Digirad Corporation Reports Financial Results for the Third Quarter and Nine Months Ended September 30, 2015


  • Announces year over year quarterly revenue and adjusted EBITDA growth of 14% and 30% respectively
  • Confirms financial guidance for 2015
  • Provides an update on the DMS Health Technologies acquisition
  • Positive profitability history prompts recognition of previously reserved tax benefits
  • Announces regular quarterly cash dividend of $0.05 cents per share

SUWANEE, Ga., Oct. 30, 2015 (GLOBE NEWSWIRE) -- Digirad Corporation (Nasdaq:DRAD) today reported its financial results for the third quarter and nine months ended September 30, 2015.

Total revenues for the 2015 third quarter were $15.9 million, an increase of 14 percent compared to the prior year’s third quarter revenues of $13.9 million.

Adjusted net income for the 2015 third quarter was $1.5 million, or $0.08 per diluted share, compared to $1.2 million, or $0.06 per diluted share in the prior year third quarter.  Adjusted EBITDA for the 2015 third quarter was $2.2 million, compared to $1.7 million in the prior year third quarter.

Total revenues for the nine months ended September 30, 2015 were $45.2 million, an increase of 9 percent compared to the prior year’s revenues for the first nine months of $41.5 million.

Adjusted net income for the nine months ended September 30, 2015 was $3.2 million, or $0.16 per diluted share, compared to adjusted net income of $2.6 million, or $0.14 per diluted share in same period in the prior year.  Adjusted EBITDA for the nine months ended September 30, 2015 was $5.0 million, compared to $4.0 million in the same period in the prior year.

Excluded from adjusted net income and adjusted EBITDA for the third quarter and nine months ended September 30, 2015 are transaction costs associated with the previously announced planned acquisition of DMS Health Technologies ("DMS Health").  A reconciliation of adjusted net income, adjusted net income per diluted share, and adjusted EBITDA is provided later in this release.

Digirad President and CEO Matt Molchan said, “I am pleased with our performance this quarter.  Our Diagnostic Services business is performing well; in particular we are seeing growing revenues from our Telerhythmics business.  In addition, our MD Office Solutions acquisition is performing in line with our expectations.  The Diagnostic Imaging business had a great quarter, closing on several cameras deals, and generating 27% higher revenues than last year.  Based on our continued progress and results, we expect to fall within our previously announced financial guidance range.”

Molchan continued, “Though we just announced our intent to acquire DMS Health two weeks ago, we are making solid progress on moving toward a close.  We still expect to close the acquisition by the end of the year.”

During the quarter ended September 30, 2015, the Company conducted a detailed analysis of its existing tax net operating loss ("NOL") carry forwards which were previously 100% reserved.  This NOL analysis was conducted as a result of the positive history of profitability since the Company's restructuring efforts undertaken in early 2013.  Based on this analysis, it was determined it was appropriate to release a portion of these reserved NOLs, resulting in an increase in net income of $18.2 million in the third quarter of 2015.

As previously announced, the Company's 2015 financial guidance is to generate revenues between $61.0 million and $63.0 million; non-GAAP adjusted diluted earnings per share between $0.19 and $0.21; and non-GAAP adjusted EBITDA between $6.5 million and $6.9 million.

The Company also announced a cash dividend of $0.05 cents per share that will be paid on November 27, 2015, to shareholders of record on November 16, 2015.

Conference Call Information

A conference call is scheduled for 11:00 a.m. EDT on October 30, 2015 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/events.cfm; 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,”  “adjusted net income per diluted share,” 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 in this release unaudited adjusted financial information, which presents the Company's results of operations after excluding restructuring charges, acquired intangible asset amortization, acquisition related contingent consideration valuation adjustments, transaction and integration costs associated with DMS Health Technologies, 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 October 30, 2015.

About Digirad Corporation

Digirad delivers convenient, effective, and efficient diagnostic solutions on an as needed, when needed, and where needed basis.  Digirad is one of the largest national providers of in-office nuclear cardiology and ultrasound imaging services, and also provides cardiac event monitoring services.  These services are provided to physician practices, hospitals and imaging centers through its Diagnostic Services business.  Digirad also sells medical diagnostic imaging systems, including solid-state gamma cameras, for nuclear cardiology and general nuclear medicine applications, as well as provides service on the products sold through its Diagnostic Imaging business. For more information, please visit www.digirad.com. Digirad® and Cardius® are registered trademarks of Digirad Corporation.

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 close and execute on 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 Income
(Unaudited)

 Three Months Ended Nine Months Ended
 September 30, September 30,
(in thousands, except per share amounts)2015 2014 2015 2014
        
Revenues:       
Diagnostic Services$11,982  $10,821  $34,724  $31,716 
Diagnostic Imaging3,880  3,060  10,525  9,749 
Total revenues15,862  13,881  45,249  41,465 
Cost of revenues:       
Diagnostic Services9,201  8,063  26,920  23,801 
Diagnostic Imaging1,859  1,409  5,112  5,308 
Total cost of revenues11,060  9,472  32,032  29,109 
        
Gross profit4,802  4,409  13,217  12,356 
Total gross profit percentage30.3% 31.8% 29.2% 29.8%
Diagnostic Services gross profit percentage23.2% 25.5% 22.5% 25.0%
Diagnostic Imaging gross profit percentage52.1% 54.0% 51.4% 45.6%
        
Operating expenses:       
Marketing and sales1,212  1,157  3,689  3,497 
General and administrative2,508  2,047  6,880  6,235 
Amortization of intangible assets134  93  372  263 
Restructuring charges  80    659 
Total operating expenses3,854  3,377  10,941  10,654 
        
Income from operations948  1,032  2,276  1,702 
        
Other income (expense):       
Interest and other income, net10  14  32  46 
Interest expense(21) (10) (44) (27)
Total other income (expense)(11) 4  (12) 19 
        
Income before income taxes937  1,036  2,264  1,721 
Income tax benefit (expense)18,183  (8) 18,698  (18)
Net income$19,120  $1,028  $20,962  $1,703 
        
Net income per share:       
Basic$0.99  $0.06  $1.09  $0.09 
Diluted$0.97  $0.05  $1.07  $0.09 
Dividends declared per common share$0.05  $0.05  $0.15  $0.15 
        
Weighted average shares outstanding – basic19,356  18,601  19,145  18,558 
Weighted average shares outstanding – diluted19,798  18,895  19,608  18,853 
        


Digirad Corporation

 Condensed Consolidated Balance Sheets
(Unaudited)

(in thousands, except share data)September 30,
 2015
 December 31,
 2014
Assets   
Current assets:   
Cash and cash equivalents$13,895  $14,051 
Securities available-for-sale5,986  7,935 
Accounts receivable, net8,313  5,989 
Inventories, net4,325  3,644 
Other current assets1,993  856 
Restricted cash233  477 
Total current assets34,745  32,952 
    
Property and equipment, net6,614  4,766 
Intangible assets, net3,213  2,577 
Goodwill2,897  1,337 
Long-term deferred tax assets16,791   
Other assets1,298   269 
Total assets$65,558  $41,901 
    
Liabilities and stockholders’ equity   
Accounts payable$2,797  $1,423 
Accrued compensation2,872  3,261 
Accrued warranty214  176 
Deferred revenue1,478  1,644 
Other accrued liabilities2,543  1,789 
Total current liabilities9,904  8,293 
Other liabilities1,327  963 
Total liabilities11,231  9,256 
    
Stockholders’ equity:   
Preferred stock   
Common stock2  2 
Treasury stock(5,728) (5,728)
Additional paid-in capital154,472  153,769 
Accumulated other comprehensive loss(3) (19)
Accumulated deficit(94,416) (115,379)
Total stockholders’ equity54,327  32,645 
Total liabilities and stockholders’ equity$65,558  $41,901 


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) 2015 2014 2015 2014
          
Net income $19,120  $1,028  $20,962  $1,703 
 Restructuring charges(1)   80    659 
 Acquired intangible amortization 131  90  365  256 
 Acquisition related contingent consideration valuation adjustment(2)     (173)  
 Transaction and integration costs of DMS Health Technologies(3) 435    743   
 Income tax items(4) (18,163) (1) (18,699) (7)
Non-GAAP Adjusted net income $1,523  $1,197  $3,198  $2,611 
          
Net income per share - diluted 0.97  0.05  1.07  0.09 
 Restructuring charges(1)(5)       0.03 
 Acquired intangible amortization(5) 0.01    0.02  0.01 
 Acquisition related contingent consideration valuation adjustment(2)(5)
     (0.01)  
 Transaction and integration costs of DMS Health Technologies(5) 0.02    0.04   
 Income tax items(4)(5) (0.92)   (0.95)  
Non-GAAP Adjusted net income per share - diluted(5) $0.08  $0.06  $0.16  $0.14 
          


   Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2015 2014 2015 2014
          
Net income $19,120  $1,028  $20,962  $1,703 
 Restructuring charges(1)   80    659 
 Acquisition related contingent consideration valuation adjustment(2)
     (173)  
 Transaction and integration costs of DMS Health Technologies(3) 435    743   
 Depreciation and amortization 665  497  1,751  1,441 
 Stock-based compensation 165  96  450  207 
 Interest and other income, net (10) (14) (32) (46)
 Interest expense 21  10  44  27 
 Income tax expense (benefit) (18,183) 8  (18,698) 18 
Non-GAAP Adjusted EBITDA $2,213  $1,705  $5,047  $4,009 
          

(1)  Reflects nonrecurring charges primarily related to the lease termination of the Poway, CA facility.
(2)  Reflects fair value adjustment to estimate of contingent consideration related to acquisitions.
(3)  Reflects diligence, transaction, and integration costs related to the acquisition of DMS Health Technologies.  Nine months ended September 30, 2015 has been reclassified from previously reported amounts to reflect this adjustment.
(4)  Reflects income tax effect for adjusted financial data, acquisition related income tax adjustments, and release of previously reserved net operating loss carry forwards.
(5)  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, 2014 December 31, 2014 March 31, 2015 June 30, 2015 September 30, 2015
            
Net income $1,028  772  745  $1,097  $19,120 
 Restructuring charges(1) 80  33       
 Acquired intangible amortization 90  90  103  130  131 
 Acquisition related contingent consideration valuation adjustment(2)       (173)  
 Transaction and integration costs of DMS Health Technologies(3)     25  283  435 
 Income tax items(4) (1) (3) (587) 51  (18,163)
Non-GAAP Adjusted net income $1,197  $892  $286  $1,388  $1,523 
            
Net income per share - diluted(5) $0.05  0.04  0.04  $0.06  0.97 
 Restructuring charges(1)(5)          
 Acquired intangible amortization(5)     0.01  0.01  0.01 
 Acquisition related contingent consideration valuation adjustment(2)(5)       (0.01)  
 Transaction and integration costs of DMS Health Technologies(5)       0.01  0.02 
 Income tax items(4)(5)     (0.03)   (0.92)
Non-GAAP Adjusted net income per share - diluted(5) $0.06  $0.05  $0.02  $0.07  $0.08 
            


   Three Months Ended
(in thousands) September 30, 2014 December 31, 2014 March 31, 2015 June 30, 2015 September 30, 2015
            
Net income $1,028  $772  $745  $1,097  $19,120 
 Restructuring charges(1) 80  33       
 Acquisition related contingent consideration valuation adjustment(2)       (173)  
 Transaction and integration costs of DMS Health Technologies(3)     25  283  435 
 Depreciation and amortization 497  494  488  598  665 
 Stock-based compensation 96  119  144  141  165 
 Interest and other income, net (14) (12) (11) (11) (10)
 Interest expense 10  12  11  12  21 
 Income tax expense (benefit) 8  44  (580) 65  (18,183)
Non-GAAP Adjusted EBITDA $1,705  $1,462  $822  $2,012  $2,213 
            

(1)  Reflects nonrecurring charges primarily related to the lease termination of the Poway, CA facility.
(2)  Reflects fair value adjustment to estimate of contingent consideration related to acquisitions.
(3)  Reflects diligence, transaction, and integration costs related to the acquisition of DMS Health Technologies.  The three months ended March 31, 2015 and June 30, 2015 has been reclassified from previously reported amounts to reflect this adjustment.
(4)  Reflects income tax effect for adjusted financial data, acquisition related income tax adjustments, and release of previously reserved net operating loss carry forwards.
(5)  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.


            

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