Nasdaq

Digirad Corporation Reports Financial Results for the Fourth Quarter and Twelve Months Ended December 31, 2017

23-02-2018

Performs within guidance for Revenue and EBITDA for 2017
MDSS service contracts divestiture completed
Company continues to pay regular quarterly dividend of $0.055 cents per share

SUWANEE, Ga., Feb. 23, 2018 (GLOBE NEWSWIRE) -- Digirad Corporation (Nasdaq:DRAD) today reported its financial results for the fourth quarter and twelve months ended December 31, 2017.

Total revenues for the fourth quarter were $30.9 million, compared to $31.1 million in the fourth quarter of the prior year.

Net loss for the fourth quarter was $22.0 million, or $1.10 net loss per diluted share, compared to net income of $2.0 million, or $0.10 net income per diluted share in the same period in the prior year. Non-GAAP adjusted net loss for the fourth quarter was $2.7 million, or $0.14 adjusted net loss per diluted share, compared to adjusted net income of $3.0 million, or $0.15 adjusted net income per diluted share in the same period in the prior year. Non-GAAP adjusted EBITDA for the fourth quarter was $2.8 million, compared to $5.4 million in the same period in the prior year.

Total revenues for the twelve months ended December 31, 2017 were $118.3 million, compared to the prior year's revenues for the same period of $125.5 million.

Net loss for the twelve months ended December 31, 2017 was $35.7 million, or $1.79 net loss per diluted share, compared to net income of $14.3 million, or $0.71 net income per diluted share in the same period in the prior year. Non-GAAP adjusted net income for twelve months ended December 31, 2017 was $0.2 million, or $0.01 adjusted net income per diluted share, compared to adjusted net income of $7.2 million, or $0.36 adjusted net income per diluted share in the same period in the prior year. Non-GAAP adjusted EBITDA for the twelve months ended December 31, 2017 was $10.0 million, compared to $16.8 million in the same period in the prior year.

Operating cash flow for the twelve months ended December 31, 2017 was $6.2 million, compared to the prior year's operating cash flow for the same period of $10.8 million. Non-GAAP free cash flow was $3.8 million for the twelve months ended December 31, 2017 compared to $4.9 million in the same period in the prior year.

Digirad President and CEO Matt Molchan said, “Overall, we are pleased that we finished within our guidance range for revenue, and EBITDA; our free cash flow was slightly below our range mainly due to timing of activities. From a business perspective, our Services businesses Diagnostic Services and Mobile Healthcare performed within our expectations, with Diagnostic Services showing revenue gains year over year for the quarter and year. As we had discussed earlier in the year, our Diagnostic Imaging business has been experiencing slower capital equipment sales, which impacted our overall results. Though we cannot predict exactly when capital spending will pick back up, we continue to build an order pipeline giving us confidence in eventual improvement in capital equipment sales.

Molchan continued, “Also, during the quarter we signed a purchase agreement to sell our service contracts in our MDSS business unit to Philips, and as previously announced that sale closed effective February 1. With this business divested, as well as the previously announced MDSS products sales activity ending effective December 31st, we can now focus on our core mobile imaging services. As we move forward with this focus, we have made some operational and personnel changes in our core business areas to right size the organization based on the divestiture of these MDSS activities.”

The Company has previously announced on February 1, 2018 its regular quarterly cash dividend of $0.055 cents per share, which will be paid on February 28, 2018, to shareholders of record on February 15, 2018.

The Company expects to release its 2018 financial guidance with its first quarter 2018 results at the end of April 2018.

Conference Call Information

A conference call is scheduled for 11:00 a.m. EST on February 23, 2018 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 February 23, 2018.

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 diagnostic imaging equipment and services, provides hospitals, physician practices, and imaging centers throughout 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)	2017			2016			2017			2016
Revenues:
Services	$	22,785		$	23,015		$	91,865		$	95,511
Product and product-related	8,133			8,119			26,474			29,956
Total revenues	30,918			31,134			118,339			125,467
Cost of revenues:
Services	19,799			18,720			75,833			75,515
Product and product-related	3,497			3,772			14,104			14,179
Total cost of revenues	23,296			22,492			89,937			89,694

Gross profit	7,622			8,642			28,402			35,773
*Total gross profit percentage*	*24.7*		%	*27.8*		%	*24.0*		%	*28.5*		%
*Services gross profit percentage*	*13.1*		%	*18.7*		%	*17.5*		%	*20.9*		%
*Product and product-related gross profit percentage*	*57.0*		%	*53.5*		%	*46.7*		%	*52.7*		%

Operating expenses:
Marketing and sales	2,493			2,161			9,154			10,049
General and administrative	4,441			4,088			19,360			19,988
Amortization of intangible assets	1,427			578			3,161			2,313
Goodwill impairment	166			338			2,746			338
Total operating expenses	8,527			7,165			34,421			32,688

(Loss) income from operations	(905		)	1,477			(6,019		)	3,085

Other (expense) income:
Other (expense) income, net	(74		)	627			(311		)	212
Interest expense, net	(226		)	(320		)	(1,068		)	(1,412		)
Loss on extinguishment of debt	—			—			(709		)	—
Total other expense	(300		)	307			(2,088		)	(1,200		)

(Loss) income before income taxes	(1,205		)	1,784			(8,107		)	1,885
Income tax (expense) benefit	(20,778		)	194			(27,623		)	12,417
Net (loss) income	$	(21,983	)	$	1,978		$	(35,730	)	$	14,302

Net (loss) income per share:
Basic	$	(1.10	)	$	0.10		$	(1.79	)	$	0.73
Diluted	$	(1.10	)	$	0.10		$	(1.79	)	$	0.71
Dividends declared per common share	$	0.055		$	0.05		$	0.21		$	0.20

Weighted average shares outstanding – basic	20,057			19,764			19,995			19,594
Weighted average shares outstanding – diluted	20,057			20,173			19,995			20,067


Digirad Corporation Consolidated Balance Sheets (Unaudited)

(in thousands, except share data)	December 31, 2017			December 31, 2016
Assets:
Current assets:
Cash and cash equivalents	$	1,877		$	2,203
Securities available-for-sale	97			917
Accounts receivable, net	15,887			14,503
Inventories, net	5,501			5,987
Restricted cash	242			1,376
Other current assets	1,972			2,093
Total current assets	25,576			27,079
Property and equipment, net	28,365			31,407
Intangible assets, net	8,467			11,628
Goodwill	3,491			6,237
Deferred tax assets	—			27,019
Restricted cash	101			2,100
Other assets	703			793
Total assets	$	66,703		$	106,263

Liabilities:
Current liabilities:
Accounts payable	$	5,207		$	6,514
Accrued compensation	5,507			3,962
Accrued warranty	204			196
Deferred revenue	3,137			3,123
Current portion of long-term debt	—			5,358
Other current liabilities	2,915			3,520
Total current liabilities	16,970			22,673
Long-term debt, net of current portion	19,500			16,070
Deferred tax liabilities	254			—
Other liabilities	2,180			1,039
Total liabilities	38,904			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; 20,060,311 and 19,892,557 shares issued and outstanding (net of treasury shares) at December 31, 2017 and 2016, respectively	2			2
Treasury stock, at cost; 2,588,484 shares at December 31, 2017 and 2016	(5,728		)	(5,728		)
Additional paid-in capital	148,163			151,696
Accumulated other comprehensive loss	(5		)	(52		)
Accumulated deficit	(114,633		)	(79,437		)
Total stockholders’ equity	27,799			66,481
Total liabilities and stockholders’ equity	$	66,703		$	106,263


	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)		2017			2016			2017			2016

Net (loss) income		$	(21,983	)	$	1,978		$	(35,730	)	$	14,302
	Acquired intangible amortization	1,427			578			3,161			2,313
	Acquisition related contingent consideration valuation adjustment⁽¹⁾	—			(56		)	(57		)	(64		)
	Investment impairment loss⁽²⁾	74			—			311			414
	Transaction and integration costs of DMS Health Technologies⁽³⁾	—			173			—			1,921
	Goodwill impairment⁽⁴⁾	166			338			2,746			338
	Litigation reserve⁽⁵⁾	—			—			1,339			—
	Restructuring costs⁽⁶⁾	119			—			119			—
	Loss on extinguishment of debt	—			—			709			—
	Income tax items⁽⁷⁾	17,453			25			27,563			(12,071		)
Non-GAAP adjusted net (loss) income		$	(2,744	)	$	3,036		$	161		$	7,153

Net (loss) income per share - diluted⁽⁸⁾		$	(1.10	)	$	0.10		$	(1.79	)	$	0.71
	Acquired intangible amortization	0.07			0.03			0.16			0.12
	Acquisition related contingent consideration valuation adjustment⁽¹⁾	—			—			—			—
	Investment impairment loss⁽²⁾	—			—			0.02			0.02
	Transaction and integration costs of DMS Health Technologies⁽³⁾	—			0.01			—			0.10
	Goodwill impairment⁽⁴⁾	0.01			0.02			0.14			0.02
	Litigation reserve⁽⁵⁾	—			—			0.07			—
	Restructuring costs⁽⁶⁾	0.01			—			0.01			—
	Loss on extinguishment of debt	—			—			0.04			—
	Income tax items⁽⁷⁾	0.87			—			1.38			(0.60		)
Non-GAAP adjusted net (loss) income per share - diluted⁽⁸⁾		$	(0.14	)	$	0.15		$	0.01		$	0.36

		Three Months Ended December 31,						Twelve Months Ended December 31,
(in thousands)		2017			2016			2017			2016

Net (loss) income		$	(21,983	)	$	1,978		$	(35,730	)	$	14,302
	Acquisition related contingent consideration valuation adjustment⁽¹⁾	—			(56		)	(57		)	(64		)
	Investment impairment loss⁽²⁾	74			—			311			414
	Transaction and integration costs of DMS Health Technologies⁽³⁾	—			173			—			1,921
	Goodwill impairment⁽⁴⁾	166			338			2,746			338
	Litigation reserve⁽⁵⁾	—			—			1,339			—
	Restructuring costs⁽⁶⁾	119			—			119			—
	Loss on extinguishment of debt	—			—			709			—
	Depreciation and amortization	3,402			2,552			11,064			9,889
	Stock-based compensation	23			270			852			1,024
	Interest expense, net	226			320			1,068			1,412
	Income tax expense (benefit)	20,778			(194		)	27,623			(12,417		)
Non-GAAP adjusted EBITDA		$	2,805		$	5,381		$	10,044		$	16,819

⁽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 our MDSS and Telerhythmics reporting units.
⁽⁵⁾ Reflects legal settlement reserve for wage and hour litigation.
⁽⁶⁾ Reflects severance related costs for our MDSS segment.
⁽⁷⁾Reflects income tax effect for adjusted financial data and acquisition related income tax adjustments, adjustments to net operating loss carryforwards, and tax legislation changes.
⁽⁸⁾ 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, 2016			March 31, 2017			June 30, 2017			September 30, 2017			December 31, 2017

Net income (loss)		$	1,978		$	(2,076	)	$	(2,772	)	$	(8,899	)	$	(21,983	)
	Acquired intangible amortization	578			578			578			578			1,427
	Acquisition related contingent consideration valuation adjustment⁽¹⁾	(56		)	(57		)	—			—			—
	Investment impairment loss⁽²⁾	—			—			—			237			74
	Transaction and integration costs of DMS Health Technologies⁽³⁾	173			—			—			—			—
	Goodwill impairment⁽⁴⁾	338			—			—			2,580			166
	Litigation reserve⁽⁵⁾	—			—			1,339			—			—
	Restructuring costs⁽⁶⁾	—			—			—			—			119
	Loss on extinguishment of debt	—			—			709			—			—
	Income tax items⁽⁷⁾	25			1,348			1,806			6,956			17,453
Non-GAAP adjusted net income (loss)		$	3,036		$	(207	)	$	1,660		$	1,452		$	(2,744	)

Net income (loss) per share - diluted⁽⁸⁾		$	0.10		$	(0.10	)	$	(0.14	)	$	(0.44	)	$	(1.10	)
	Acquired intangible amortization	0.03			0.03			0.03			0.03			0.07
	Acquisition related contingent consideration valuation adjustment⁽¹⁾	—			—			—			—			—
	Investment impairment loss⁽²⁾	—			—			—			0.01			—
	Transaction and integration costs of DMS Health Technologies⁽³⁾	0.01			—			—			—			—
	Goodwill impairment⁽⁴⁾	0.02			—			—			0.13			0.01
	Litigation reserve⁽⁵⁾	—			—			0.07			—			—
	Restructuring costs⁽⁶⁾	—			—			—			—			0.01
	Loss on extinguishment of debt	—			—			0.04			—			—
	Income tax items⁽⁷⁾	—			0.07			0.09			0.35			0.87
Non-GAAP adjusted net income (loss) per share - diluted⁽⁸⁾		$	0.15		$	(0.01	)	$	0.08		$	0.07		$	(0.14	)

		Three Months Ended
(in thousands)		December 31, 2016			March 31, 2017			June 30, 2017			September 30, 2017			December 31, 2017

Net income (loss)		$	1,978		$	(2,076	)	$	(2,772	)	$	(8,899	)	$	(21,983	)
	Acquisition related contingent consideration valuation adjustment⁽¹⁾	(56		)	(57		)	—			—			—
	Investment impairment loss⁽²⁾	—			—			—			237			74
	Transaction and integration costs of DMS Health Technologies⁽³⁾	173			—			—			—			—
	Goodwill impairment⁽⁴⁾	338			—			—			2,580			166
	Litigation reserve⁽⁵⁾	—			—			1,339			—			—
	Restructuring costs⁽⁶⁾	—			—			—			—			119
	Loss on extinguishment of debt	—			—			709			—			—
	Depreciation and amortization	2,552			2,579			2,588			2,495			3,402
	Stock-based compensation	270			263			296			270			23
	Interest expense, net	320			315			303			224			226
	Income tax (benefit) expense	(194		)	786			9			6,050			20,778
Non-GAAP adjusted EBITDA		$	5,381		$	1,810		$	2,472		$	2,957		$	2,805

⁽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 our Telerhythmics and MDSS reporting units.
⁽⁵⁾ Reflects legal settlement reserve for wage and hour litigation.
⁽⁶⁾ Reflects severance related costs for our MDSS segment.
⁽⁷⁾ Reflects income tax effect for adjusted financial data and acquisition related income tax adjustments, adjustment to net operating loss carryforwards and tax legislation changes.
⁽⁸⁾ 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)

	Twelve Months Ended December 31,
(in thousands)	2017			2016
Net cash provided by operating activities	6,185			10,834
Purchases of property and equipment, net of dispositions	(2,364		)	(5,919		)
Free cash flow	$	3,821		$	4,915

Digirad Corporation
Supplemental Debt Information
(Unaudited)
The following table reflects outstanding principal balances and interest rates for the Company's debt at December 31, 2017 and December 31, 2016:

	December 31, 2017				December 31, 2016
(in thousands)	Balance		Interest Rate		Balance		Interest Rate
Comerica
Revolving Line of Credit ⁽¹⁾	$	19,500	3.90	%	$	—
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	$	19,500			$	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 December 31, 2017						Twelve Months Ended December 31,
(in thousands)	2017			2016 ⁽¹⁾			2017			2016 ⁽¹⁾
Revenue by segment:
Diagnostic Services	$	12,084		$	11,754		$	49,016		$	48,305
Diagnostic Imaging	3,380			4,167			12,081			13,870
Mobile Healthcare	10,701			11,261			42,849			47,206
Medical Device Sales and Service	4,753			3,952			14,393			16,086
Consolidated revenue	$	30,918		$	31,134		$	118,339		$	125,467
Gross profit by segment:
Diagnostic Services	$	1,790		$	2,552		$	9,942		$	10,486
Diagnostic Imaging	1,539			2,373			5,036			7,116
Mobile Healthcare	1,196			1,742			6,090			9,510
Medical Device Sales and Service	3,097			1,975			7,334			8,661
Consolidated gross profit	$	7,622		$	8,642		$	28,402		$	35,773
Income (loss) from operations by segment:
Diagnostic Services	$	(277	)	$	600		$	972		$	946
Diagnostic Imaging	104			1,134			(210		)	2,116
Mobile Healthcare	(609		)	(108		)	(1,730		)	711
Medical Device Sales and Service	43			362			(966		)	1,571
Segment (loss) income from operations	(739		)	1,988			(1,934		)	5,344
Litigation reserve	—			—			(1,339		)	—
Goodwill impairment	(166		)	(338		)	(2,746		)	(338		)
Transaction and integration costs of DMS Health Technologies	—			(173		)	—			(1,921		)
Consolidated (loss) income from operations	$	(905	)	$	1,477		$	(6,019	)	$	3,085

⁽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