Digirad Corporation
Oct 28, 2016
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Digirad Corporation Reports Financial Results for the Third Quarter and Nine Months ended September 30, 2016

SUWANEE, Ga., Oct. 28, 2016 (GLOBE NEWSWIRE) -- Digirad Corporation (Nasdaq:DRAD) today reported its financial results for the third quarter and nine months ended September 30, 2016.

Total revenues for the 2016 third quarter were $31.1 million, an increase of 96 percent compared to the prior year's third quarter revenues of $15.9 million.

Net loss for the 2016 third quarter was $0.3 million, or $0.01 net loss per diluted share, compared to net income of $19.1 million, or $0.97 per diluted share from the same period in the prior year. Adjusted net income for the 2016 third quarter was $1.0 million, or $0.05 per diluted share, compared to $1.5 million, or $0.08 per diluted share from the same period in the prior year.

Adjusted EBITDA for the 2016 third quarter was $3.6 million, compared to $2.2 million in the prior year third quarter.

Total revenues for the nine months ended September 30, 2016 were $94.3 million, an increase of 109 percent compared to the prior year's revenues for the first nine months of $45.2 million.

Net income for the nine months ended September 30, 2016 was $12.3 million, or $0.62 per diluted share, compared to net income of $21.0 million, or $1.07 per diluted share in the same period in the prior year. Adjusted net income for the nine months ended September 30, 2016 was $4.4 million, or $0.22 per diluted share, compared to adjusted net income of $3.2 million, or $0.16 per diluted share in the same period in the prior year.

Adjusted EBITDA for the nine months ended September 30, 2016 was $11.4 million, compared to $5.0 million in the same period in the prior year. A reconciliation of adjusted net income and adjusted EBITDA is provided later in this release.

The results for the third quarter and nine months ended September 30, 2016 include the results of the recent acquisition of DMS Health, which closed on January 1, 2016.

Digirad President and CEO Matt Molchan said, "We are pleased with our results this quarter, and the performance of all our businesses, including the business units of DMS Health that we acquired at the beginning of the year. As we have stated before, our results can be affected by the timing of product sales on a quarter by quarter basis, and during the third quarter we did experience some of this timing as well as higher than normal parts cost for our product service businesses. However, we expect the product sales timing and underlying parts cost to balance out by the end of the year and continue to be confident of our full year financial guidance, which is supported by our significant year over year performance on a year to date basis through September 2016."

Digirad Chief Financial Officer Jeff Keyes said, "We are also pleased with the momentum of our cash flow generation on a year to date basis, which beyond our normal quarterly dividend, allowed us to make three extra payments on the highest interest rate tranche of our credit facility. Paying down debt not only reduces our interest expense but it also accretes additional value to our shareholders. And finally, we are excited that we are nearly complete with our operational integration of DMS Health, and expect to finish all major planned integration activities by year end."

The Company also announced a cash dividend of $0.05 cents per share that will be paid on November 28, 2016, to shareholders of record on November 17, 2016.

2016 Financial Guidance

The Company reaffirms its previously announced fiscal year 2016 financial guidance of revenues between $125 million and $130 million, non-GAAP adjusted EBITDA between $17 million and $18 million, and adjusted diluted earnings per share of between $0.30 and $0.35.

Conference Call Information

A conference call is scheduled for 10:00 a.m. EDT on October 28, 2016 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," "adjusted net income per diluted share," and "adjusted EBITDA." The most directly comparable measure for these non-GAAP financial measures are net income and diluted net income per share. The Company has included below unaudited adjusted financial information, which presents the Company's results of operations after excluding acquired intangible asset amortization, 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.

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 October 28, 2016.

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 Income (Loss)
(Unaudited)

 Three Months Ended Nine Months Ended
 September 30, September 30,
(in thousands, except per share amounts)2016  2015 2016 2015
        
Revenues:       
Services$23,825  $11,982  $72,496  $34,724 
Product and product-related7,261  3,880  21,837  10,525 
Total revenues31,086  15,862  94,333  45,249 
Cost of revenues:       
Services19,110   9,201  56,795  26,920 
Product and product-related3,675  1,859  10,407  5,112 
Total cost of revenues22,785   11,060  67,202  32,032 
        
Gross profit8,301  4,802  27,131  13,217 
Total gross profit percentage 26.7% 30.3% 28.8% 29.2%
Services gross profit percentage19.8% 23.2% 21.7% 22.5%
Product and product-related gross profit percentage49.4% 52.1% 52.3% 51.4%
        
Operating expenses:       
Marketing and sales2,426  1,212  7,888   3,689 
General and administrative4,608  2,508  15,900  6,880 
Amortization of intangible assets578  134  1,735  372 
Total operating expenses7,612  3,854  25,523   10,941 
        
Income from operations689  948  1,608  2,276 
        
Other expense:       
Other expense, net(428)   (414)  
Interest expense, net(342) (11) (1,092) (12)
Total other expense(770) (11) (1,506) (12)
        
(Loss) income before income taxes(81) 937  102  2,264 
Income tax (expense) benefit(202) 18,183  12,222  18,698 
Net (loss) income$(283) $19,120  $12,324  $20,962 
        
Net (loss) income per share:       
Basic$(0.01) $0.99  $0.63  $1.09 
Diluted$(0.01) $0.97  $0.62  $1.07 
Dividends declared per common share$0.05  $0.05  $0.15   $0.15 
        
Weighted average shares outstanding - basic19,618  19,356  19,532  19,145 
Weighted average shares outstanding - diluted19,618  19,798  20,026  19,608 
        

Digirad Corporation
 Condensed Consolidated Balance Sheets
(Unaudited)

(in thousands)September 30,
 2016
 December 31,
 2015
Assets   
Current assets:   
Cash and cash equivalents$2,353  $15,868 
Securities available-for-sale1,313  3,227  
Accounts receivable, net13,637  7,274 
Inventories, net5,909  4,381 
Restricted cash233  233 
Other current assets3,649  764 
Total current assets27,094  31,747 
Property and equipment, net31,119  6,252 
Intangible assets, net12,206  3,079 
Goodwill6,819  2,897 
Deferred tax assets26,100  18,578 
Restricted cash2,845   
Other assets903  1,560 
Total assets$107,086  $64,113 
    
Liabilities and stockholders' equity   
Current liabilities:   
Accounts payable$6,466  $1,369 
Accrued compensation4,232  2,453 
Accrued warranty153  213 
Deferred revenue3,317  1,673 
Current portion of long-term debt5,358   
Other current liabilities4,237  2,998 
Total current liabilities23,763  8,706 
Long-term debt, net of current portion17,340   
Other liabilities1,163  1,252 
Total liabilities42,266  9,958 
    
Stockholders' equity:   
Preferred stock   
Common stock2  2 
Treasury stock(5,728) (5,728)
Additional paid-in capital151,961  153,860 
Accumulated other comprehensive loss  (240)
Accumulated deficit(81,415) (93,739)
Total stockholders' equity64,820  54,155 
Total liabilities and stockholders' equity$107,086  $64,113 
        

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) 2016 2015 2016 2015
           
Net (loss) income $(283) $19,120  $12,324  $20,962 
 Acquired intangible amortization 578  131  1,735  365 
 Acquisition related contingent consideration valuation adjustment(1) (5)   (8) (173)
 Investment impairment loss(2) 414    414   
 Transaction and integration costs of DMS Health Technologies(3) 127  435  1,748  743 
 Income tax items(4) 170  (18,163) (11,860) (18,699)
Non-GAAP Adjusted net income $1,001  $1,523  $4,353   $3,198 
          
Net (loss) income per share - diluted(5) $(0.01) $0.97  $0.62  $1.07 
 Acquired intangible amortization 0.03  0.01  0.09  0.02 
  Acquisition related contingent consideration valuation adjustment(1)       (0.01)
 Investment impairment loss(2) 0.02    0.02   
 Transaction and integration costs of DMS Health Technologies(3) 0.01  0.02  0.09  0.04 
 Income tax items(4) 0.01  (0.92) (0.59) (0.95)
Non-GAAP Adjusted net income per share - diluted(5) $0.05  $0.08  $0.22  $0.16 
          


   Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2016 2015  2016 2015
          
Net (loss) income  $(283) $19,120  $12,324  $20,962 
 Acquisition related contingent consideration valuation adjustment(1) (5)   (8) (173)
  Investment impairment loss(2) 414    414   
 Transaction and integration costs of DMS Health Technologies(3) 127  435  1,748  743 
 Depreciation and amortization 2,489  665  7,337  1,751 
  Stock-based compensation 274  165  754  450 
 Interest income  (3) (10) (12) (32)
 Interest expense 345  21  1,104  44 
 Income tax expense (benefit) 202  (18,183) (12,222) (18,698)
Non-GAAP Adjusted EBITDA  $3,560  $2,213  $11,439  $5,047 
          

(1) Reflects fair value adjustment to estimate of contingent consideration related to acquisitions.
(2) Reflects impairment losses related to investment in Perma-Fix Medical.  Amount consists of 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 release of previously reserved 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) September 30, 2015 December 31, 2015 March 31, 2016 June 30, 2016 September 30, 2016
            
Net income (loss) $19,120  $678  $11,609  $998  $(283)
 Acquired intangible amortization 131  131  577  578  578 
 Acquisition related contingent consideration valuation adjustment(1)   113    (3) (5)
  Investment impairment loss(2)   278      414 
 Transaction and integration costs of DMS Health Technologies(3) 435  595  1,450  171  127 
 Income tax items(4) (18,163) (446) (12,333) 67  170 
Non-GAAP Adjusted net income $1,523  $1,349  $1,303  $1,811  $1,001 
            
Net income (loss) per share - diluted(5) $0.97  $ 0.03  $0.58  $0.05  $(0.01)
 Acquired intangible amortization 0.01  0.01  0.03  0.03  0.03  
 Acquisition related contingent consideration valuation adjustment(1)   0.01       
 Investment impairment loss(2)   0.01      0.02 
 Transaction and integration costs of DMS Health Technologies(3) 0.02  0.03   0.07  0.01  0.01 
 Income tax items(4) (0.92) (0.02) (0.62)   0.01 
Non-GAAP Adjusted net income per share - diluted(5) $0.08  $0.07  $0.07  $0.09  $0.05 
            


   Three Months Ended
(in thousands) September 30, 2015 December 31, 2015 March 31, 2016 June 30, 2016 September 30, 2016
            
Net income (loss) $19,120  $678  $11,609  $998  $(283)
 Acquisition related contingent consideration valuation adjustment(1)   113    (3) (5)
 Investment impairment loss(2)   278      414 
 Transaction and integration costs of DMS Health Technologies(3) 435  595  1,450  171  127 
 Depreciation and amortization 665  690  2,465  2,383  2,489 
 Stock-based compensation 165  166  223  257  274 
 Interest income (10) (7) (5) (4) (3 )
 Interest expense 21  19  375  383  345 
 Income tax expense (benefit) (18,183) (425) (12,461) 37  202 
Non-GAAP Adjusted EBITDA $2,213  $2,107  $3,656  $4,222  $3,560 
            

(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 release of previously reserved 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.

 

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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