Digirad Corporation
DIGIRAD CORP (Form: 8-K, Received: 02/24/2017 06:01:43)



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549



FORM 8‑K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934

Date of Report: February 24, 2017
(Date of earliest event reported)



DIGIRAD CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
 
001-35947
 
33-0145723
(State or other jurisdiction of incorporation)
 
(Commission File Number)
 
(IRS Employer
Identification No.)

1048 Industrial Court,
Suwanee, GA 30024
(Address of principal executive offices, including zip code)

(858) 726-1600
(Registrant’s telephone number, including area code)

Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))






Item 2.02.  Results of Operations and Financial Condition

On February 24, 2017, Digirad Corporation issued a press release announcing financial results for the fourth quarter and twelve months ended December 31, 2016. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

Item 9.01.  Financial Statements and Exhibits
 
(a) Financial statements:
None
(b) Pro forma financial information:
None
(c) Shell company transactions:
None
(d)  Exhibits:
99.1 Press Release of Digirad Corporation dated February 24, 2017
99.2 Information Related to the Use of Non-GAAP Financial Measures    

  





SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
 
DIGIRAD CORPORATION
 
 
 
 
By:
/s/ Jeffry R. Keyes
 
 
 
Jeffry R. Keyes
Chief Financial Officer

Date:     February 24, 2017




Exhibit Index

Exhibit No.
 
Description
 
 
 
99.1
 
Press Release of Digirad Corporation dated February 24, 2017

99.2
 
Information Related to the Use of Non-GAAP Financial Measures




Exhibit 99.1
News Release
For immediate release
For more information contact:
February 24, 2017
Jeff Keyes
 
Chief Financial Officer
 
858-726-1600
 
ir@digirad.com

Digirad Corporation Reports Financial Results for the
Fourth Quarter and Twelve Months ended December 31, 2016

Year over year fourth quarter revenue increases 100%
Year over year fourth quarter net income increases 192%
During 2016, Company pays down $11.7 million on its credit facility
Company continues to pay regular quarterly cash dividend of $0.05 cents per share

Suwanee, GA. - February 24, 2017 - Digirad Corporation (Nasdaq: DRAD) today reported its financial results for the fourth quarter and twelve months ended December 31, 2016.
Total revenues for the fourth quarter were $31.1 million, an increase of 100 percent compared to the prior year’s fourth quarter revenues of $15.6 million.
Net income for the fourth quarter was $2.0 million, or $0.10 diluted earnings per share (EPS), compared to net income of $0.7 million, or $0.03 diluted EPS from the same period in the prior year. Non-GAAP adjusted net income for the fourth quarter was $3.0 million, or $0.15 diluted EPS, compared to $1.3 million, or $0.07 diluted EPS from the same period in the prior year.
Non-GAAP adjusted EBITDA for the fourth quarter was $5.4 million, compared to $2.1 million in the same period in the prior year.
Total revenues for the twelve months ended December 31, 2016 were $125.5 million, an increase of 106 percent compared to the prior year’s revenues of $60.8 million.
Net income for the twelve months ended December 31, 2016 was $14.3 million, or $0.71 diluted EPS, compared to net income of $21.6 million, or $1.10 diluted EPS in the same period in the prior year. Non-GAAP adjusted net income for the twelve months ended December 31, 2016 was $7.2 million, or $0.36 diluted EPS, compared to non-GAAP adjusted net income of $4.5 million, or $0.23 diluted EPS in the same period in the prior year.
Non-GAAP adjusted EBITDA for the twelve months ended December 31, 2016 was $16.8 million, compared to $7.2 million in the same period in the prior year. A reconciliation of non-GAAP adjusted net income and non-GAAP adjusted EBITDA is provided later in this release.
The results for the fourth quarter and twelve months ended December 31, 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 very pleased with our results for the quarter, where we experienced exceptional product sales performance, as well as great performance from our service businesses, capping off a transformational year for Digirad.”
Molchan continued, “I am also pleased to report we have completed all of our operational integration activities related to the DMS Health acquisition, and will now be focusing our efforts on leveraging our combined resources as we move forward. Additionally, since entering our credit facility at the beginning of the year, we have paid down $11.7 million of the initial balance, including three extra principal payments. We continue to generate significant cash flow to maintain our stable dividend, fund organic growth and pursue accretive acquisitions.”
The Company previously announced a cash dividend of $0.05 cents per share that will be paid on February 28, 2017, to shareholders of record on February 15, 2017.






Conference Call Information
A conference call is scheduled for 10:00 a.m. EST on February 24, 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,” “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, 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.

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 February 24, 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
Consolidated Statements of Operations
(Unaudited)
 
Three Months Ended
 
Twelve Months Ended
 
December 31,
 
December 31,
(in thousands, except per share amounts)
2016
 
2015
 
2016
 
2015
 

 

 
 
 
 
Revenues:
 
 
 
 
 
 
 
Services
$
23,015

 
$
11,683

 
$
95,511

 
$
46,407

Product and product-related
8,119

 
3,895

 
29,956

 
14,419

Total revenues
31,134

 
15,578

 
125,467

 
60,826

Cost of revenues:
 
 
 
 
 
 
 
Services
18,720

 
9,048

 
75,515

 
35,968

Product and product-related
3,772

 
1,838

 
14,179

 
6,949

Total cost of revenues
22,492

 
10,886

 
89,694

 
42,917

 
 
 
 
 
 
 
 
Gross profit
8,642

 
4,692

 
35,773

 
17,909

Total gross profit percentage
27.8
%
 
30.1
%
 
28.5
%
 
29.4
%
Services gross profit percentage
18.7
%
 
22.6
%
 
20.9
%
 
22.5
%
Product and product-related gross profit percentage
53.5
%
 
52.8
%
 
52.7
%
 
51.8
%
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Marketing and sales
2,161

 
1,051

 
10,049

 
4,741

General and administrative
4,088

 
3,009

 
19,988

 
9,888

Amortization of intangible assets
578

 
134

 
2,313

 
506

Goodwill impairment
338

 

 
338

 

Total operating expenses
7,165

 
4,194

 
32,688

 
15,135

 
 
 
 
 
 
 
 
Income from operations
1,477

 
498

 
3,085

 
2,774

 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
Other income (expense), net
627

 
(233
)
 
212

 
(233
)
Interest expense, net
(320
)
 
(12
)
 
(1,412
)
 
(24
)
Total other income (expense)
307

 
(245
)
 
(1,200
)
 
(257
)
 
 
 
 
 
 
 
 
Income before income taxes
1,784

 
253

 
1,885

 
2,517

Income tax benefit
194

 
425

 
12,417

 
19,123

Net income
$
1,978

 
$
678

 
$
14,302

 
$
21,640

 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
Basic
$
0.10

 
$
0.03

 
$
0.73

 
$
1.13

Diluted
$
0.10

 
$
0.03

 
$
0.71

 
$
1.10

Dividends declared per common share
$
0.05

 
$
0.05

 
$
0.20

 
$
0.20

 
 
 
 
 
 
 
 
Weighted average shares outstanding – basic
19,764

 
19,404

 
19,594

 
19,210

Weighted average shares outstanding – diluted
20,173

 
19,933

 
20,067

 
19,690

 
 
 
 
 
 
 
 






Digirad Corporation
Consolidated Balance Sheets
(Unaudited)
 
(in thousands)
December 31,
2016
 
December 31,
2015
Assets:
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
2,203

 
$
15,868

Securities available-for-sale
917

 
3,227

Accounts receivable, net
14,503

 
7,274

Inventories, net
5,987

 
4,381

Restricted cash
1,376

 
233

Other current assets
2,093

 
764

 Total current assets
27,079

 
31,747

Property and equipment, net
31,407

 
6,252

Intangible assets, net
11,628

 
3,079

Goodwill
6,237

 
2,897

Deferred tax assets
27,019

 
18,578

Restricted cash
2,100

 

Other assets
793

 
1,560

Total assets
$
106,263

 
$
64,113

 
 
 
 
Liabilities:
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
6,514

 
$
1,369

Accrued compensation
3,962

 
2,453

Accrued warranty
196

 
213

Deferred revenue
3,123

 
1,673

Current portion of long-term debt
5,358

 

Other current liabilities
3,520

 
2,998

Total current liabilities
22,673

 
8,706

Long-term debt, net of current portion
16,070

 

Other liabilities
1,039

 
1,252

Total liabilities
39,782

 
9,958

 
 
 
 
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; 19,892,557 and 19,416,070 shares issued and outstanding (net of treasury shares) at December 31, 2016 and 2015, respectively
2

 
2

Treasury stock, at cost; 2,588,484 shares at December 31, 2016 and 2015
(5,728
)
 
(5,728
)
Additional paid-in capital
151,696

 
153,860

Accumulated other comprehensive loss
(52
)
 
(240
)
Accumulated deficit
(79,437
)
 
(93,739
)
Total stockholders’ equity
66,481

 
54,155

Total liabilities and stockholders’ equity
$
106,263

 
$
64,113







Digirad Corporation
Reconciliation of Non-GAAP Financial Measures
(Unaudited)
 
 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
(in thousands, except per share amounts)
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
Net income
 
$
1,978

 
$
678

 
$
14,302

 
$
21,640

 
Acquired intangible amortization
 
578

 
131

 
2,313

 
496

 
Acquisition related contingent consideration valuation adjustment (1)
 
(56
)
 
113

 
(64
)
 
(60
)
 
Investment impairment loss (2)
 

 
278

 
414

 
278

 
Transaction and integration costs of DMS Health Technologies (3)
 
173

 
595

 
1,921

 
1,338

 
Goodwill impairment
 
338

 

 
338

 

 
Income tax items (4)
 
25

 
(446
)
 
(12,071
)
 
(19,145
)
Non-GAAP Adjusted net income
 
$
3,036

 
$
1,349

 
$
7,153

 
$
4,547

 
 
 
 
 
 
 
 
 
 
Net income per share - diluted (5)
 
$
0.10

 
$
0.03

 
$
0.71

 
$
1.10

 
Acquired intangible amortization
 
0.03

 
0.01

 
0.12

 
0.03

 
Acquisition related contingent consideration valuation adjustment (1)
 

 
0.01

 

 

 
Investment impairment loss (2)
 

 
0.01

 
0.02

 
0.01

 
Transaction and integration costs of DMS Health Technologies (3)
 
0.01

 
0.03

 
0.10

 
0.07

 
Goodwill impairment
 
0.02

 

 
0.02

 

 
Income tax items (4)
 

 
(0.02
)
 
(0.60
)
 
(0.97
)
Non-GAAP Adjusted net income per share - diluted (5)
 
$
0.15

 
$
0.07

 
$
0.36

 
$
0.23

 
 
 
 
 
 
 
 
 
 

 
 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
(in thousands)
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
Net income
 
$
1,978

 
$
678

 
$
14,302

 
$
21,640

 
Acquisition related contingent consideration valuation adjustment (1)
 
(56
)
 
113

 
(64
)
 
(60
)
 
Investment impairment loss (2)
 

 
278

 
414

 
278

 
Transaction and integration costs of DMS Health Technologies (3)
 
173

 
595

 
1,921

 
1,338

 
Goodwill impairment
 
338

 

 
338

 

 
Depreciation and amortization
 
2,552

 
690

 
9,889

 
2,441

 
Stock-based compensation
 
270

 
166

 
1,024

 
616

 
Interest income
 
(2
)
 
(7
)
 
(14
)
 
(39
)
 
Interest expense
 
322

 
19

 
1,426

 
63

 
Income tax benefit
 
(194
)
 
(425
)
 
(12,417
)
 
(19,123
)
Non-GAAP Adjusted EBITDA
 
$
5,381

 
$
2,107

 
$
16,819

 
$
7,154

 
 
 
 
 
 
 
 
 
 

(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)
 
December 31, 2015
 
March 31, 2016
 
June 30, 2016
 
September 30, 2016
 
December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
678

 
$
11,609

 
$
998

 
$
(283
)
 
$
1,978

 
Acquired intangible amortization
 
131

 
577

 
578

 
578

 
578

 
Acquisition related contingent consideration valuation adjustment (1)
 
113

 

 
(3
)
 
(5
)
 
(56
)
 
Investment impairment loss (2)
 
278

 

 

 
414

 

 
Transaction and integration costs of DMS Health Technologies (3)
 
595

 
1,450

 
171

 
127

 
173

 
Goodwill impairment
 

 

 

 

 
338

 
Income tax items (4)
 
(446
)
 
(12,333
)
 
67

 
170

 
25

Non-GAAP Adjusted net income
 
$
1,349

 
$
1,303

 
$
1,811

 
$
1,001

 
$
3,036

 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) per share - diluted (5)
 
$
0.03

 
$
0.58

 
$
0.05

 
$
(0.01
)
 
$
0.10

 
Acquired intangible amortization
 
0.01

 
0.03

 
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)
 
0.03

 
0.07

 
0.01

 
0.01

 
0.01

 
Goodwill impairment
 

 

 

 

 
0.02

 
Income tax items (4)
 
(0.02
)
 
(0.62
)
 

 
0.01

 

Non-GAAP Adjusted net income per share - diluted (5)
 
$
0.07

 
$
0.07

 
$
0.09

 
$
0.05

 
$
0.15

 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
Three Months Ended
(in thousands)
 
December 31, 2015
 
March 31, 2016
 
June 30, 2016
 
September 30, 2016
 
December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
678

 
$
11,609

 
$
998

 
$
(283
)
 
$
1,978

 
Acquisition related contingent consideration valuation adjustment (1)
 
113

 

 
(3
)
 
(5
)
 
(56
)
 
Investment impairment loss (2)
 
278

 

 

 
414

 

 
Transaction and integration costs of DMS Health Technologies (3)
 
595

 
1,450

 
171

 
127

 
173

 
Goodwill impairment
 

 

 

 

 
338

 
Depreciation and amortization
 
690

 
2,465

 
2,383

 
2,489

 
2,552

 
Stock-based compensation
 
166

 
223

 
257

 
274

 
270

 
Interest income
 
(7
)
 
(5
)
 
(4
)
 
(3
)
 
(2
)
 
Interest expense
 
19

 
375

 
383

 
345

 
322

 
Income tax expense (benefit)
 
(425
)
 
(12,461
)
 
37

 
202

 
(194
)
Non-GAAP Adjusted EBITDA
 
$
2,107

 
$
3,656

 
$
4,222

 
$
3,560

 
$
5,381

 
 
 
 
 
 
 
 
 
 
 
 

(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.


Digirad Corporation
Supplemental Debt Information
(Unaudited)

The following table reflects outstanding principal balances and interest rates under the Company's credit facility at December 31, 2016:
(in thousands)
Balance
Interest Rate
Term A (1)
$
17,382

3.15
%
Term B (2)
4,581

5.65
%
Revolver

2.69
%
Total borrowing
$
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 December 31, 2016, the Company has made three extra payments in the same amount as the scheduled payments.


Digirad Corporation
Supplemental Cash Flow Information
(Unaudited)

 
Twelve Months Ended December 31,
(in thousands)
2016
 
2015
 
2014
Net cash provided by operating activities
$
10,834

 
$
3,720

 
$
4,280

 
 
 
 
 
 
Purchases of property and equipment
$
6,185

 
$
1,424

 
$
1,258






Exhibit 99.2

Use of Non-GAAP Financial Measures

In addition to financial results calculated in accordance with U.S. generally accepted accounting principles (“GAAP”), information containing non-GAAP financial measures for Digirad Corporation (the “Company”) was disclosed in the Company's press release (the “Press Release”) dated February 24, 2017 announcing results for the three and twelve months ended December 31, 2016 that accompanied a conference call held by the Company on February 24, 2017. The non-GAAP financial measures disclosed by the Company should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations to those financial statements should be carefully evaluated. The non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. The Company has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures. Management encourages readers to rely upon the GAAP numbers, but includes the non-GAAP financial measures as supplemental metrics to assist readers. Definitions of the non-GAAP financial measures are included in the Press Release.
In the Press Release, the Company presented the non-GAAP financial measures “adjusted net income,” “adjusted net income per diluted share,” and “adjusted EBITDA.” Company management uses these non-GAAP financial measures to evaluate the Company's performance. As the Company's core business is providing healthcare services and products to the healthcare industry, Company management finds it useful to use financial measures that do not include acquired intangible asset amortization, acquisition related contingent consideration adjustments, investment impairment loss, goodwill impairment, transaction and integration costs of DMS Health Technologies, and non-recurring related income tax adjustments. While we may have these types of items and charges in the future, Company management believes that they are not reflective of the day-to-day offering of its products and services and relate more to strategic, multi-year corporate actions, without predictable trends, and that may obscure the trends and financial performance of the Company's core business. In the case of “adjusted EBITDA,” Company management believes the exclusion of interest, taxes, depreciation, amortization, and stock-based compensation is a very common measure utilized in the investment community and it helps Company management benchmark its operations and results with the industry.
The limitation associated with using these non-GAAP financial measures is that these measures exclude items that impact the Company's current period operating results. This limitation is best addressed by using these non-GAAP financial measures in combination with “net income,” and “net income per diluted share” (the most comparable GAAP measures) because these non-GAAP financial measures do not reflect items that impact current period operating results and may be higher or lower than the most comparable GAAP measure.