Digirad Corporation
Nov 3, 2017
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Digirad Corporation Reports Financial Results for the Third Quarter and Nine Months Ended September 30, 2017

SUWANEE, Ga., Nov. 03, 2017 (GLOBE NEWSWIRE) -- Digirad Corporation (Nasdaq:DRAD) today reported its financial results for the third quarter and nine months ended September 30, 2017.

Total revenues for the third quarter were $28.6 million, compared to $31.1 million in the third quarter of the prior year.

Net loss for the third quarter was $8.9 million, or $0.44 net loss per diluted share, compared to a net loss of $0.3 million, or $0.01 net loss per diluted share in the same period in the prior year. Non-GAAP adjusted net income for the third quarter was $1.5 million, or $0.07 adjusted net income per diluted share, compared to adjusted net income of $1.0 million, or $0.05 adjusted net income per diluted share in the same period in the prior year. Non-GAAP adjusted EBITDA for the third quarter was $3.0 million, compared to $3.6 million in the same period in the prior year.

Total revenues for the nine months ended September 30, 2017 were $87.4 million, compared to the prior year's revenues for the first nine months of $94.3 million.

Net loss for the nine months ended September 30, 2017 was $13.7 million, or $0.69 net loss per diluted share, compared to net income of $12.3 million, or $0.62 net income per diluted share in the same period in the prior year. Non-GAAP adjusted net income for the nine months ended September 30, 2017 was $2.9 million, or $0.15 adjusted net income per diluted share, compared to adjusted net income of $4.4 million, or $0.22 adjusted net income per diluted share in the same period in the prior year. Non-GAAP adjusted EBITDA for the nine months ended September 30, 2017 was $7.2 million, compared to $11.4 million in the same period in the prior year.

Operating cash flow for the nine months ended September 30, 2017 was $4.1 million, compared to the prior year's operating cash flow for the first nine months of $6.8 million. Non-GAAP free cash flow was $2.7 million for the nine months ended September 30, 2017, compared to $3.0 million in the same period in the prior year.

Digirad President and CEO Matt Molchan said, "Our service businesses performed well this quarter, with Diagnostic Services posting period over period growth for both the quarter and year, and Mobile Healthcare performing within our expectations with continued improvement from operational changes we made earlier this year.  In our products businesses, we continue to have slower than expected capital equipment sales, which impacted our overall results.  We believe this trend has continued in part due to uncertainty in the future of the Affordable Care Act.  We still cannot predict exactly when the uncertainty around capital spending will lift, but in the meantime, we continue to build an order pipeline giving us confidence in eventual improvement in capital equipment sales."

Molchan continued, "We previously announced the cancellation of our partnership with Philips Healthcare, effective December 31, 2017.  This cancellation has impacted a portion of our MDSS business, which includes our Philips product sales, as well as associated installation and warranty services; however, we will continue to run and operate the post-warranty service side of this business.  While we will have to make some adjustments in the near term to unwind the Philips relationship, we believe our overall business remains strong, and will continue to generate cash and grow in the long-term.  We remain committed to our dividend and growing stockholder value over time."

The Company also announced its regular quarterly cash dividend of $0.055 cents per share, which will be paid on November 30, 2017, to shareholders of record on November 20, 2017.

2017 Financial Guidance

Based on slower capital spending and the expected impact of Philips Healthcare contract cancellation, the Company updated its previously announced fiscal year 2017 financial guidance.  The Company expects to generate revenues of approximately $115 to $120 million, non-GAAP adjusted EBITDA of between $9.5 and $10.5 million, adjusted net income per diluted share of between $0.08 and $0.10, and free cash flow of between $5 and $6 million.

Conference Call Information

A conference call is scheduled for 11:00 a.m. EDT on November 3, 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 November 3, 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 Nine Months Ended
 September 30, September 30,
(in thousands, except per share amounts)2017 2016  2017 2016
        
Revenues:       
Services$22,667  $23,825  $69,080  $72,496 
Product and product-related5,888  7,261  18,341  21,837 
Total revenues28,555   31,086  87,421  94,333 
Cost of revenues:       
Services18,629  19,110  56,034  56,795 
Product and product-related3,286  3,675  10,607  10,407 
Total cost of revenues21,915  22,785  66,641  67,202 
        
Gross profit6,640  8,301  20,780   27,131 
Total gross profit percentage23.3% 26.7% 23.8% 28.8%
Services gross profit percentage17.8% 19.8% 18.9% 21.7%
Product and product-related gross profit percentage44.2% 49.4% 42.2% 52.3%
        
Operating expenses:       
Marketing and sales1,992  2,426  6,661  7,888 
General and administrative3,878  4,608  14,919  15,900 
Amortization of intangible assets578  578  1,734  1,735 
Goodwill impairment2,580    2,580   
Total operating expenses9,028  7,612  25,894  25,523 
        
(Loss) income from operations(2,388) 689  (5,114) 1,608 
        
Other expense:       
Other expense, net(237) (428) (237) (414)
Interest expense, net(224) (342) (842) (1,092)
Loss on extinguishment of debt    (709)  
Total other expense(461) (770) (1,788) (1,506)
        
(Loss) income before income taxes(2,849) (81) (6,902) 102 
Income tax (expense) benefit(6,050) (202) (6,845) 12,222 
Net (loss) income$(8,899) $(283) $(13,747) $12,324 
        
Net (loss) income per share:       
Basic$(0.44) $(0.01) $(0.69) $0.63 
Diluted$(0.44) $(0.01) $(0.69) $0.62 
Dividends declared per common share$0.055  $0.05  $0.155  $0.15 
        
Weighted average shares outstanding - basic20,009  19,618   19,974  19,532 
Weighted average shares outstanding - diluted20,009  19,618  19,974  20,026 
         


Digirad Corporation
Condensed Consolidated Balance Sheets
(Unaudited)
 
(in thousands, except share data)September 30, 2017 December 31, 2016
Assets:   
Current assets:    
Cash and cash equivalents$1,103  $2,203 
Securities available-for-sale79  917  
Accounts receivable, net14,002  14,503 
Inventories, net5,903  5,987 
Restricted cash359  1,376 
Other current assets1,874  2,093 
Total current assets23,320  27,079 
Property and equipment, net29,048  31,407 
Intangible assets, net9,894   11,628 
Goodwill3,657  6,237 
Deferred tax assets20,623  27,019 
Restricted cash100  2,100 
Other assets976  793 
Total assets$87,618  $106,263 
    
Liabilities:   
Current liabilities:   
Accounts payable$5,571  $6,514 
Accrued compensation3,566  3,962 
Accrued warranty167  196 
Deferred revenue2,751  3,123 
Current portion of long-term debt  5,358 
Other current liabilities4,188  3,520 
Total current liabilities16,243  22,673 
Long-term debt, net of current portion18,500  16,070 
Other liabilities2,009  1,039 
Total liabilities36,752  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; 20,052,984 and 19,892,557 shares issued and outstanding (net of treasury shares) at September 30, 2017 and December 31, 2016, respectively2  2 
Treasury stock, at cost; 2,588,484 shares at September 30, 2017 and December 31, 2016(5,728) (5,728)
Additional paid-in capital149,241  151,696 
Accumulated other comprehensive loss  (52)
Accumulated deficit(92,649) (79,437)
Total stockholders' equity50,866  66,481 
Total liabilities and stockholders' equity$87,618  $106,263 
        


 Digirad Corporation
 Reconciliation of Non-GAAP Financial Measures
 (Unaudited)
  
   Three Months Ended
September 30,
 Nine Months Ended
September 30,
(in thousands, except per share amounts) 2017 2016 2017 2016
          
Net (loss) income $(8,899) $(283) $(13,747) $12,324 
  Acquired intangible amortization 578  578  1,734  1,735 
 Acquisition related contingent consideration valuation adjustment(1)   (5) (57) (8)
 Investment impairment loss(2) 237  414  237  414 
 Transaction and integration costs of DMS Health Technologies(3)   127    1,748 
 Goodwill impairment(4) 2,580    2,580   
 Litigation reserve(5)     1,339   
 Loss on extinguishment of debt     709   
 Income tax items(6) 6,956  170  10,110  (11,860)
Non-GAAP adjusted net income $1,452  $1,001  $2,905  $4,353 
          
Net (loss) income per share - diluted(7) $(0.44) $(0.01) $(0.69) $0.62 
 Acquired intangible amortization 0.03  0.03  0.09  0.09 
 Acquisition related contingent consideration valuation adjustment(1)        
 Investment impairment loss(2) 0.01  0.02  0.01  0.02 
 Transaction and integration costs of DMS Health Technologies(3)    0.01    0.09 
 Goodwill impairment(4) 0.13    0.13   
 Litigation reserve(5)     0.07   
 Loss on extinguishment of debt     0.04   
 Income tax items(6) 0.35  0.01  0.51  (0.59)
Non-GAAP adjusted net income per share - diluted(7) $0.07  $0.05  $0.15  $0.22 
          


   Three Months Ended
September 30,
 Nine Months Ended
September 30,
(in thousands)  2017 2016 2017 2016
          
Net (loss) income $(8,899) $(283) $(13,747) $12,324 
 Acquisition related contingent consideration valuation adjustment(1)   (5) (57) (8)
 Investment impairment loss(2) 237  414  237  414 
 Transaction and integration costs of DMS Health Technologies(3)   127    1,748 
 Goodwill impairment(4) 2,580    2,580   
 Litigation reserve(5)     1,339   
 Loss on extinguishment of debt     709   
 Depreciation and amortization 2,495  2,489  7,662  7,337 
 Stock-based compensation 270  274  829  754 
 Interest expense, net 224  342  842  1,092 
 Income tax expense (benefit) 6,050  202   6,845  (12,222)
Non-GAAP adjusted EBITDA $2,957  $3,560  $7,239  $11,439 
          

(1)  Reflects fair value adjustment to estimate of contingent consideration related to acquisitions.
(2)  Reflects impairment loss related to write-down of available-for-sale securities to their 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 impairment of goodwill for MDSS reporting unit. 
(5)  Reflects tentative legal settlement reserve, with preliminary court approval, for wage and hour litigation. 
(6)  Reflects income tax effect for adjusted financial data and acquisition related income tax adjustments, and adjustment to net operating loss carryforwards. 
(7)  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)
 September 30,
2016
 December 31,
2016
 March 31,
2017
 June 30, 2017 September 30,
2017
            
Net (loss) income $(283) $1,978  $(2,076) $(2,772) $(8,899)
 Acquired intangible amortization 578  578  578  578  578 
 Acquisition related contingent consideration valuation adjustment(1) (5) (56) (57)    
 Investment impairment loss(2) 414        237 
 Transaction and integration costs of DMS Health Technologies(3) 127  173       
 Goodwill impairment(4)   338      2,580 
 Litigation reserve(5)       1,339   
 Loss on extinguishment of debt       709   
 Income tax items(6) 170  25   1,348  1,806  6,956 
Non-GAAP adjusted net income (loss) $1,001  $3,036  $(207) $1,660  $1,452 
             
Net (loss) income per share - diluted(7) $(0.01) $0.10  $(0.10) $(0.14) $(0.44)
 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        0.01 
 Transaction and integration costs of DMS Health Technologies(3) 0.01  0.01       
 Goodwill impairment(4)   0.02      0.13 
 Litigation reserve(5)       0.07   
 Loss on extinguishment of debt       0.04   
 Income tax items(6) 0.01    0.07  0.09  0.35 
Non-GAAP adjusted net income (loss) per share - diluted(7)  $0.05  $0.15  $(0.01 ) $0.08  $0.07 
             


   Three Months Ended


(in thousands)
 September 30,
2016
 December 31,
2016
 March 31,
2017
 June 30, 2017 September 30,
2017
            
Net income (loss) $(283) $1,978  $(2,076) $(2,772) $(8,899)
 Acquisition related contingent consideration valuation adjustment(1) (5 ) (56) (57)    
 Investment impairment loss(2) 414        237 
 Transaction and integration costs of DMS Health Technologies(3) 127  173       
 Goodwill impairment(4)   338      2,580 
 Litigation reserve(5)        1,339   
 Loss on extinguishment of debt       709   
 Depreciation and amortization 2,489  2,552  2,579  2,588  2,495 
 Stock-based compensation 274  270  263  296   270 
 Interest expense, net 342  320  315   303  224 
 Income tax (benefit) expense 202  (194 ) 786  9  6,050 
Non-GAAP adjusted EBITDA $3,560  $5,381  $1,810  $2,472  $2,957 
            

(1)  Reflects fair value adjustment to estimate of contingent consideration related to acquisitions.
(2)  Reflects impairment loss related to write-down of available-for-sale securities to their 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 impairment of goodwill for Telerhythmics and MDSS reporting units.
(5)  Reflects tentative legal settlement reserve, with preliminary court approval, for wage and hour litigation.
(6)  Reflects income tax effect for adjusted financial data and acquisition related income tax adjustments, and adjustment to net operating loss carryforwards.
(7)  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)
 
 Nine Months Ended
September 30,
(in thousands)2017 2016
Net cash provided by operating activities$4,101  $6,816 
Purchases of property and equipment, net of dispositions(1,393) (3,791)
Free cash flow$2,708  $3,025 
        


Digirad Corporation
Supplemental Debt Information
(Unaudited)
 
The following table reflects outstanding principal balances and interest rates for the Company's debt at September 30, 2017 and December 31, 2016:
 
 September 30, 2017 December 31, 2016
(in thousands)BalanceInterest
Rate
 BalanceInterest
Rate
Comerica     
Revolving Line of Credit (1) $18,500 3.59% $  
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$18,500   $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
September 30,
 Nine Months Ended
September 30,
(in thousands)2017  2016 (1) 2017 2016 (1)
Revenue by segment:       
Diagnostic Services$12,171  $12,070  $36,932  $36,551 
Diagnostic Imaging2,975  2,703  8,701   9,703 
Mobile Healthcare10,496  11,755  32,148  35,945 
Medical Device Sales and Service2,913  4,558  9,640  12,134 
Condensed consolidated revenue$28,555  $31,086   $87,421  $94,333 
Gross profit by segment:       
Diagnostic Services$2,586  $2,479  $8,152  $7,934 
Diagnostic Imaging1,318  1,177  3,497  4,743 
Mobile Healthcare1,452  2,236  4,894  7,768 
Medical Device Sales and Service1,284  2,409  4,237  6,686 
Condensed consolidated gross profit$6,640  $8,301  $20,780  $27,131 
Income (loss) from operations by segment:       
Diagnostic Services$511  $143  $1,249  $346 
Diagnostic Imaging149  (40) (314) 982 
Mobile Healthcare (174) 219  (1,121) 819 
Medical Device Sales and Service(294) 494  (1,009) 1,209 
Segment (loss) income from operations192  816  (1,195) 3,356 
Litigation reserve    (1,339)  
Goodwill impairment(2,580)   (2,580)  
Transaction and integration costs of DMS Health Technologies  (127)   (1,748)
Condensed consolidated (loss) income from operations$(2,388) $689  $(5,114) $1,608 
                

(1) Segment information has been reclassified to conform to the current year presentation.


Digirad Corporation
Impact of Philips Agreement Termination
(Unaudited)

On September 28, 2017, the Company received a notice of termination from Philips Healthcare that our Consolidated Agreement and Remote Insider agreement ("Philips Agreements") will be terminated upon the normal close of business on December 31, 2017 ("Termination Date"). After the Termination Date, the Company will no longer operate as a manufacturer's sales representative in the defined Upper Midwest region of the United States in the contract, as well as not install or warranty products sold in the same region.

The following table reflects financial information recorded for the respective quarterly and year to date periods that are directly related to activity under the Philips Agreements that will be terminated as of December 31, 2017.

 Three Months Ended
September 30,
 Nine Months Ended
September 30,
(in thousands)2017 2016 2017 2016
Revenues:       
Product sales commissions$666  $1,834  $2,584  $4,006 
Install and warranty135  216  420  $441 
Total revenues801  2,050  3,004  4,447 
        
Cost of revenues317  416  1,160  1,143 
        
Gross profit484  1,634  1,844  3,304 
        
Operating expenses647  873  2,023  2,309 
        
 $(163) $761  $(179) $995 

 

For more information contact:

Jeff Keyes

Chief Financial Officer

858-726-1600

ir@digirad.com

Source: Digirad Corporation

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