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Digirad Corporation Reports Financial Results for the Second Quarter and Six Months Ended June 30, 2017

Increases dividend 10% to $0.055 cents per share

Confirms 2017 financial guidance

SUWANEE, Ga., Aug. 04, 2017 (GLOBE NEWSWIRE) -- Digirad Corporation (Nasdaq:DRAD) today reported its financial results for the second quarter and six months ended June 30, 2017.

Total revenues for the second quarter were $29.8 million, compared to $32.1 million in the second quarter of the prior year.

Net loss for the second quarter was $2.8 million, or $0.14 net loss per diluted share, compared to net income of $1.0 million, or $0.05 net income per diluted share in the same period in the prior year. Non-GAAP adjusted net income for the second quarter was $1.7 million, or $0.08 adjusted net income per diluted share, compared to adjusted net income of $1.8 million, or $0.09 adjusted net income per diluted share in the same period in the prior year. Non-GAAP adjusted EBITDA for the second quarter was $2.5 million, compared to $4.2 million in the same period in the prior year.

Total revenues for the six months ended June 30, 2017 were $58.9 million, compared to the prior year's revenues for the first six months of $63.2 million.

Net loss for the six months ended June 30, 2017 was $4.8 million, or $0.24 net loss per diluted share, compared to net income of $12.6 million, or $0.63 net income per diluted share in the same period in the prior year. Non-GAAP adjusted net income for the six months ended June 30, 2017 was $1.5 million, or $0.07 adjusted net income per diluted share, compared to adjusted net income of $3.2 million, or $0.16 adjusted net income per diluted share in the same period in the prior year. Non-GAAP adjusted EBITDA for the six months ended June 30, 2017 was $4.3 million, compared to $7.9 million in the same period in the prior year.

Operating cash flow for the six months ended June 30, 2017 was $3.5 million, compared to the prior year's operating cash flow for the first six months of $3.8 million. Non-GAAP free cash flow was $2.9 million for the six months ended June 30, 2017, compared to $1.0 million in the same period in the prior year.

Digirad President and CEO Matt Molchan said, “We are very pleased with the performance of our service businesses during the quarter, which include the Digirad Imaging Solutions and Mobile Healthcare divisions.  Both businesses had a solid quarter and strong year to date performance and continue to generate strong cash flow on a consistent basis.  Further, the operational changes we made in Mobile Healthcare appear to be taking hold, and we are optimistic of continued success."  Molchan continued, “Our product businesses, which include the Diagnostic Imaging and Medical Device Sales and Services divisions, had a tougher quarter related to closing capital equipment deals due to temporary delays in capital spending by customers, which we believe is mainly due to uncertainty around the Affordable Care Act.  Although we can’t predict exactly when the uncertainty around capital spending will lift, our team has worked very hard to build a robust order pipeline giving us high confidence in eventual improvement in these businesses."

"Despite order delays in our product businesses, our service businesses are performing above plan, which makes us confident in achieving our full year financial guidance range for the year.  In addition, we expect to continue to generate significant cash flow for our shareholders as demonstrated by our strong free cash flow generation so far this year. This confidence in our cash generation ability and the recent refinancing of our credit facility, which allows significantly more flexibility in capital allocation as well as a lower cost of capital, is allowing us to raise our quarterly cash dividend by 10% to $0.055 cents per share.  We are very pleased that we can provide this enhanced cash return to shareholders.  As we move forward, we'll continue to review ways to further enhance shareholder value."

The announced cash dividend of $0.055 cents per share will be paid on August 30, 2017, to shareholders of record on August 18, 2017.

2017 Financial Guidance

/EIN News/ -- The Company reaffirms its previously announced fiscal year 2017 financial guidance, 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 August 4, 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, litigation reserve, loss on extinguishment of debt 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, net of dispositions 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 August 4, 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   Six Months Ended
  June 30,   June 30,
(in thousands, except per share amounts) 2017   2016   2017   2016
               
Revenues:              
Services $ 23,539     $ 24,666     $ 46,413     $ 48,671  
Product and product-related 6,247     7,424     12,453     14,576  
Total revenues 29,786     32,090     58,866     63,247  
Cost of revenues:              
Services 18,950     19,179     37,405     37,685  
Product and product-related 3,803     3,146     7,321     6,732  
Total cost of revenues 22,753     22,325     44,726     44,417  
               
Gross profit 7,033     9,765     14,140     18,830  
Total gross profit percentage 23.6 %   30.4 %   24.0 %   29.8 %
Services gross profit percentage 19.5 %   22.2 %   19.4 %   22.6 %
Product and product-related gross profit percentage 39.1 %   57.6 %   41.2 %   53.8 %
               
Operating expenses:              
Marketing and sales 2,269     2,837     4,669     5,462  
General and administrative 5,937     4,878     11,041     11,292  
Amortization of intangible assets 578     578     1,156     1,157  
Total operating expenses 8,784     8,293     16,866     17,911  
               
(Loss) income from operations (1,751 )   1,472     (2,726 )   919  
               
Other expense:              
Other (expense) income, net     (58 )       14  
Interest expense, net (303 )   (379 )   (618 )   (750 )
Loss on extinguishment of debt (709 )       (709 )    
Total other expense (1,012 )   (437 )   (1,327 )   (736 )
               
(Loss) income before income taxes (2,763 )   1,035     (4,053 )   183  
Income tax (expense) benefit (9 )   (37 )   (795 )   12,424  
Net (loss) income $ (2,772 )   $ 998     $ (4,848 )   $ 12,607  
               
Net (loss) income per share:              
Basic $ (0.14 )   $ 0.05     $ (0.24 )   $ 0.65  
Diluted $ (0.14 )   $ 0.05     $ (0.24 )   $ 0.63  
Dividends declared per common share $ 0.05     $ 0.05     $ 0.10     $ 0.10  
               
Weighted average shares outstanding – basic 19,979     19,529     19,957     19,489  
Weighted average shares outstanding – diluted 19,979     20,038     19,957     19,991  
               


 
Digirad Corporation
Condensed Consolidated Balance Sheets
(Unaudited)
 
(in thousands, except share data) June 30,
 2017
  December 31,
 2016
Assets:      
Current assets:      
Cash and cash equivalents $ 1,782     $ 2,203  
Securities available-for-sale 187     917  
Accounts receivable, net 13,643     14,503  
Inventories, net 5,908     5,987  
Restricted cash 358     1,376  
Other current assets 1,880     2,093  
 Total current assets 23,758     27,079  
Property and equipment, net 29,839     31,407  
Intangible assets, net 10,472     11,628  
Goodwill 6,237     6,237  
Deferred tax assets 26,878     27,019  
Restricted cash 100     2,100  
Other assets 1,010     793  
Total assets $ 98,294     $ 106,263  
       
Liabilities:      
Current liabilities:      
Accounts payable $ 5,661     $ 6,514  
Accrued compensation 4,940     3,962  
Accrued warranty 174     196  
Deferred revenue 2,807     3,123  
Current portion of long-term debt     5,358  
Other current liabilities 4,493     3,520  
Total current liabilities 18,075     22,673  
Long-term debt, net of current portion 17,478     16,070  
Other liabilities 2,230     1,039  
Total liabilities 37,783     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 June 30, 2017 and December 31, 2016, respectively 2     2  
Treasury stock, at cost; 2,588,484 shares at June 30, 2017 and December 31, 2016 (5,728 )   (5,728 )
Additional paid-in capital 150,070     151,696  
Accumulated other comprehensive loss (83 )   (52 )
Accumulated deficit (83,750 )   (79,437 )
Total stockholders’ equity 60,511     66,481  
Total liabilities and stockholders’ equity $ 98,294     $ 106,263  
 


   
  Digirad Corporation
  Reconciliation of Non-GAAP Financial Measures
  (Unaudited)
   
      Three Months Ended June 30,   Six Months Ended June 30,
(in thousands, except per share amounts)   2017   2016   2017   2016
                   
Net (loss) income   $ (2,772 )   $ 998     $ (4,848 )   $ 12,607  
  Acquired intangible amortization   578     578     1,156     1,157  
  Acquisition related contingent consideration valuation adjustment(1)       (3 )   (57 )   (3 )
  Transaction and integration costs of DMS Health Technologies(2)       171         1,621  
  Litigation reserve(3)   1,339         1,339      
  Loss on extinguishment of debt   709         709      
  Income tax items(4)   1,806     67     3,154     (12,207 )
Non-GAAP adjusted net income   $ 1,660     $ 1,811     $ 1,453     $ 3,175  
                   
Net (loss) income per share - diluted(5)   $ (0.14 )   $ 0.05     $ (0.24 )   $ 0.63  
  Acquired intangible amortization   0.03     0.03     0.06     0.06  
  Acquisition related contingent consideration valuation adjustment(1)                
  Transaction and integration costs of DMS Health Technologies(2)       0.01         0.08  
  Litigation reserve(3)   0.07         0.07      
  Loss on extinguishment of debt   0.04         0.04      
  Income tax items(4)   0.09         0.16     (0.61 )
Non-GAAP adjusted net income per share - diluted(5)   $ 0.08     $ 0.09     $ 0.07     $ 0.16  
                   


      Three Months Ended June 30,   Six Months Ended June 30,
(in thousands)   2017   2016   2017   2016
                   
Net (loss) income   $ (2,772 )   $ 998     $ (4,848 )   $ 12,607  
  Acquisition related contingent consideration valuation adjustment(1)       (3 )   (57 )   (3 )
  Transaction and integration costs of DMS Health Technologies(2)       171         1,621  
  Litigation reserve(3)   1,339         1,339      
  Loss on extinguishment of debt   709         709      
  Depreciation and amortization   2,588     2,383     5,167     4,848  
  Stock-based compensation   296     257     559     480  
  Interest expense, net   303     379     618     750  
  Income tax expense (benefit)   9     37     795     (12,424 )
Non-GAAP adjusted EBITDA   $ 2,472     $ 4,222     $ 4,282     $ 7,879  
                   

(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 tentative legal settlement reserve for wage and hour litigation, subject to court approval.
(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
  Reconciliation of Non-GAAP Financial Measures
  (Unaudited)
   
      Three Months Ended
(in thousands, except per share amounts)   June 30, 2016   September 30, 2016   December 31, 2016   March 31, 2017   June 30, 2017
                       
Net income (loss)   $ 998     $ (283 )   $ 1,978     $ (2,076 )   $ (2,772 )
  Acquired intangible amortization   578     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)   171     127     173          
  Goodwill impairment           338          
  Litigation reserve(4)                   1,339  
  Loss on extinguishment of debt                   709  
  Income tax items(5)   67     170     25     1,348     1,806  
Non-GAAP adjusted net income (loss)   $ 1,811     $ 1,001     $ 3,036     $ (207 )   $ 1,660  
                       
Net income (loss) per share - diluted(6)   $ 0.05     $ (0.01 )   $ 0.10     $ (0.10 )   $ (0.14 )
  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)   0.01     0.01     0.01          
  Goodwill impairment           0.02          
  Litigation reserve(4)                   0.07  
  Loss on extinguishment of debt                   0.04  
  Income tax items(5)       0.01         0.07     0.09  
Non-GAAP adjusted net income (loss) per share - diluted(6)   $ 0.09     $ 0.05     $ 0.15     $ (0.01 )   $ 0.08  
                       


      Three Months Ended
(in thousands)   June 30, 2016   September 30, 2016   December 31, 2016   March 31, 2017   June 30, 2017
                       
Net income (loss)   $ 998     $ (283 )   $ 1,978     $ (2,076 )   $ (2,772 )
  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)   171     127     173          
  Litigation reserve(4)                   1,339  
  Loss on extinguishment of debt                   709  
  Goodwill impairment           338          
  Depreciation and amortization   2,383     2,489     2,552     2,579     2,588  
  Stock-based compensation   257     274     270     263     296  
  Interest expense, net   379     342     320     315     303  
  Income tax (benefit) expense   37     202     (194 )   786     9  
Non-GAAP adjusted EBITDA   $ 4,222     $ 3,560     $ 5,381     $ 1,810     $ 2,472  
                       

(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 tentative legal settlement reserve for wage and hour litigation, subject to court approval.
(5)  Reflects income tax effect for adjusted financial data and acquisition related income tax adjustments, and adjustment to net operating loss carryforwards.
(6)  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
Reconciliation of Operating Cash Flow to Free Cash Flow
(Unaudited)
   
  Six Months Ended June 30,
(in thousands) 2017   2016
Net cash provided by operating activities $ 3,494     $ 3,799  
Purchases of property and equipment, net of dispositions (615 )   (2,803 )
Free cash flow $ 2,879     $ 996  
 


 
Digirad Corporation
Supplemental Debt Information
(Unaudited)
 
The following table reflects outstanding principal balances and interest rates for the Company's debt at June 30, 2017 and December 31, 2016:
       
  June 30, 2017   December 31, 2016
(in thousands) Balance Interest Rate   Balance Interest Rate
Comerica          
Revolving Line of Credit (1) $ 17,478   3.60 %      
Wells Fargo          
Term A (2)       $ 17,382   3.15 %
Term B (2)       4,581   5.65 %
Revolving Line of Credit  (2)         2.69 %
Total borrowing $ 17,478       $ 21,963    

(1)  A Revolving Credit Agreement was entered into with Comerica Bank on June 21, 2017. The agreement consists of a revolving credit facility with a five-year term, maturing on June 21, 2022.
(2)  All tranches of the Wells Fargo Credit Facility were paid in full on June 21, 2017 upon entering into a Revolving Credit Agreement with Comerica Bank.

 
Digirad Corporation
Supplemental Segment Information
(Unaudited)
       
  Three Months Ended June 30,   Six Months Ended June 30,
(in thousands) 2017   2016 (1)   2017   2016 (1)
Revenue by segment:              
Diagnostic Services $ 12,559     $ 12,469     $ 24,761     $ 24,481  
Diagnostic Imaging 2,943     3,418     5,726     7,000  
Mobile Healthcare 10,980     12,197     21,652     24,190  
Medical Device Sales and Service 3,304     4,006     6,727     7,576  
Condensed consolidated revenue $ 29,786     $ 32,090     $ 58,866     $ 63,247  
Gross profit by segment:              
Diagnostic Services $ 2,730     $ 2,907     $ 5,566     $ 5,455  
Diagnostic Imaging 1,053     1,851     2,179     3,566  
Mobile Healthcare 1,859     2,581     3,442     5,532  
Medical Device Sales and Service 1,391     2,426     2,953     4,277  
Condensed consolidated gross profit $ 7,033     $ 9,765     $ 14,140     $ 18,830  
Income (loss) from operations by segment:              
Diagnostic Services $ 402     $ 222     $ 738     $ 203  
Diagnostic Imaging (261 )   641     (463 )   1,022  
Mobile Healthcare (133 )   178     (947 )   600  
Medical Device Sales and Service (420 )   602     (715 )   715  
Segment (loss) income from operations (412 )   1,643     (1,387 )   2,540  
Litigation reserve (1,339 )       (1,339 )    
Transaction and integration costs of DMS Health Technologies     (171 )       (1,621 )
Condensed consolidated (loss) income from operations $ (1,751 )   $ 1,472     $ (2,726 )   $ 919  

(1) 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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