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

  • 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 $95,511
Product and product-related8,133 8,119 26,474 29,956
Total revenues30,918 31,134 118,339 125,467
Cost of revenues:
Services19,799 18,720 75,833 75,515
Product and product-related3,497 3,772 14,104 14,179
Total cost of revenues23,296 22,492 89,937 89,694
Gross profit7,622 8,642 28,402 35,773
Total gross profit percentage24.7% 27.8% 24.0% 28.5%
Services gross profit percentage13.1% 18.7% 17.5% 20.9%
Product and product-related gross profit percentage57.0% 53.5% 46.7% 52.7%
Operating expenses:
Marketing and sales2,493 2,161 9,154 10,049
General and administrative4,441 4,088 19,360 19,988
Amortization of intangible assets1,427 578 3,161 2,313
Goodwill impairment166 338 2,746 338
Total operating expenses8,527 7,165 34,421 32,688
(Loss) income from operations(905) 1,477 (6,019) 3,085
Other (expense) income:
Other (expense) income, net(74) 627 (311) 212
Interest expense, net(226) (320) (1,068) (1,412)
Loss on extinguishment of debt (709)
Total other expense(300) 307 (2,088) (1,200)
(Loss) income before income taxes(1,205) 1,784 (8,107) 1,885
Income tax (expense) benefit(20,778) 194 (27,623) 12,417
Net (loss) income$(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 – basic20,057 19,764 19,995 19,594
Weighted average shares outstanding – diluted20,057 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-sale97 917
Accounts receivable, net15,887 14,503
Inventories, net5,501 5,987
Restricted cash242 1,376
Other current assets1,972 2,093
Total current assets25,576 27,079
Property and equipment, net28,365 31,407
Intangible assets, net8,467 11,628
Goodwill3,491 6,237
Deferred tax assets 27,019
Restricted cash101 2,100
Other assets703 793
Total assets$66,703 $106,263
Liabilities:
Current liabilities:
Accounts payable$5,207 $6,514
Accrued compensation5,507 3,962
Accrued warranty204 196
Deferred revenue3,137 3,123
Current portion of long-term debt 5,358
Other current liabilities2,915 3,520
Total current liabilities16,970 22,673
Long-term debt, net of current portion19,500 16,070
Deferred tax liabilities254
Other liabilities2,180 1,039
Total liabilities38,904 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, respectively2 2
Treasury stock, at cost; 2,588,484 shares at December 31, 2017 and 2016(5,728) (5,728)
Additional paid-in capital148,163 151,696
Accumulated other comprehensive loss(5) (52)
Accumulated deficit(114,633) (79,437)
Total stockholders’ equity27,799 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 activities6,185 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)BalanceInterest Rate BalanceInterest 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 Imaging3,380 4,167 12,081 13,870
Mobile Healthcare10,701 11,261 42,849 47,206
Medical Device Sales and Service4,753 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 Imaging1,539 2,373 5,036 7,116
Mobile Healthcare1,196 1,742 6,090 9,510
Medical Device Sales and Service3,097 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 $946
Diagnostic Imaging104 1,134 (210) 2,116
Mobile Healthcare(609) (108) (1,730) 711
Medical Device Sales and Service43 362 (966) 1,571
Segment (loss) income from operations(739) 1,988 (1,934) 5,344
Litigation reserve (1,339)
Goodwill impairment(166) (338) (2,746) (338)
Transaction and integration costs of DMS Health Technologies (173) (1,921)
Consolidated (loss) income from operations$(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


Source:Digirad Corporation