SEC Filings Details

Digirad Corporation Reports Financial Results for the Third Quarter and Nine Months Ended September 30, 2018

Press Release

Nov 2, 2018

Digirad Corporation Reports Financial Results for the Third Quarter and Nine Months Ended September 30, 2018

  • Discusses progress on new “HoldCo” strategy
  • Announces sale of Telerhythmics business
  • Approves a new Stock Buy Back Plan, replacing Dividends
  • Reaffirms 2018 financial guidance for Revenue and Free Cash Flow and updates its non-GAAP adjusted EBITDA guidance

SUWANEE, Ga., Nov. 02, 2018 (GLOBE NEWSWIRE) -- Digirad Corporation (Nasdaq: DRAD) today reported its financial results for the third quarter and nine months ended September 30, 2018.

Total revenues from continuing operations for the third quarter were $25.7 million, compared to $25.8 million in the third quarter of the prior year.

Net loss from continuing operations for the third quarter was $1.2 million, or $0.06 net loss per diluted share from continuing operations, compared to net loss of $7.3 million or $0.37 net loss per diluted share in the same period in the prior year. Non-GAAP adjusted net loss from continuing operations for the third quarter was $0.6 million, or $0.03 adjusted net loss from continuing operations per diluted share, compared to adjusted net income of $0.1 million, or $0.01 adjusted net income per diluted share in the same period in the prior year.

Non-GAAP adjusted EBITDA from continuing operations for the third quarter was $1.6 million, compared to $2.4 million in the same period in the prior year. Operating cash flow for the third quarter was negative $0.8 million, compared to the prior year's operating cash flow for the third quarter of $0.6 million. Non-GAAP free cash flow was negative $0.4 million for the third quarter, compared to negative $0.2 million in the same period in the prior year.

Total revenues for the nine months ended September 30, 2018 were $78.3 million, compared to $78.3 million in the same period in the prior year.

Net loss from continuing operations for the nine months ended September 30, 2018 was $2.9 million, or $0.15 net loss per diluted share, compared to net loss of $12.4 million, or $0.62 net loss per diluted share in the same period in the prior year. Non-GAAP adjusted net loss for the nine months ended September 30, 2018 was $1.6 million, or $0.08 adjusted net loss per diluted share, compared to adjusted net loss of $1.7 million, or $0.09 adjusted net loss per diluted share in the same period in the prior year.

Non-GAAP adjusted EBITDA for the nine months ended September 30, 2018 was $5.2 million, compared to $5.6 million in the same period in the prior year. Operating cash flow for the nine months ended September 30, 2018 was $2.2 million, compared to the prior year's operating cash flow for the first nine months of $4.1 million. Non-GAAP free cash flow was $2.1 million for the nine months ended September 30, 2018, compared to $2.7 million in the same period in the prior year.

Digirad President and CEO Matt Molchan said, “Overall, our business had some challenges during the quarter, which we expect to be temporary in nature. Despite these challenges, we were still able to keep revenue flat on a year over year basis, with Diagnostic Services revenue outperforming over the prior year.  Our Digirad Imaging Solutions (DIS) unit within Diagnostic Services suffered weather related issues due to storms in the southeast but still managed to outperform the prior year quarter by 6%. Mobile Healthcare’s performance in the quarter was impacted by higher than normal equipment and trailer maintenance costs, however interim rental revenue continued to outperform increasing by 24% over the prior year’s quarter."  Molchan continued, “Camera sales again impacted our revenue generation in Diagnostic Imaging, but a strong September bodes well for a good finish to the year as budgets for hospital systems’ capital expenditures are being funded."

The proposed merger with ATRM Holdings, Inc. to form “HoldCo”, previously announced on September 10th, 2018 continues to progress with an anticipated closing in the spring of 2019. Additionally, the Company has chosen to eliminate the dividend so that it can instead buy back stock given the attractive valuation of the Company’s current stock price. HoldCo, once it is formed, expects to make high-return internal investments as well as look for attractive acquisition opportunities in addition to repurchasing shares. “Our mission is to grow and maximize value per share over the long-term, and we believe opportunistic share repurchases will better achieve this goal than continuing to pay dividends given our current stock price” said Digirad Chairman Jeff Eberwein. Under the new stock repurchase program, authorized by the Board of Directors, the Company may purchase up to 2 million shares of its common stock, which represents approximately 10% of the current shares outstanding. After completing this repurchase program, the Board will consider authorizing an additional share repurchase plan.

The Company intends to repurchase shares through authorized Rule 10b5-1 plans, open market purchases, privately-negotiated transactions, block purchases or otherwise in accordance with applicable federal securities laws, including Rule 10b-18 of the Securities Exchange Act of 1934, as amended. Share repurchases will be evaluated against organic growth investments and acquisitions, and the Company expects to continually allocate capital to its highest and best use.

In addition, the Company sold its Telerhythmics business to G Medical Innovations USA, Inc. for $1.95 million in cash. This sale will allow the Company to put even more focus on its cash generating imaging businesses and it will allow the Telerhythmics business to merge with a company in G Medical that is focused in the cardiac event monitoring space with exciting new technology on the horizon.  The Company intends to use the proceeds of the deal to further pay down its debt.

2018 Financial Guidance

The Company reaffirms its previously announced fiscal year 2018 financial guidance for revenues from continuing operations between $100 and $105 million and free cash flow between $4 and $5 million. The Company lowers its non-GAAP adjusted EBITDA from between $8.5 and $9.5 million to approximately $7.0 million. The updated guidance is based on adjusting the full year outlook based on the actual performance in the third quarter.

Conference Call Information

A conference call is scheduled for 11:00 a.m. EDT on November 2, 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,” “free cash flow”, 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, unrealized gain(loss) on available-for-sale securities, 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 November 2, 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 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 September 30,   Nine Months Ended September 30,
   
(in thousands, except per share amounts) 2018   2017   2018   2017
Revenues:              
Services $ 22,904     $ 22,820     $ 69,851     $ 69,619  
Product and product-related 2,803     2,975     8,401     8,701  
Total revenues 25,707     25,795     78,252     78,320  
Cost of revenues:              
Services 19,700     18,768     58,984     56,456  
Product and product-related 1,649     1,657     4,736     5,204  
Total cost of revenues 21,349     20,425     63,720     61,660  
Gross profit 4,358     5,370     14,532     16,660  
Total gross profit percentage 17.0 %   20.8 %   18.6 %   21.3 %
Services gross profit percentage 14.0 %   17.8 %   15.6 %   18.9 %
Product and product-related gross profit percentage 41.2 %   44.3 %   43.6 %   40.2 %
Operating expenses:              
Marketing and sales 1,281     1,383     4,209     4,762  
General and administrative 3,504     3,718     11,418     14,331  
Amortization of intangible assets 356     374     1,069     1,121  
  Goodwill impairment         476      
Loss on sale of buildings 507         507      
Total operating expenses 5,648     5,475     17,679     20,214  
Loss from operations (1,290 )   (105 )   (3,147 )   (3,554 )
Other expense:              
Other expense, net (76 )   (237 )   (112 )   (237 )
Interest expense, net (200 )   (154 )   (563 )   (574 )
  Loss on extinguishment of debt         (43 )   (709 )
  Total other expense (276 )   (391 )   (718 )   (1,520 )
Loss before income taxes (1,566 )   (496 )   (3,865 )   (5,074 )
Income tax benefit (expense) 379     (6,838 )   940     (7,357 )
Loss from continuing operations, net of tax (1,187 )   (7,334 )   (2,925 )   (12,431 )
(Loss) income from discontinued operations, net of tax (239 )   (1,565 )   5,255     (1,316 )
Net (loss) income $ (1,426 )   $ (8,899 )   $ 2,330     $ (13,747 )
               
Net (loss) income per share - basic and diluted              
  Continuing operations $ (0.06 )   $ (0.37 )   $ (0.15 )   $ (0.62 )
  Discontinued operations $ (0.01 )   $ (0.08 )   $ 0.26     $ (0.07 )
Net (loss) income per share - basic and diluted (1) $ (0.07 )   $ (0.44 )   $ 0.12     $ (0.69 )
Dividends declared per common share $ 0.055     $ 0.055     $ 0.165     $ 0.155  
Weighted average shares outstanding – basic and diluted 20,176     20,009     20,129     19,974  

(1)  Earnings per share may not add due to rounding.


 
Digirad Corporation
Condensed Consolidated Balance Sheets
(Unaudited)
 
(in thousands, except share data) September 30,
 2018
  December 31,
 2017
Assets:      
Current assets:      
Cash and cash equivalents $ 963     $ 1,877  
Securities available-for-sale 90     97  
Accounts receivable, net 13,455     15,887  
Inventories, net 5,884     5,501  
Restricted cash 167     242  
Other current assets 1,987     1,972  
 Total current assets 22,546     25,576  
Property and equipment, net 23,404     28,365  
Intangible assets, net 6,760     7,830  
Goodwill 1,916     2,392  
Restricted cash 101     101  
Non-current assets held for sale     1,736  
Other assets 462     703  
Total assets $ 55,189     $ 66,703  
       
Liabilities:      
Current liabilities:      
Accounts payable $ 4,645     $ 5,207  
Accrued compensation 3,257     5,507  
Accrued warranty 151     204  
Deferred revenue 1,561     2,302  
Current liabilities held for sale     835  
Other current liabilities 2,692     2,915  
Total current liabilities 12,306     16,970  
Long-term debt 13,592     19,500  
Deferred tax liabilities 191     254  
Other liabilities 1,795     2,180  
Total liabilities 27,884     38,904  
       
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; 20,230,628 and 20,060,311 shares issued
and outstanding (net of treasury shares) at September 30, 2018 and December 31, 2017, respectively
2     2  
Treasury stock, at cost; 2,588,484 shares at September 30, 2018 and December 31, 2017 (5,728 )   (5,728 )
Additional paid-in capital 145,339     148,163  
Accumulated other comprehensive loss (22 )   (5 )
Accumulated deficit (112,286 )   (114,633 )
Total stockholders’ equity 27,305     27,799  
Total liabilities and stockholders’ equity $ 55,189     $ 66,703  


 
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) 2018   2017   2018   2017
                 
Net loss from continuing operations $ (1,187 )   $ (7,334 )   $ (2,925 )   $ (12,431 )
  Acquired intangible amortization 356     374     1,069     1,121  
  Unrealized loss on available-for-sale securities (1) 76     237     112     237  
  Litigation reserve (2)             1,339  
  Restructuring costs (3)         97      
  Loss on extinguishment of debt         43     709  
  Goodwill impairment (4)         476      
  Loss on sale of buildings (5) 507         507      
  Acquisition related contingent consideration valuation adjustment (6)             (57 )
  Income tax items (7) (379 )   6,838     (940 )   7,357  
Non-GAAP adjusted net (loss) income from continuing operations $ (627 )   $ 115     $ (1,561 )   $ (1,725 )
                 
Net loss per diluted share from continuing operations (8) $ (0.06 )   $ (0.37 )   $ (0.15 )   $ (0.62 )
  Acquired intangible amortization 0.02     0.02     0.05     0.06  
  Unrealized loss on available-for-sale securities (1)     0.01     0.01     0.01  
  Litigation reserve (2)             0.07  
  Restructuring costs (3)              
  Loss on extinguishment of debt             0.04  
  Goodwill impairment (4)         0.02      
  Loss on sale of buildings (5) 0.03         0.03      
  Acquisition related contingent consideration valuation adjustment (6)              
  Income tax items (7) (0.02 )   0.34     (0.05 )   0.37  
Non-GAAP adjusted net (loss) income per diluted share from continuing operations (8) $ (0.03 )   $ 0.01     $ (0.08 )   $ (0.09 )
                 


    Three Months Ended September 30,   Nine Months Ended September 30,
(in thousands) 2018   2017   2018   2017
                 
Net loss from continuing operations $ (1,187 )   $ (7,334 )   $ (2,925 )   $ (12,431 )
  Unrealized loss on available-for sale securities (1) 76     237     112     237  
  Litigation reserve (2)             1,339  
  Restructuring costs (3)

 
        97      
  Goodwill impairment (4)         476      
  Loss on extinguishment of debt         43     709  
  Depreciation and amortization 2,165     2,284     6,718     7,024  
  Stock-based compensation 174     261     546     809  
  Loss on sale of buildings (5) 507         507      
  Interest expense, net 200     154     563     574  
  Acquisition related contingent consideration valuation adjustment (6)             (57 )
  Income tax expense (benefit) (379 )   6,838     (940 )   7,357  
Non-GAAP adjusted EBITDA from continuing operations $ 1,556     $ 2,440     $ 5,197     $ 5,561  
                 

(1) Reflects change in fair value on equity investments classified as available-for-sale.
(2) Reflectslegal settlement for wage and hour litigation in 2017.
(3) Reflects severance related costs.
(4)Reflects impairment of goodwill for Telerhythmics reporting unit.
(5) Reflects loss on sale a portion of land and buildings in our Fargo location.
(6) Reflects fair value adjustment to estimate of contingent consideration related to acquisitions.
(7) The Company has a significant tax NOL that is offset by a full valuation allowance recorded in the fourth quarter of 2017 in
the GAAP consolidated financial statements. As a result, for purposes of non-GAAP measures, we utilized a 0% effective tax rate for both periods.
(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)
         
    Three Months Ended September 30,   Nine Months Ended September 30,
(in thousands)   2018   2017   2018   2017
Net cash provided by (used in) operating activities   $ (823 )   $ 606     $ 2,218     $ 4,101  
Purchases of property and equipment, net of dispositions   455     (778 )   (139 )   (1,393 )
Free cash flow   $ (368 )   $ (172 )   $ 2,079     $ 2,708  


 
Digirad Corporation
Supplemental Debt Information
(Unaudited)
 
The following table reflects outstanding principal balances and interest rates for the Company's debt at September 30, 2018 and December 31, 2017:
 
    September 30, 2018   December 31, 2017
(in thousands)   Balance   Interest Rate   Balance   Interest Rate
Revolving Credit Facility (1)   $ 13,592     4.55 %   $ 19,500     3.90 %
Total borrowings   $ 13,592         $ 19,500      

(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.

 
Digirad Corporation
Supplemental Segment Information
(Unaudited)
  Three Months Ended September 30,   Nine Months Ended September 30,
(in thousands) 2018   2017 (1)   2018   2017 (1)
Diagnostic Services $ 12,412     $ 12,171     $ 37,704     $ 36,932  
Diagnostic Imaging 2,803     2,975     8,401     8,701  
Mobile Healthcare 10,492     10,649     32,147     32,687  
Condensed consolidated revenue $ 25,707     $ 25,795     $ 78,252     $ 78,320  
Diagnostic Services $ 2,404     $ 2,586     $ 7,620     $ 8,152  
Diagnostic Imaging 1,154     1,318     3,665     3,497  
Mobile Healthcare 800     1,466     3,247     5,011  
Condensed consolidated gross profit $ 4,358     $ 5,370     $ 14,532     $ 16,660  
Income (loss) from continuing operations by segment:              
Diagnostic Services $ 250     $ 288     $ 764     $ 443  
Diagnostic Imaging (108 )   (39 )   (444 )   (947 )
Mobile Healthcare (925 )   (354 )   (2,484 )   (1,711 )
Segment loss from continuing operations $ (783 )   $ (105 )   $ (2,164 )   $ (2,215 )
Loss on sale of buildings (2) (507 )       (507 )    
Goodwill impairment (3)         (476 )    
Litigation reserve (4)             (1,339 )
Condensed consolidated loss from continuing operations $ (1,290 )   $ (105 )   $ (3,147 )   $ (3,554 )

(1) Segment information has been recast for all periods presented to reflect the MDSS disposition as discontinued operations. As certain shared function costs previously allocated to MDSS are not allocable to discontinued operations, prior period corporate costs have been re-allocated amongst the continuing reportable segments.

(2) Reflects loss on sale a portion of land and buildings in our Fargo location.

(3) Reflects goodwill impairment adjustment for Telerhythmics reporting unit.

(4) Reflects legal settlement reserve for wage and hour litigation in 2017.

 

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Source: Digirad Corporation

Digirad — Revolutionary solid-state nuclear cardiology equipment and services.

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