Digirad Corporation Reports Financial Results for the First Quarter Ended March 31, 2016


  • Announces year over year Q1 revenue and adjusted EBITDA growth of 125% and 345%, respectively
  • Provides an update on the DMS Health acquisition
  • Recognizes previously reserved tax benefits due to expected increases in future profitability
  • Announces a regular quarterly cash dividend of $0.05 per share
  • Updates financial guidance for 2016

SUWANEE, Ga., April 29, 2016 (GLOBE NEWSWIRE) -- Digirad Corporation (Nasdaq:DRAD) today reported its financial results for the first quarter ended March 31, 2016.

Total revenues for the 2016 first quarter were $31.2 million, an increase of 125.1 percent compared to the prior year’s first quarter revenues of $13.8 million.

Adjusted net income for the 2016 first quarter was $1.3 million, or $0.07 per diluted share, compared to $0.3 million, or $0.02 per diluted share in the prior year first quarter.  Adjusted EBITDA for the 2016 first quarter was $3.7 million, compared to $0.8 million in the prior year first quarter.

Digirad President and CEO Matt Molchan said, “Digirad had a strong quarter, driven by the inclusion of DMS Health's operations as part of our results starting on January 1st, and every business unit is performing above expectations.  We believe this strong start to the year positions us well for 2016."

Molchan continued, “We are also pleased to announce solid progress with our integration efforts of DMS Health, with significant progress made in harmonizing our operations.  We expect these integration efforts to continue for a few more quarters before full integration has been completed.  Even though our main focus right now is on successfully integrating DMS Health, we are also beginning to focus on future revenue growth from customer, geographical and relationship synergies."

Based on the completion of the DMS Health acquisition and the expected increase to the Company’s future profitability, an updated analysis of our existing tax net operating loss ("NOL") carry forwards was conducted during the quarter ended March 31, 2016. Based on this analysis, the majority of reserved NOLs were released, resulting in an incremental income tax benefit of $12.5 million in the first quarter of 2016.

The Company also announced a cash dividend of $0.05 cents per share that will be paid on May 27, 2016, to shareholders of record on May 13, 2016.

2016 Financial Guidance

The Company reaffirms its previously announced fiscal year 2016 financial guidance of revenues between $125 million and $130 million and non-GAAP adjusted EBITDA between $17 million and $18 million.  In addition, based on the completion of the underlying transaction accounting, the Company is now providing financial guidance for adjusted diluted earnings per share between $0.30 and $0.35 for fiscal year 2016.

Conference Call Information

A conference call is scheduled for 11:00 a.m. EDT on April 29, 2016 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 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 April 29, 2016.

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 health care solutions and medical equipment and services, including diagnostic imaging and patient monitoring, 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 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
 March 31,
(in thousands, except per share amounts)2016 2015
Revenues:   
Services$24,005  $10,563 
Product and product-related7,152  3,276 
Total revenues31,157  13,839 
Cost of revenues:   
Services18,506  8,505 
Product and product-related3,586  1,686 
Total cost of revenues22,092  10,191 
    
Gross profit9,065  3,648 
Total gross profit percentage29.1% 26.4%
Services gross profit percentage22.9% 19.5%
Product and product-related gross profit percentage49.9% 48.5%
    
Operating expenses:   
Marketing and sales2,625  1,210 
General and administrative6,414  2,168 
Amortization of intangible assets579  105 
Total operating expenses9,618  3,483 
    
Income (loss) from operations(553) 165 
    
Other income (expense):   
Interest and other income, net76  11 
Interest and other expense, net(375) (11)
Total other income(299)  
    
Income (loss) before income taxes(852) 165 
Income tax benefit12,461  580 
Net income$11,609  $745 
    
Net income per share:   
Basic$0.60  $0.04 
Diluted$0.58  $0.04 
Dividends declared per common share$0.05  $0.05 
    
Weighted average shares outstanding – basic19,448  18,803 
Weighted average shares outstanding – diluted19,943  19,291 
    


Digirad Corporation
 Condensed Consolidated Balance Sheets
(Unaudited)
 
(in thousands, except share data)March 31,
 2016
 December 31,
 2015
Assets   
Current assets:   
Cash and cash equivalents$7,202  $15,868 
Securities available-for-sale2,518  3,227 
Accounts receivable, net13,829  7,274 
Inventories, net4,808  4,381 
Restricted cash233  233 
Other current assets3,647  764 
Total current assets32,237  31,747 
Property and equipment, net31,967  6,252 
Intangible assets, net13,361  3,079 
Goodwill7,205  2,897 
Deferred tax assets26,818  18,578 
Restricted cash3,636   
Other assets1,211  1,560 
Total assets$116,435  $64,113 
    
Liabilities and stockholders’ equity   
Current liabilities:   
Accounts payable$5,120  $1,369 
Accrued compensation4,426  2,453 
Accrued warranty218  213 
Deferred revenue3,844  1,673 
Current portion of long-term debt5,085   
Other current liabilities4,471  2,998 
Total current liabilities23,164  8,706 
Long-term debt, net of current portion26,127   
Other liabilities2,129  1,252 
Total liabilities51,420  9,958 
    
Stockholders’ equity:   
Preferred stock   
Common stock2  2 
Treasury stock(5,728) (5,728)
Additional paid-in capital153,111  153,860 
Accumulated other comprehensive loss(240) (240)
Accumulated deficit(82,130) (93,739)
Total stockholders’ equity65,015  54,155 
Total liabilities and stockholders’ equity$116,435  $64,113 


 Digirad Corporation
 Reconciliation of Non-GAAP Financial Measures
 (Unaudited)
  
   Three Months Ended March 31,
(in thousands, except per share amounts) 2016 2015
      
Net income $11,609  $745 
 Acquired intangible amortization 577  103 
 Transaction and integration costs of DMS Health Technologies(1) 1,450  25 
 Income tax items(2) (12,333) (587)
Non-GAAP Adjusted net income $1,303  $286 
      
      
Net income per share - diluted(3) $0.58  $0.04 
 Acquired intangible amortization 0.03  0.01 
 Transaction and integration costs of DMS Health Technologies(1) 0.07   
 Income tax items(2) (0.62) (0.03)
Non-GAAP Adjusted net income per share - diluted(3) $0.07  $0.02 
      


   Three Months Ended March 31,
(in thousands) 2016 2015
      
Net income $11,609  $745 
 Transaction and integration costs of DMS Health Technologies(1) 1,450  25 
 Depreciation and amortization 2,465  488 
 Stock-based compensation 223  144 
 Interest income (5) (11)
 Interest expense 375  11 
 Income tax benefit (12,461) (580)
Non-GAAP Adjusted EBITDA $3,656  $822 
      


(1) Reflects diligence, transaction, and integration costs related to the acquisition of DMS Health Technologies.  Three months ended March 31, 2015 has been reclassified from previously reported amounts to reflect this adjustment.
(2) Reflects income tax effect for adjusted financial data, acquisition related income tax adjustments, and release of previously reserved net operating loss carry forwards.
(3) 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) March 31,
2015
 June 30,
 2015
 September 30,
2015
 December 31,
2015
 March 31,
2016
            
Net income $745  $1,097  $19,120  678  11,609 
 Acquired intangible amortization 103  130  131  131  577 
 Acquisition related contingent consideration valuation adjustment(1)   (173)   113   
 Investment impairment loss(2)       278   
 Transaction and integration costs of DMS Health Technologies(3) 25  283  435  595  1,450 
 Income tax items(4) (587) 51  (18,163) (446) (12,333)
Non-GAAP Adjusted net income $286  $1,388  $1,523  $1,349  $1,303 
            
            
Net income per share - diluted(5) $0.04  $0.06  $0.97  0.03  0.58 
 Acquired intangible amortization 0.01  0.01  0.01  0.01  0.03 
 Acquisition related contingent consideration valuation adjustment(1)   (0.01)   0.01   
 Investment impairment loss(2)       0.01   
 Transaction and integration costs of DMS Health Technologies(3)   0.01  0.02  0.03  0.07 
 Income tax items(4) (0.03)   (0.92) (0.02) (0.62)
Non-GAAP Adjusted net income per share - diluted(5) $0.02  $0.07  $0.08  $0.07  $0.07 
            


   Three Months Ended
(in thousands) March 31,
2015
 June 30,
 2015
 September 30,
2015
 December 31,
2015
 March 31,
2016
            
Net income $745  $1,097  $19,120  $678  $11,609 
 Acquisition related contingent consideration valuation adjustment(1)   (173)   113   
 Investment impairment loss(2)       278   
 Transaction and integration costs of DMS Health Technologies(3) 25  283  435  595  1,450 
 Depreciation and amortization 488  598  665  690  2,465 
 Stock-based compensation 144  141  165  166  223 
 Interest income (11) (11) (10) (7) (5)
 Interest expense 11  12  21  19  375 
 Income tax expense (benefit) (580) 65  (18,183) (425) (12,461)
Non-GAAP Adjusted EBITDA $822  $2,012  $2,213  $2,107  $3,656 
            


(1) Reflects fair value adjustment to estimate of contingent consideration related to acquisitions.
(2) Reflects impairment loss related to investment in Perma-Fix Medical.  Total amount consists of impairment of a Supply Agreement entered into between the two parties and a loss related to the initial excess of the transaction price over fair value.
(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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