Form 8-K DIGIRAD CORP For: Aug 07

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August 7, 2015 6:04 AM EDT


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: August 7, 2015
(Date of earliest event reported)



DIGIRAD CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
 
000-50789
 
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))





Item 2.02.  Results of Operations and Financial Condition

On August 7, 2015, Digirad Corporation issued a press release announcing financial results for the three and six months ended June 30, 2015. 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 August 7, 2015
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/ Jeffry R. Keyes
 
 
 
Jeffry R. Keyes
Chief Financial Officer

Date:     August 7, 2015



Exhibit Index

Exhibit No.
 
Description
 
 
 
99.1
 
Press Release of Digirad Corporation dated August 7, 2015

99.2
 
Information Related to the Use of Non-GAAP Financial Measures




Exhibit 99.1
News Release
For immediate release
For more information contact:
August 7, 2015
Jeffry Keyes
 
Chief Financial Officer
 
858-726-1600
 

Digirad Corporation Reports Financial Results for the
Second Quarter and Six Months ended June 30, 2015

•Announces year over year growth in revenue and adjusted EBITDA
•Confirms financial guidance for 2015
•Announces a regular quarterly cash dividend of $0.05 cents per share

Suwanee, GA. - August 7, 2015 - Digirad Corporation (Nasdaq: DRAD) today reported its financial results for the second quarter and six months ended June 30, 2015.
Total revenues for the 2015 second quarter were $15.5 million, an increase of 7 percent compared to the prior year’s second quarter revenues of $14.6 million.
Adjusted net income for the 2015 second quarter was $1.1 million, or $0.06 per diluted share, which was unchanged from the same period in the prior year. Adjusted EBITDA for the 2015 second quarter was $1.7 million, compared to $1.5 million in the prior year second quarter.
Total revenues for the six months ended June 30, 2015 were $29.4 million, an increase of 7 percent compared to the prior year’s revenues for the first six months of $27.6 million.
Adjusted net income for the six months ended June 30, 2015 was $1.4 million, or $0.07 per diluted share, compared to adjusted net income of $1.4 million, or $0.08 per diluted share in same period in the prior year. Adjusted EBITDA for the six months ended June 30, 2015 was $2.5 million, compared to $2.3 million in the same period in the prior year. A reconciliation of adjusted net income and adjusted EBITDA is provided later in this release.
Digirad President and CEO Matt Molchan said, “I am pleased to report that we achieved another solid quarter of performance in our second quarter of 2015. Our core businesses are performing well, and we are seeing more volume and revenue growth from our Telerhythmics business after the completion of our integration efforts last quarter, in particular in the month of June. Though our year to date results were impacted by the severe weather in the first quarter, our expectation is that full year results will fall within our previously announced financial guidance range.”
Molchan continued, “I am also pleased to announce that our integration efforts for MD Office Solutions are complete, and that business is a solid contributor to our results. We continue to monitor for other potential acquisitions, and we believe there are more opportunities out there similar to MD Office Solutions. Though timing is always hard to predict, we continue to expect to acquire some of these businesses over time.”
For the first six months ended June 2015, the Company generated cash flow from operations of $2.2 million, compared to $1.2 million in the same period of the prior year. The Company’s cash, cash equivalents and available-for-sale securities balance at June 30, 2015 was $21.7 million, a $0.3 million decrease from the December 31, 2014 balance of $22.0 million. Cash activity for the period included normal working capital changes along with payment of cash dividends.
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's non-GAAP financial measure adjusted diluted earnings per share excludes restructuring charges, acquired intangible asset amortization, acquisition related income tax adjustments and acquisition related contingent consideration valuation adjustments. Adjusted EBITDA further excludes stock-based compensation expense.
The Company also announced a cash dividend of $0.05 cents per share that will be paid on August 31, 2015, to shareholders of record on August 21, 2015.





Conference Call Information
A conference call is scheduled for 11:00 a.m. EDT on August 7, 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 below unaudited adjusted financial information, which presents the Company's results of operations after excluding restructuring charges, acquired intangible asset amortization, acquisition related income tax items, acquisition related contingent consideration adjustments, and in the measure of adjusted EBITDA, 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 August 7, 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 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 Income
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(in thousands, except per share amounts)
2015
 
2014
 
2015
 
2014
 

 

 
 
 
 
Revenues:
 
 
 
 
 
 
 
Diagnostic Services
$
12,179

 
$
11,340

 
$
22,742

 
$
20,895

Diagnostic Imaging
3,368

 
3,247

 
6,645

 
6,689

Total revenues
15,547

 
14,587

 
29,387

 
27,584

Cost of revenues:
 
 
 
 
 
 
 
Diagnostic Services
9,213

 
8,204

 
17,719

 
15,738

Diagnostic Imaging
1,567

 
1,878

 
3,253

 
3,899

Total cost of revenues
10,780

 
10,082

 
20,972

 
19,637

 
 
 
 
 
 
 
 
Gross profit
4,767

 
4,505

 
8,415

 
7,947

Total gross profit percentage
30.7
%
 
30.9
%
 
28.6
%
 
28.8
%
Diagnostic Services gross profit percentage
24.4
%
 
27.7
%
 
22.1
%
 
24.7
%
Diagnostic Imaging gross profit percentage
53.5
%
 
42.2
%
 
51.0
%
 
41.7
%
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Marketing and sales
1,268

 
1,245

 
2,478

 
2,340

General and administrative
2,203

 
2,193

 
4,371

 
4,188

Amortization of intangible assets
133

 
104

 
238

 
170

Restructuring charges
—

 
138

 
—

 
579

Total operating expenses
3,604

 
3,680

 
7,087

 
7,277

 
 
 
 
 
 
 
 
Income from operations
1,163

 
825

 
1,328

 
670

 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
Interest and other income, net
11

 
15

 
22

 
32

Interest expense
(12
)
 
(9
)
 
(23
)
 
(17
)
Total other income (expense)
(1
)
 
6

 
(1
)
 
15

 
 
 
 
 
 
 
 
Income before income taxes
1,162

 
831

 
1,327

 
685

Income tax benefit (expense)
(65
)
 
(8
)
 
515

 
(10
)
Net income
$
1,097

 
$
823

 
$
1,842

 
$
675

 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
Basic
$
0.06

 
$
0.04

 
$
0.10

 
$
0.04

Diluted
$
0.06

 
$
0.04

 
$
0.09

 
$
0.04

Dividends declared per common share
$
0.05

 
$
0.05

 
$
0.10

 
$
0.10

 
 
 
 
 
 
 
 
Weighted average shares outstanding – basic
19,263

 
18,554

 
19,036

 
18,536

Weighted average shares outstanding – diluted
19,726

 
18,839

 
19,511

 
18,831

 
 
 
 
 
 
 
 





Digirad Corporation
Condensed Consolidated Balance Sheets
(Unaudited)
 
(in thousands, except share data)
June 30,
2015
 
December 31,
2014
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
14,886

 
$
14,051

Securities available-for-sale
6,780

 
7,935

Accounts receivable, net
7,252

 
5,989

Inventories, net
4,016

 
3,644

Other current assets
668

 
856

Restricted cash
233

 
477

 Total current assets
33,835

 
32,952

 
 
 
 
Property and equipment, net
6,034

 
4,766

Intangible assets, net
3,346

 
2,577

Goodwill
2,897

 
1,337

Other assets
312

 
269

Total assets
$
46,424

 
$
41,901

 
 
 
 
Liabilities and stockholders’ equity
 
 
 
Accounts payable
$
2,752

 
$
1,423

Accrued compensation
2,343

 
3,261

Accrued warranty
166

 
176

Deferred revenue
1,613

 
1,644

Other accrued liabilities
2,429

 
1,789

Total current liabilities
9,303

 
8,293

Other liabilities
1,114

 
963

Total liabilities
10,417

 
9,256

 
 
 
 
Stockholders’ equity:
 
 
 
Preferred stock
—

 
—

Common stock
2

 
2

Treasury stock
(5,728
)
 
(5,728
)
Additional paid-in capital
155,276

 
153,769

Accumulated other comprehensive loss
(6
)
 
(19
)
Accumulated deficit
(113,537
)
 
(115,379
)
Total stockholders’ equity
36,007

 
32,645

Total liabilities and stockholders’ equity
$
46,424

 
$
41,901








Digirad Corporation
Reconciliation of Non-GAAP Financial Measures
(Unaudited)
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands, except per share amounts)
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
Net income
 
$
1,097

 
$
823

 
$
1,842

 
$
675

 
Restructuring charges(1)
 
—

 
138

 
—

 
579

 
Acquired intangible amortization
 
130

 
102

 
233

 
165

 
Acquisition related contingent consideration valuation adjustment(4)
 
(173
)
 
—

 
(173
)
 
—

 
Income tax items(2)
 
45

 
(2
)
 
(542
)
 
(6
)
Non-GAAP Adjusted net income
 
$
1,099

 
$
1,061

 
$
1,360

 
$
1,413

 
 
 
 
 
 
 
 
 
 
Net income per share - diluted
 
$
0.06

 
$
0.04

 
$
0.09

 
$
0.04

 
Restructuring charges(1)(3)
 
—

 
0.01

 
—

 
0.03

 
Acquired intangible amortization(3)
 
0.01

 
0.01

 
0.01

 
0.01

 
Acquisition related contingent consideration valuation adjustment(3)(4)

 
(0.01
)
 
—

 
(0.01
)
 
—

 
Income tax items(2)(3)
 
—

 
—

 
(0.03
)
 
—

Non-GAAP Adjusted net income per share - diluted(3)
 
$
0.06

 
$
0.06

 
$
0.07

 
$
0.08

 
 
 
 
 
 
 
 
 
 

 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands)
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
Net income
 
$
1,097

 
$
823

 
$
1,842

 
$
675

 
Restructuring charges(1)
 
—

 
138

 
—

 
579

 
Acquisition related contingent consideration valuation adjustment(4)

 
(173
)
 
—

 
(173
)
 
—

 
Depreciation and amortization
 
598

 
485

 
1,086

 
938

 
Stock-based compensation
 
141

 
61

 
285

 
111

 
Interest and other income, net
 
(11
)
 
(15
)
 
(22
)
 
(32
)
 
Interest expense
 
12

 
9

 
23

 
17

 
Income tax expense (benefit)
 
65

 
8

 
(515
)
 
10

Non-GAAP Adjusted EBITDA
 
$
1,729

 
$
1,509

 
$
2,526

 
$
2,298

 
 
 
 
 
 
 
 
 
 

(1) Reflects nonrecurring charges primarily related to the lease termination of the Poway, CA facility.
(2) Reflects income tax effect for adjusted financial data and acquisition related income tax adjustments.
(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.
(4) Reflects fair value adjustment to estimate of contingent consideration related to acquisitions





Digirad Corporation
Reconciliation of Non-GAAP Financial Measures
(Unaudited)
 
 
 
Three Months Ended
(in thousands, except per share amounts)
 
June 30, 2014
 
September 30, 2014
 
December 31, 2014
 
March 31, 2015
 
June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
$
823

 
$
1,028

 
772

 
745

 
$
1,097

 
Restructuring charges(1)
 
138

 
80

 
33

 
—

 
—

 
Acquired intangible amortization
 
102

 
90

 
90

 
103

 
130

 
Acquisition related contingent consideration valuation adjustment(4)
 
—

 
—

 
—

 
—

 
(173
)
 
Income tax items(2)
 
(2
)
 
(1
)
 
(3
)
 
(587
)
 
45

Non-GAAP Adjusted net income
 
$
1,061

 
$
1,197

 
$
892

 
$
261

 
$
1,099

 
 
 
 
 
 
 
 
 
 
 
 
Net income per share - diluted(3)
 
$
0.04

 
$
0.05

 
0.04

 
0.04

 
$
0.06

 
Restructuring charges(1)(3)
 
0.01

 
—

 
—

 
—

 
—

 
Acquired intangible amortization(3)
 
0.01

 
—

 
—

 
0.01

 
0.01

 
Acquisition related contingent consideration valuation adjustment(3)(4)
 
—

 
—

 
—

 
—

 
(0.01
)
 
Income tax items(2)(3)
 
—

 
—

 
—

 
(0.03
)
 
—

Non-GAAP Adjusted net income per share - diluted(3)
 
$
0.06

 
$
0.06

 
$
0.05

 
$
0.01

 
$
0.06

 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
Three Months Ended
(in thousands)
 
June 30, 2014
 
September 30, 2014
 
December 31, 2014
 
March 31, 2015
 
June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
$
823

 
$
1,028

 
$
772

 
$
745

 
$
1,097

 
Restructuring charges(1)
 
138

 
80

 
33

 
—

 
—

 
Acquisition related contingent consideration valuation adjustment(4)
 
—

 
—

 
—

 
—

 
(173
)
 
Depreciation and amortization
 
485

 
497

 
494

 
488

 
598

 
Stock-based compensation
 
61

 
96

 
119

 
144

 
141

 
Interest and other income, net
 
(15
)
 
(14
)
 
(12
)
 
(11
)
 
(11
)
 
Interest expense
 
9

 
10

 
12

 
11

 
12

 
Income tax expense (benefit)
 
8

 
8

 
44

 
(580
)
 
65

Non-GAAP Adjusted EBITDA
 
$
1,509

 
$
1,705

 
$
1,462

 
$
797

 
$
1,729

 
 
 
 
 
 
 
 
 
 
 
 

(1) Reflects nonrecurring charges primarily related to restructuring of the Diagnostic Imaging reporting segment and lease termination of the Poway, CA facility.
(2) Reflects income tax effect for adjusted financial data and acquisition related income tax adjustments.
(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.
(4) Reflects fair value adjustment to estimate of contingent consideration related to acquisitions






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 August 7, 2015 announcing results for the three and six months ended June 30, 2015 that accompanied a conference call held by the Company on August 7, 2015. 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,” “adjusted net income per diluted share,” and “adjusted EBITDA.” 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 charges associated with restructuring activities, acquired intangible asset amortization, acquisition-related income tax adjustments, or acquisition related contingent consideration 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 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,” and “net income per diluted share” (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.





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