt, net of current portion 14,793     16,070  
Other liabilities 2,036     1,039  
Total liabilities 38,771     39,782  
       
Stockholders’ equity:      
Preferred stock, $0.0001 par value: 10,000,000 shares authorized; no shares issued or outstanding      
Common stock, $0.0001 par value: 80,000,000 shares authorized; 19,977,984 and 19,892,557 shares issued and outstanding (net of treasury shares) at March 31, 2017 and December 31, 2016, respectively 2     2  
Treasury stock, at cost; 2,588,484 shares at March 31, 2017 and December 31, 2016 (5,728 )   (5,728 )
Additional paid-in capital 150,773     151,696  
Accumulated other comprehensive loss (14 )   (52 )
Accumulated deficit (80,978 )   (79,437 )
Total stockholders’ equity 64,055     66,481  
Total liabilities and stockholders’ equity $ 102,826     $ 106,263  


Digirad Corporation
Reconciliation of Non-GAAP Financial Measures
(Unaudited)
 
      Three Months Ended March 31,
(in thousands, except per share amounts)   2017   2016
           
Net (loss) income   $ (2,076 )   $ 11,609  
  Acquired intangible amortization   578     577  
  Acquisition related contingent consideration valuation adjustment(1)   (57 )    
  Transaction and integration costs of DMS Health Technologies(2)       1,450  
  Income tax items(3)   1,348     (12,333 )
Non-GAAP Adjusted net (loss) income   $ (207 )   $ 1,303  
           
Net (loss) income per share - diluted(4)   $ (0.10 )   $ 0.58  
  Acquired intangible amortization   0.03     0.03  
  Acquisition related contingent consideration valuation adjustment(1)        
  Transaction and integration costs of DMS Health Technologies(2)       0.07  
  Income tax items(3)   0.07     (0.62 )
Non-GAAP Adjusted net (loss) income per share - diluted(4)   $ (0.01 )   $ 0.07  
           


      Three Months Ended March 31,
(in thousands)   2017   2016
           
Net (loss) income   $ (2,076 )   $ 11,609  
  Acquisition related contingent consideration valuation adjustment(1)   (57 )    
  Transaction and integration costs of DMS Health Technologies(2)       1,450  
  Depreciation and amortization   2,579     2,465  
  Stock-based compensation   263     223  
  Interest income   (1 )   (5 )
  Interest expense   316     375  
  Income tax expense (benefit)   786     (12,461 )
Non-GAAP Adjusted EBITDA   $ 1,810     $ 3,656  
           

(1) Reflects fair value adjustment to estimate of contingent consideration related to acquisitions.
(2) Reflects diligence, transaction, and integration costs related to the acquisition of DMS Health Technologies.
(3) Reflects income tax effect for adjusted financial data and acquisition related income tax adjustments, and adjustment to net operating loss carryforwards.
(4) Per share amounts are computed independently for each discrete item presented. Therefore, the sum of the quarterly per share amounts will not necessarily equal to the total for the year, and sum of individual items may not equal the total.

   
  Three Months Ended March 31,
(in thousands) 2017   2016
Net cash provided by operating activities $ 1,924     $ 736  
Purchases of property and equipment (492 )   (1,016 )
Free cash flow $ 1,432     $ (280 )


Digirad Corporation
Reconciliation of Non-GAAP Financial Measures
(Unaudited)
 
      Three Months Ended
(in thousands, except per share amounts)   March 31, 2016   June 30, 2016   September 30, 2016   December 31, 2016   March 31, 2017
                       
Net income (loss)   $ 11,609     $ 998     $ (283 )   $ 1,978     $ (2,076 )
  Acquired intangible amortization   577     578     578     578     578  
  Acquisition related contingent consideration valuation adjustment(1)       (3 )   (5 )   (56 )   (57 )
  Investment impairment loss(2)           414          
  Transaction and integration costs of DMS Health Technologies(3)   1,450     171     127     173      
  Goodwill impairment               338      
  Income tax items(4)   (12,333 )   67     170     25     1,348  
Non-GAAP Adjusted net income (loss)   $ 1,303     $ 1,811     $ 1,001     $ 3,036     $ (207 )
                       
Net income (loss) per share - diluted(5)   $ 0.58     $ 0.05     $ (0.01 )   $ 0.10     $ (0.10 )
  Acquired intangible amortization   0.03     0.03     0.03     0.03     0.03  
  Acquisition related contingent consideration valuation adjustment(1)                    
  Investment impairment loss(2)           0.02          
  Transaction and integration costs of DMS Health Technologies(3)   0.07     0.01     0.01     0.01      
  Goodwill impairment               0.02      
  Income tax items(4)   (0.62 )       0.01         0.07  
Non-GAAP Adjusted net income (loss) per share - diluted(5)   $ 0.07     $ 0.09     $ 0.05     $ 0.15     $ (0.01 )
                       


      Three Months Ended
(in thousands)   March 31, 2016   June 30, 2016   September 30, 2016   December 31, 2016   March 31, 2017
                       
Net income (loss)   $ 11,609     $ 998     $ (283 )   $ 1,978     $ (2,076 )
  Acquisition related contingent consideration valuation adjustment(1)       (3 )   (5 )   (56 )   (57 )
  Investment impairment loss(2)           414          
  Transaction and integration costs of DMS Health Technologies(3)   1,450     171     127     173      
  Goodwill impairment               338      
  Depreciation and amortization   2,465     2,383     2,489     2,552     2,579  
  Stock-based compensation   223     257     274     270     263  
  Interest income   (5 )   (4 )   (3 )   (2 )   (1 )
  Interest expense   375     383     345     322     316  
  Income tax (benefit) expense   (12,461 )   37     202     (194 )   786  
Non-GAAP Adjusted EBITDA   $ 3,656     $ 4,222     $ 3,560     $ 5,381     $ 1,810  
                       

(1) Reflects fair value adjustment to estimate of contingent consideration related to acquisitions.
(2) Reflects impairment losses related to investment in Perma-Fix Medical.  Amounts consist of impairment of a Supply Agreement entered into between the two parties, a loss related to the initial excess of the transaction price over fair value and a write-down of the investment to its fair market value that was considered other than temporary.
(3) Reflects diligence, transaction, and integration costs related to the acquisition of DMS Health Technologies.
(4) Reflects income tax effect for adjusted financial data and acquisition related income tax adjustments, and adjustment to net operating loss carryforwards.
(5) Per share amounts are computed independently for each discrete item presented. Therefore, the sum of the quarterly per share amounts will not necessarily equal to the total for the year, and sum of individual items may not equal the total.

 
Digirad Corporation
Supplemental Debt Information
(Unaudited)
 
The following table reflects outstanding principal balances and interest rates under the Company's credit facility at March 31, 2017 and December 31, 2016:
 
  March 31, 2017   December 31, 2016
(in thousands) Balance Interest Rate   Balance Interest Rate
Term A(1) $ 16,668   3.33 %   $ 17,382   3.15 %
Term B(2) 3,956   5.83 %   4,581   5.65 %
Revolver   2.81 %     2.69 %
Total borrowing $ 20,624       $ 21,963    
 

(1) Term A amortizes over a 7-year period with scheduled amortization ending in January 2021, with the remaining amount due in a balloon payment.
(2) Term B amortizes over a 3-year period with scheduled amortization ending in January 2019. Through March 31, 2017, the Company has made three extra payments in the same amount as the scheduled payments.

 
Digirad Corporation
Supplemental Segment Information
(Unaudited)
 
  Three Months Ended March 31,
(in thousands) 2017   2016 (2)
Revenue by segment:      
Diagnostic Services $ 12,202     $ 12,012  
Diagnostic Imaging 2,782     3,582  
Mobile Healthcare 10,672     11,993  
Medical Device Sales and Service 3,424     3,570  
Condensed consolidated revenue $ 29,080     $ 31,157  
Gross profit by segment:      
Diagnostic Services $ 2,836     $ 2,548  
Diagnostic Imaging 1,127     1,715  
Mobile Healthcare 1,583     2,951  
Medical Device Sales and Service 1,561     1,851  
Condensed consolidated gross profit $ 7,107     $ 9,065  
Income (loss) from operations by segment:      
Diagnostic Services $ 336     $ (19 )
Diagnostic Imaging (202 )   381  
Mobile Healthcare (814 )   422  
Medical Device Sales and Service (295 )   113  
Segment (loss) income from operations (975 )   897  
Unallocated items (1)     (1,450 )
Condensed consolidated loss from operations $ (975 )   $ (553 )
 

(1) Includes transaction and integration costs associated with the DMS Health acquisition.
(2) Segment information has been reclassified to conform to the current year presentation.

 

For more information contact:
                    Jeff Keyes
                    Chief Financial Officer
                    858-726-1600
                    ir@digirad.com

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