Form 8-K DIGIRAD CORP For: Oct 30

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October 30, 2015 6:06 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: October 30, 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 October 30, 2015, Digirad Corporation issued a press release announcing financial results for the third quarter and nine months ended September 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 October 30, 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:     October 30, 2015



Exhibit Index

Exhibit No.
 
Description
 
 
 
99.1
 
Press Release of Digirad Corporation dated October 30, 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:
October 30, 2015
Jeffry Keyes
 
Chief Financial Officer
 
858-726-1600
 

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. - October 30, 2015 - 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 Imaging
3,880

 
3,060

 
10,525

 
9,749

Total revenues
15,862

 
13,881

 
45,249

 
41,465

Cost of revenues:
 
 
 
 
 
 
 
Diagnostic Services
9,201

 
8,063

 
26,920

 
23,801

Diagnostic Imaging
1,859

 
1,409

 
5,112

 
5,308

Total cost of revenues
11,060

 
9,472

 
32,032

 
29,109

 
 
 
 
 
 
 
 
Gross profit
4,802

 
4,409

 
13,217

 
12,356

Total gross profit percentage
30.3
%
 
31.8
%
 
29.2
%
 
29.8
%
Diagnostic Services gross profit percentage
23.2
%
 
25.5
%
 
22.5
%
 
25.0
%
Diagnostic Imaging gross profit percentage
52.1
%
 
54.0
%
 
51.4
%
 
45.6
%
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Marketing and sales
1,212

 
1,157

 
3,689

 
3,497

General and administrative
2,508

 
2,047

 
6,880

 
6,235

Amortization of intangible assets
134

 
93

 
372

 
263

Restructuring charges
—

 
80

 
—

 
659

Total operating expenses
3,854

 
3,377

 
10,941

 
10,654

 
 
 
 
 
 
 
 
Income from operations
948

 
1,032

 
2,276

 
1,702

 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
Interest and other income, net
10

 
14

 
32

 
46

Interest expense
(21
)
 
(10
)
 
(44
)
 
(27
)
Total other income (expense)
(11
)
 
4

 
(12
)
 
19

 
 
 
 
 
 
 
 
Income before income taxes
937

 
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 – basic
19,356

 
18,601

 
19,145

 
18,558

Weighted average shares outstanding – diluted
19,798

 
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-sale
5,986

 
7,935

Accounts receivable, net
8,313

 
5,989

Inventories, net
4,325

 
3,644

Other current assets
1,993

 
856

Restricted cash
233

 
477

 Total current assets
34,745

 
32,952

 
 
 
 
Property and equipment, net
6,614

 
4,766

Intangible assets, net
3,213

 
2,577

Goodwill
2,897

 
1,337

Long-term deferred tax assets
16,791

 
—

Other assets
1,298

 
269

Total assets
$
65,558

 
$
41,901

 
 
 
 
Liabilities and stockholders’ equity
 
 
 
Accounts payable
$
2,797

 
$
1,423

Accrued compensation
2,872

 
3,261

Accrued warranty
214

 
176

Deferred revenue
1,478

 
1,644

Other accrued liabilities
2,543

 
1,789

Total current liabilities
9,904

 
8,293

Other liabilities
1,327

 
963

Total liabilities
11,231

 
9,256

 
 
 
 
Stockholders’ equity:
 
 
 
Preferred stock
—

 
—

Common stock
2

 
2

Treasury stock
(5,728
)
 
(5,728
)
Additional paid-in capital
154,472

 
153,769

Accumulated other comprehensive loss
(3
)
 
(19
)
Accumulated deficit
(94,416
)
 
(115,379
)
Total stockholders’ equity
54,327

 
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.







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 October 30, 2015 announcing results for the three and nine months ended September 30, 2015 that accompanied a conference call held by the Company on October 30, 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 contingent consideration adjustments, transaction and integration costs of DMS Health Technologies, 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 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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