Digirad Corporation
Aug 4, 2017
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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

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-related6,247  7,424  12,453  14,576 
Total revenues29,786  32,090  58,866  63,247 
Cost of revenues:        
Services18,950  19,179  37,405  37,685 
Product and product-related3,803  3,146  7,321  6,732 
Total cost of revenues22,753  22,325  44,726   44,417 
        
Gross profit7,033  9,765   14,140  18,830 
Total gross profit percentage23.6% 30.4% 24.0% 29.8%
Services gross profit percentage19.5% 22.2% 19.4% 22.6%
Product and product-related gross profit percentage39.1% 57.6% 41.2% 53.8%
        
Operating expenses:       
Marketing and sales2,269  2,837  4,669  5,462 
General and administrative5,937  4,878  11,041  11,292 
Amortization of intangible assets578  578  1,156  1,157 
Total operating expenses8,784  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 - basic19,979  19,529  19,957  19,489 
Weighted average shares outstanding - diluted19,979  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-sale187  917 
Accounts receivable, net13,643  14,503 
Inventories, net5,908  5,987 
Restricted cash358  1,376 
Other current assets1,880  2,093 
 Total current assets23,758  27,079 
Property and equipment, net29,839  31,407 
Intangible assets, net10,472  11,628 
Goodwill6,237  6,237 
Deferred tax assets26,878  27,019 
Restricted cash100   2,100 
Other assets1,010  793 
Total assets$98,294  $106,263 
    
Liabilities:   
Current liabilities:   
Accounts payable$5,661  $6,514 
Accrued compensation4,940  3,962 
Accrued warranty174  196 
Deferred revenue2,807  3,123 
Current portion of long-term debt  5,358 
Other current liabilities4,493  3,520 
Total current liabilities18,075  22,673 
Long-term debt, net of current portion17,478   16,070 
Other liabilities2,230  1,039 
Total liabilities37,783  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, respectively2  2 
Treasury stock, at cost; 2,588,484 shares at June 30, 2017 and December 31, 2016(5,728) (5,728)
Additional paid-in capital150,070  151,696 
Accumulated other comprehensive loss(83) (52)
Accumulated deficit(83,750) (79,437)
Total stockholders' equity60,511  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)BalanceInterest Rate BalanceInterest 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 Imaging2,943  3,418  5,726  7,000 
Mobile Healthcare10,980  12,197  21,652  24,190 
Medical Device Sales and Service3,304  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 Imaging1,053  1,851  2,179  3,566 
Mobile Healthcare1,859  2,581  3,442  5,532 
Medical Device Sales and Service1,391   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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Source: Digirad Corporation

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