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

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  • Announces regular quarterly cash dividend of $0.055 cents per share
  • Updates 2017 financial guidance

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-related 5,888     7,261     18,341     21,837  
Total revenues 28,555     31,086     87,421     94,333  
Cost of revenues:              
Services 18,629     19,110     56,034     56,795  
Product and product-related 3,286     3,675     10,607     10,407  
Total cost of revenues 21,915     22,785     66,641     67,202  
               
Gross profit 6,640     8,301     20,780     27,131  
Total gross profit percentage 23.3 %   26.7 %   23.8 %   28.8 %
Services gross profit percentage 17.8 %   19.8 %   18.9 %   21.7 %
Product and product-related gross profit percentage 44.2 %   49.4 %   42.2 %   52.3 %
               
Operating expenses:              
Marketing and sales 1,992     2,426     6,661     7,888  
General and administrative 3,878     4,608     14,919     15,900  
Amortization of intangible assets 578     578     1,734     1,735  
Goodwill impairment 2,580         2,580      
Total operating expenses 9,028     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 – basic 20,009     19,618     19,974     19,532  
Weighted average shares outstanding – diluted 20,009     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-sale 79     917  
Accounts receivable, net 14,002     14,503  
Inventories, net 5,903     5,987  
Restricted cash 359     1,376  
Other current assets 1,874     2,093  
Total current assets 23,320     27,079  
Property and equipment, net 29,048     31,407  
Intangible assets, net 9,894     11,628  
Goodwill 3,657     6,237  
Deferred tax assets 20,623     27,019  
Restricted cash 100     2,100  
Other assets 976     793  
Total assets $ 87,618     $ 106,263  
       
Liabilities:      
Current liabilities:      
Accounts payable $ 5,571     $ 6,514  
Accrued compensation 3,566     3,962  
Accrued warranty 167     196  
Deferred revenue 2,751     3,123  
Current portion of long-term debt     5,358  
Other current liabilities 4,188     3,520  
Total current liabilities 16,243     22,673  
Long-term debt, net of current portion 18,500     16,070  
Other liabilities 2,009     1,039  
Total liabilities 36,752     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, respectively 2     2  
Treasury stock, at cost; 2,588,484 shares at September 30, 2017 and December 31, 2016 (5,728 )   (5,728 )
Additional paid-in capital 149,241     151,696  
Accumulated other comprehensive loss     (52 )
Accumulated deficit (92,649 )   (79,437 )
Total stockholders' equity 50,866     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) Balance Interest
Rate
  Balance Interest
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 Imaging 2,975     2,703     8,701     9,703  
Mobile Healthcare 10,496     11,755     32,148     35,945  
Medical Device Sales and Service 2,913     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 Imaging 1,318     1,177     3,497     4,743  
Mobile Healthcare 1,452     2,236     4,894     7,768  
Medical Device Sales and Service 1,284     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 Imaging 149     (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 operations 192     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 warranty 135     216     420     $ 441  
Total revenues 801     2,050     3,004     4,447  
               
Cost of revenues 317     416     1,160     1,143  
               
Gross profit 484     1,634     1,844     3,304  
               
Operating expenses 647     873     2,023     2,309  
               
  $ (163 )   $ 761     $ (179 )   $ 995  

 

For more information contact:
Jeff Keyes
Chief Financial Officer
858-726-1600
ir@digirad.com

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