Document

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:
March 1, 2019
(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))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§232.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
o
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨




Item 2.02.  Results of Operations and Financial Condition
On March 1, 2019, Digirad Corporation issued a press release announcing financial results for the three and twelve months ended December 31, 2018. 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 March 1, 2019
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/ MATTHEW G. MOLCHAN
 
 
 
Matthew G. Molchan
President and Chief Executive Officer
Date:     March 1, 2019




Exhibit Index
Exhibit No.
 
Description
 
 
 
 
Press Release of Digirad Corporation dated March 1, 2019.
 
Information Related to the Use of Non-GAAP Financial Measures


Exhibit


Exhibit 99.1
News Release
For immediate release
 
For more information contact:
March 1, 2019
 
Jeffrey E. Eberwein
 
 
Chairman of the Board
 
 
203-489-9501
 
 
ir@digirad.com
Digirad Corporation Reports Financial Results for the
Fourth Quarter and Twelve Months Ended December 31, 2018
Performs within guidance for Revenue and Free Cash Flow for 2018
Pays down $10 million in debt during 2018, including $4 million in Q4 2018
Suwanee, GA. - Digirad Corporation (Nasdaq: DRAD) reported today its financial results for the fourth quarter and twelve months ended December 31, 2018.
Total revenues from continuing operations for the fourth quarter were $25.9 million, compared to $26.3 million in the fourth quarter of the prior year.
Net loss from continuing operations for the fourth quarter was $0.9 million, or $0.05 net loss per diluted share, compared to net loss from continuing operations of $22.6 million or $1.13 net loss per diluted share in the same period in the prior year. Non-GAAP adjusted net loss from continuing operations for the fourth quarter was $1.2 million, or $0.06 per diluted share, compared to adjusted net loss of $1.4 million, or $0.07 per diluted share in the same period in the prior year.
Operating cash flow for the fourth quarter was $2.8 million, compared to $2.0 million for the same period in the prior year. Non-GAAP adjusted EBITDA from continuing operations for the fourth quarter was $0.8 million, compared to $0.8 million in the same period in the prior year. Non-GAAP free cash flow was $2.9 million for the fourth quarter, compared to $1.0 million in the same period in the prior year.
Total revenues for the twelve months ended December 31, 2018 were $104.2 million, compared to $104.6 million in the same period in the prior year.
Net loss from continuing operations for the twelve months ended December 31, 2018 was $3.8 million, or $0.19 net loss per diluted share, compared to net loss of $35.0 million, or $1.75 net loss per diluted share in the same period in the prior year. Non-GAAP adjusted net loss for the twelve months ended December 31, 2018 was $2.8 million, or $0.14 per diluted share, compared to adjusted net loss of $3.1 million, or $0.15 per diluted share in the same period in the prior year.
Operating cash flow for the twelve months ended December 31, 2018 was $5.1 million, compared to $6.1 million for the twelve months ended December 31, 2017. Non-GAAP adjusted EBITDA for the twelve months ended December 31, 2018 was $6.0 million, compared to $6.3 million in the same period in the prior year. Non-GAAP free cash flow was $5.0 million for the twelve months ended December 31, 2018, compared to $3.7 million in the same period in the prior year.
Digirad President and CEO Matt Molchan said, “Overall, we finished 2018 within our guidance range for revenue and free cash flow, but below for adjusted EBITDA. Our adjusted EBITDA was below our guidance range mainly due to lower than expected camera sales in Diagnostic Imaging and higher than anticipated costs in our Mobile Healthcare unit. We have reorganized our business for 2019 to better align our executive management team to focus on growing revenues organically and reducing expenses across the whole organization. From an overall business perspective, our Diagnostic Imaging Solutions (DIS) unit performed well during the year, growing revenues by 4% year over year. Our Mobile Healthcare business experienced higher than anticipated costs associated with equipment and trailer maintenance, which offset better than expected revenue performance. Diagnostic Imaging finished the year below expectations, but did have a solid 4th quarter, which should bode well for our performance in 2019. In terms of debt levels, we paid down $10 million in debt during the year, which amounts to a 50% reduction versus a year ago, and we paid down $4 million of debt in the 4th Quarter alone.”
The proposed merger with ATRM Holdings, Inc. to form “HoldCo”, previously announced on September 10th, 2018, continues to progress with an anticipated closing midyear 2019. As previously stated, 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. 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.





Finally, Digirad Corporation has approximately $84 million of usable net operating losses (“NOL”) in the U.S., which the Company considers to be a very valuable asset for its stockholders. Protecting the value of this NOL asset limits the amount of stock than can be repurchased over a given time period. In order to protect the value of the NOL for all stockholders, the Company has a charter amendment in place that limits beneficial ownership of Digirad common stock to 4.99%. Stockholders who wish to own more than 4.99% of Digirad common stock, or who already own more than 4.99% of Digirad common stock and wish to buy more, may only acquire additional Shares with the Board’s prior written approval.
If you have any questions, either prior to or after our scheduled Earnings Conference call, please e-mail ir@digirad.com.
2018 Financial Guidance
The Company met its previously announced 2018 financial guidance for revenues from continuing operations of between $100 million and $105 million and free cash flow between $4 million and $5 million. The Company’s non-GAAP adjusted EBITDA was $6.0 million compared to previously announced target of $7.0 million.
Conference Call Information
A conference call is scheduled for 11:00 a.m. EDT on March 1, 2019 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 March 1, 2019.
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 December 31,
 
Twelve Months Ended December 31,
 
 
 
(in thousands, except per share amounts)
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
 
Services
 
$
22,346

 
$
22,932

 
$
92,197

 
$
92,551

Product and product-related
 
3,582

 
3,380

 
11,983

 
12,081

Total revenues
 
25,928


26,312


104,180


104,632

Cost of revenues:
 
 
 
 
 
 
 
 
Services
 
20,084

 
19,935

 
79,068

 
76,391

Product and product-related
 
2,105

 
1,841

 
6,841

 
7,045

Total cost of revenues
 
22,189


21,776


85,909


83,436

Gross profit
 
3,739


4,536


18,271


21,196

Total gross profit percentage
 
14.4
%
 
17.2
%
 
17.5
%
 
20.3
%
Services gross profit percentage
 
10.1
%
 
13.1
%
 
14.2
%
 
17.5
%
Product and product-related gross profit percentage
 
41.2
%
 
45.5
%
 
42.9
%
 
41.7
%
Operating expenses:
 
 
 
 
 
 
 
 
Marketing and sales
 
1,209

 
1,487

 
5,418

 
6,249

General and administrative
 
3,620

 
4,255

 
15,038

 
18,586

Amortization of intangible assets
 
308

 
373

 
1,377

 
1,494

Goodwill impairment
 

 
166

 
476

 
166

Loss on sale of buildings
 

 

 
507

 

Total operating expenses
 
5,137


6,281


22,816


26,495

Loss from operations
 
(1,398
)

(1,745
)

(4,545
)

(5,299
)
Other expense:
 
 
 
 
 
 
 
 
Other expense, net
 
51

 
(74
)
 
(61
)
 
(311
)
Interest expense, net
 
(188
)
 
(156
)
 
(751
)
 
(730
)
Loss on extinguishment of debt
 

 

 
(43
)
 
(709
)
Total other expense
 
(137
)

(230
)

(855
)

(1,750
)
Loss before income taxes
 
(1,535
)
 
(1,975
)
 
(5,400
)
 
(7,049
)
Income tax benefit (expense)
 
621

 
(20,630
)
 
1,561

 
(27,987
)
Loss from continuing operations, net of tax
 
(914
)

(22,605
)

(3,839
)

(35,036
)
(Loss) income from discontinued operations, net of tax
 
(680
)
 
622

 
4,575

 
(694
)
Net (loss) income
 
$
(1,594
)

$
(21,983
)

$
736


$
(35,730
)
 
 
 
 
 
 
 
 
 
Net (loss) income per share - basic and diluted
 
 
 
 
 
 
 
 
Continuing operations
 
$
(0.05
)

$
(1.13
)

$
(0.19
)

$
(1.75
)
Discontinued operations
 
(0.03
)

0.03


0.23


(0.03
)
Net (loss) income per share - basic and diluted
 
$
(0.08
)

$
(1.10
)

$
0.04


$
(1.79
)
Dividends declared per common share
 
$

 
$
0.055

 
$
0.165

 
$
0.210

Weighted average shares outstanding – basic and diluted
 
20,242

 
20,058

 
20,158

 
19,995

 
 
 
 
 
 
 
 
 
Net (loss) income
 
$
(1,594
)
 
$
(21,983
)
 
$
736

 
$
(35,730
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Unrealized gain on available-for-sale marketable securities
 

 
17

 

 
17

Reclassification of unrealized gain on available-for-sale marketable securities to retained earnings
 

 

 
(17
)
 

Reclassification of other-than-temporary losses on available-for-sale securities included in net (loss) income
 

 

 

 
52

Total other comprehensive income (loss)
 

 
17

 
(17
)
 
69

Provision for income taxes
 

 
(22
)
 

 
(22
)
   Total other comprehensive income (loss), after tax
 

 
(5
)
 
(17
)
 
47

Comprehensive (loss) income
 
$
(1,594
)
 
$
(21,988
)
 
$
719

 
$
(35,683
)





Digirad Corporation
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except share data)
 
December 31,
2018
 
December 31,
2017
Assets:
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
1,545

 
$
1,877

Equity securities
 
153

 
97

Accounts receivable, net
 
12,642

 
15,887

Inventories, net
 
5,402

 
5,501

Restricted cash
 
167

 
242

Other current assets
 
1,285

 
1,972

 Total current assets
 
21,194

 
25,576

Property and equipment, net
 
21,645

 
28,365

Intangible assets, net
 
5,228

 
7,830

Goodwill
 
1,745

 
2,393

Restricted cash
 
101

 
101

Non-current assets held for sale
 

 
1,735

Other assets
 
681

 
703

Total assets
 
$
50,594

 
$
66,703

 
 
 
 
 
Liabilities:
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
5,206

 
$
5,207

Accrued compensation
 
3,862

 
5,507

Accrued warranty
 
197

 
204

Deferred revenue
 
1,687

 
2,302

Current liabilities held-for-sale
 

 
835

Other current liabilities
 
2,265

 
2,915

Total current liabilities
 
13,217

 
16,970

Long-term debt
 
9,500

 
19,500

Deferred tax liabilities
 
121

 
254

Other liabilities
 
1,956

 
2,180

Total liabilities
 
24,794

 
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; 20,249,786 and 20,060,311 shares issued and outstanding (net of treasury shares) at December 31, 2018 and 2017, respectively
 
2

 
2

Treasury stock, at cost; 2,588,484 shares at December 31, 2018 and 2017
 
(5,728
)
 
(5,728
)
Additional paid-in capital
 
145,428

 
148,163

Accumulated other comprehensive loss
 
(22
)
 
(5
)
Accumulated deficit
 
(113,880
)
 
(114,633
)
Total stockholders’ equity
 
25,800

 
27,799

Total liabilities and stockholders’ equity
 
$
50,594

 
$
66,703






Digirad Corporation
Reconciliation of Non-GAAP Financial Measures
(Unaudited)
 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
Net loss from continuing operations
 
$
(914
)
 
$
(22,605
)
 
$
(3,839
)
 
$
(35,036
)
Acquired intangible amortization
 
308

 
373

 
1,377

 
1,494

Unrealized (gain) loss on available-for-sale securities (1)
 
(50
)
 
74

 
62

 
311

Litigation reserve (2)
 

 

 

 
1,339

Restructuring costs (3)
 
(4
)
 

 
93

 

Loss on extinguishment of debt
 

 

 
43

 
709

Goodwill impairment (4)
 

 
166

 
476

 
166

Loss on sale of buildings (5)
 

 

 
507

 

Transaction Cost (6)
 
91

 

 
91

 

Acquisition related contingent consideration valuation adjustment (7)
 

 

 

 
(57
)
Income tax items (8)
 
(621
)
 
20,630

 
(1,561
)
 
27,987

Non-GAAP adjusted net loss from continuing operations
 
$
(1,190
)
 
$
(1,362
)
 
$
(2,751
)
 
$
(3,087
)
 
 
 
 
 
 
 
 
 
Net loss per diluted share from continuing operations (9)
 
$
(0.05
)
 
$
(1.13
)
 
$
(0.19
)
 
$
(1.75
)
Acquired intangible amortization
 
0.02

 
0.02

 
0.07

 
0.07

Unrealized loss on available-for-sale securities (1)
 

 

 

 
0.02

Litigation reserve (2)
 

 

 

 
0.07

Restructuring costs (3)
 

 

 

 

Loss on extinguishment of debt
 

 

 

 
0.04

Goodwill impairment (4)
 

 
0.01

 
0.02

 
0.01

Loss on sale of buildings (5)
 

 

 
0.03

 

Transaction Cost (6)
 

 

 

 

Acquisition related contingent consideration valuation adjustment (7)
 

 

 

 

Income tax items (8)
 
(0.03
)
 
1.03

 
(0.08
)
 
1.40

Non-GAAP adjusted net loss per basic and diluted share from continuing operations (9)
 
$
(0.06
)
 
$
(0.07
)
 
$
(0.14
)
 
$
(0.15
)





Digirad Corporation
Reconciliation of Non-GAAP Financial Measures
(Unaudited)
 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
(in thousands)
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
Net loss from continuing operations
 
$
(914
)
 
$
(22,605
)
 
$
(3,839
)
 
$
(35,036
)
Unrealized (loss) gain on equity securities (1)
 
(50
)
 
74

 
62

 
311

Litigation reserve (2)
 

 

 

 
1,339

Restructuring costs (3)
 
(4
)
 

 
93

 

Goodwill impairment (4)
 

 
166

 
476

 
166

Loss on extinguishment of debt
 

 

 
43

 
709

Depreciation and amortization
 
1,988

 
2,339

 
8,706

 
9,363

Stock-based compensation
 
88

 
25

 
634

 
834

Loss on sale of buildings (5)
 

 

 
507

 

Interest expense, net
 
188

 
156

 
751

 
730

Transaction cost (6)
 
91

 

 
91

 

Acquisition related contingent consideration valuation adjustment (7)
 

 

 

 
(57
)
Income tax (benefit) expense
 
(621
)
 
20,630

 
(1,561
)
 
27,987

Non-GAAP adjusted EBITDA from continuing operations
 
$
766

 
$
785

 
$
5,963

 
$
6,346

(1) Reflects change in fair value of investments in equity securities.
(2) Reflects legal 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 legal costs related to one time transactions, include the ATRM acquisition, joint venture, and stock issuance in Q4 2018.
(7) Reflects fair value adjustment to estimate of contingent consideration related to acquisitions.
(8) 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.
(9) 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 December 31,
 
Twelve Months Ended December 31,
(in thousands)
 
2018
 
2017
 
2018
 
2017
Net cash provided by (used in) operating activities
 
$
2,846

 
$
1,968

 
$
5,064

 
$
6,069

Purchases of property and equipment, net of dispositions
 
71

 
(971
)
 
(68
)
 
(2,364
)
Free cash flow
 
$
2,917

 
$
997

 
$
4,996

 
$
3,705






Digirad Corporation
Supplemental Debt Information
(Unaudited)
The following table reflects outstanding principal balances and interest rates for the Company’s debt at December 31, 2018 and December 31, 2017:
 
 
December 31, 2018
 
December 31, 2017
 
 
Amount
 
Interest Rate
 
Amount
 
Interest Rate
Revolving Credit Facility (1)
 
$
9,500

 
4.87%
 
$
19,500

 
3.90%
(1) Revolving Credit Agreement was entered into with Comerica Bank in June 2017, which was subsequently amended on January 30, 2018 and September 30, 2018. 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 December 31,
 
Twelve Months Ended December 31,
(in thousands)
 
2018
 
2017 (1)
 
2018
 
2017 (1)
Revenue by segment:
 
 
 
 
 
 
 
 
Diagnostic Services
 
$
11,552

 
$
12,084

 
$
49,256

 
$
49,016

Diagnostic Imaging
 
3,582

 
3,380

 
11,983

 
12,081

Mobile Healthcare
 
10,794

 
10,848

 
42,941

 
43,535

Consolidated revenue
 
$
25,928

 
$
26,312

 
$
104,180

 
$
104,632

Gross profit by segment:
 
 
 
 
 
 
 
 
Diagnostic Services
 
$
1,827

 
$
1,790

 
$
9,447

 
$
9,942

Diagnostic Imaging
 
1,477

 
1,539

 
5,142

 
5,036

Mobile Healthcare
 
435

 
1,207

 
3,682

 
6,218

Consolidated gross profit
 
$
3,739

 
$
4,536

 
$
18,271

 
$
21,196

Income (loss) from continuing operations by segment:
 
 
 
 
 
 
 
 
Diagnostic Services
 
$
(32
)
 
$
(577
)
 
$
732

 
$
(134
)
Diagnostic Imaging
 
140

 
(150
)
 
(304
)
 
(1,097
)
Mobile Healthcare
 
(1,506
)
 
(852
)
 
(3,990
)
 
(2,563
)
Segment loss from continuing operations
 
$
(1,398
)
 
$
(1,579
)
 
$
(3,562
)
 
$
(3,794
)
Loss on sale of buildings (2)
 
$

 
$

 
$
(507
)
 
$

Goodwill impairment (3)
 

 
(166
)
 
(476
)
 
(166
)
Litigation reserve (4)
 

 

 

 
(1,339
)
Consolidated loss from continuing operations
 
$
(1,398
)
 
$
(1,745
)
 
$
(4,545
)
 
$
(5,299
)
(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.


Exhibit


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 March 1, 2019 announcing results for the three and twelve months ended December 31, 2018 that accompanied a conference call held by the Company on March 1, 2019. 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 (loss),” “adjusted net income (loss) per diluted share,” “adjusted EBITDA,” and "free cash flow." 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, unrealized gain (loss) on available-for-sale securities, loss on sale of buildings, 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 goodwill impairment, 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 (loss),” “net income (loss) per diluted share,” and "operating cash flow" (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.