Digirad Corporation (NASDAQ:DRAD), a leading provider of
cardiovascular imaging services and solid-state nuclear medicine
imaging products to physician offices, hospitals and imaging
centers, today announced financial results for the second quarter
and first half of 2006 that exceeded management's previous
expectations, and increased revenue and earnings guidance for the
year. Chief Executive Officer Mark Casner said, "Digirad's second
quarter performance was highlighted by a 23.0% increase in
consolidated revenues, higher gross margin, and a sharply reduced
loss compared to the second quarter of 2005. We are reaching the
aggressive goals we set for ourselves, as our hard work has
improved our control of the business and is helping us move the
company forward. "Our team is effectively executing the many
initiatives we have implemented to improve operational
efficiencies, reduce costs and enhance margins. Recent examples
include a new pricing structure in DIS that better reflects peak
demand by our mobile imaging customers and drive times for our DIS
personnel, and a vendor volume discount program and related
cost-saving initiatives which we expect to contribute to improved
operating margins beginning in the third quarter. We are encouraged
by the increase in the productivity of our sales force, but we
believe we can do better and we are working to secure further
improvements. We also are pleased with the efficiency and cost
reduction improvements in our product business, which contributed
to a second quarter gross margin of 39.8%. "Demand for our DIS
leasing service increased in the second quarter compared to the
prior year. In addition, product sales more than doubled in the
second quarter compared to last year's depressed pace, a tribute to
the gains we are achieving in all aspects of this business. In view
of the reported weakness in industry-wide shipments of nuclear
imaging cameras during the period, the increase in Digirad's market
share is a particularly noteworthy accomplishment. "With the launch
last month of our new Cardius(R) 3 XPO, we also delivered on our
promise to begin releasing significant enhancements to our advanced
Cardius 3 imaging system for nuclear cardiology by mid-2006.
Featuring high-definition solid-state (HDSD) digital detector
technology, the Cardius 3 XPO offers a more comfortable experience
for the patient, rapid throughput and improved reliability and
superb image quality for the physician-user, all while continuing
to provide up to 38% faster image acquisition times than
conventional dual-head systems. We plan to accelerate the upgrading
of our DIS fleet to the mobile version of the Cardius 3 XPO system
in the second half of this year, and as a result have decided to
delay the launch of ultrasound services in DIS until next year.
"Overall, we are pleased by our progress during the second quarter
toward our goal of sustainable revenue and profit growth. We remain
focused on effectively executing our plans in the months ahead."
Mr. Casner also announced that Peter Sullivan, president of
Digirad's product segment, will be leaving the company to pursue
other opportunities. Second Quarter Results For the three months
ended June 30, 2006, consolidated revenues increased 23.0% to $19.0
million compared to $15.5 million for the second quarter of 2005.
DIS revenue increased to $13.4 million for this year's second
quarter, which included stress agent revenue of approximately
$854,000. This compares to DIS revenue for the second quarter of
2005 of $13.2 million, which included stress agent revenue of
approximately $1.1 million. DIS service days for the second quarter
of 2006 were 3,530 compared to 3,612 for the same period last year.
Despite the decline in service days, revenue per day in the second
quarter of 2006 increased to $3,797 compared to $3,664 in the prior
year period. As previously announced, DIS stopped providing certain
stress agents used in a portion of imaging procedures beginning in
June. Instead, DIS' physician customers now provide these agents.
Management estimates that this change reduced DIS revenue in the
second quarter by approximately $325,000 compared to what it
otherwise would have been under the original delivery model. "We
believe the overall impact will be to reduce DIS revenue by about
$2.6 million for 2006 as a whole, and to increase DIS gross margin
by 50 to 100 basis points with little to no impact on DIS net
earnings," Mr. Casner said. Product segment revenue, which includes
sales of gamma cameras, upgrades, accessories and maintenance
revenue, more than doubled to $5.6 million for the second quarter
of 2006 versus the depressed result of $2.2 million for the second
quarter of 2005. Consolidated gross margin for the three months
ended June 30, 2006, increased to 29.8% from 22.1% for the second
quarter of 2005, and increased sequentially compared to 23.2% for
the first quarter of 2006. DIS gross margin was 25.6% for this
year's second quarter compared to 30.2% for the second quarter of
2005 and 21.1% for the first quarter of 2006. In addition to the
effect of eliminating the provision of stress agents, the
sequential increase in DIS gross margin reflected improved staff
efficiency and lower depreciation expense versus the immediately
preceding quarter. Product segment gross margin improved to 39.8%
for the second quarter of 2006 versus a negative gross margin of
(26.1%) for last year's second quarter, and improved sequentially
compared to gross margin of 28.0% for the first quarter of 2006,
reflecting higher sales volume as well as operational efficiencies
and lower camera maintenance costs stemming from improved product
reliability. The net loss for the second quarter of 2006 was $1.2
million, or $0.06 per share, including stock-based compensation
expense of $574,000. This compares to a net loss of $3.0 million,
or $0.17 per share, for the second quarter of 2005, which included
stock-based compensation expense of $130,000 and to a net loss for
the first quarter of 2006 of $2.8 million, or $0.15 per share,
including stock-based compensation expense of $471,000. Cash and
equivalents and securities available for sale at June 30, 2006,
were $46.7 million compared to $49.5 million at December 31, 2005.
Net receivables were $7.5 million at June 30, 2006, compared to
$8.1 million at December 31, 2005. Net inventories were $5.2
million at June 30, 2006, compared to $5.1 million at December 31,
2005. First Half Results For the six months ended June 30, 2006,
consolidated revenues increased 13.6% to $38.0 million compared to
$33.4 million for the first six months of 2005. DIS revenue
increased 4.1% to $26.6 million from $25.6 million during the same
period last year. Product revenue increased 44.3% to $11.4 million
from $7.9 million. Overall gross margin for this year's first half
improved to 26.5% versus 25.6% for the same period last year. The
net loss for the first six months of 2006 was $4.0 million, or
$0.21 per share, which includes stock-based compensation expense of
$1.0 million. This compares to a net loss for the first six months
of 2005 of $4.0 million, or $0.22 per share, including stock-based
compensation expense of $308,000. Third Quarter and 2006 Guidance
Mr. Casner added, "Looking into the third quarter, typically our
seasonally weakest quarter of the year, we currently expect DIS
revenue in the range of $11.6 million to $11.8 million, including
the impact of the change in the delivery of stress agents. We
expect product revenue between $5.3 million and $5.9 million, and
consolidated revenues between $16.9 million and $17.7 million. We
anticipate a consolidated loss for the third quarter between $2.0
million and $3.0 million, including estimated stock-based
compensation expense of $500,000. "For 2006 as a whole, we are
increasing our guidance for consolidated revenues to a new range of
$72.0 million and $74.5 million, consisting of DIS revenue between
$50.0 million and $51.0 million (including the impact of the stress
agent delivery change) and product revenue between $22.0 million
and $23.5 million. We currently expect the consolidated loss for
2006 to be between $7.0 million and $9.0 million, including
estimated stock-based compensation expense of $2.0 million."
Previously, management had anticipated consolidated revenues for
2006 to be between $70.0 million and $74.0 million, consisting of
DIS revenue between $49.0 million and $51.0 million (including the
impact of the stress agent delivery change) and product revenue
between $21.0 million and $23.0 million, and a consolidated loss
between $10.6 million and $12.6 million, including the estimated
stock-based compensation expense of $2.6 million. Conference Call
Digirad has scheduled a conference call at 11:00 a.m. ET today. A
simultaneous web cast of the call may be accessed at the Investor
Relations page of www.digirad.com. A replay will be available for
one year at this same Internet address. A telephone replay will be
available for 48 hours after the call by dialing 800-642-1687,
reservation #2202999. About Digirad Digirad Corporation develops,
manufactures and markets solid-state, digital gamma cameras to
hospitals, imaging centers and physician offices. Digirad offers a
comprehensive line of solid-state nuclear gamma cameras that
produce high-quality images for use in the detection of many
medical conditions, including cardiovascular disease. Digirad's
cameras are unique as their lightweight and compact design allows
them to fit easily into small office spaces. Digirad's wholly owned
subsidiaries Digirad Imaging Solutions and Digirad Imaging Systems
offer a comprehensive, mobile imaging leasing and services program
for physicians who wish to perform in-office nuclear cardiology
procedures but do not have the patient volume, capital or resources
to justify purchasing a gamma camera. For more information, please
visit www.digirad.com. Digirad(R), Digirad Imaging Solutions(R),
and Cardius(R) are registered trademarks of Digirad Corporation.
Forward-Looking Statements Digirad cautions that statements
included in this press release that are not a description of
historical facts are forward-looking statements. You can identify
these statements by the fact that they do not relate strictly to
historical or current facts and use words such as "anticipate,"
"estimate," "expect," "project," "intend," "plan," "believe" and
other words and terms of similar meaning in connection with a
discussion of future operating or financial performance or events.
Examples of such statements include the statements regarding our
plans to upgrade our DIS fleet to the mobile version of the Cardius
3 XPO system in the second half of this year and to delay the
launch of ultrasound services in DIS until next year, and
statements regarding the expected financial impact of our decision
to discontinue offering stress agents and, in general, our
anticipated financial results for the third quarter of 2006 and
2006 fiscal year. The inclusion of these and other forward-looking
statements should not be regarded as a representation by Digirad
that any of its plans will be achieved. Actual results may differ
materially from those set forth in this press release due to the
risks and uncertainties inherent in Digirad's business, including,
without limitation: the degree to which personnel changes and
related disruptions in our business activities may affect Digirad's
products, customers, work force, suppliers, and our overall
business prospects and operations; the degree to which Digirad's
camera systems and related services will be accepted by physicians
and hospitals, some of whom may experience reliability issues or
technical problems; the ability of Digirad to effectively market,
sell and distribute its medical devices, and related services given
its limited capabilities in these areas; Digirad's ability to
manage risks relating to product liability, warranty claims,
recalls, property damage and personal injury with respect to its
imaging systems; and other risks detailed in Digirad's Securities
and Exchange Commission filings, including its Annual Report on
Form 10-K and other reports filed with the Securities and Exchange
Commission. Given these uncertainties, readers are cautioned not to
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 this press
release, including the forward-looking statements contained herein,
to reflect events or circumstances after the date hereof or to
update the reasons actual results could differ materially from
those anticipated in these forward-looking statements, even if new
information becomes available in the future. -0- *T Digirad
Corporation Condensed Consolidated Statements of Operations (In
thousands, except per share amounts) (Unaudited) Three Months Six
Months Ended Ended June 30, June 30,
----------------------------------- 2006 2005 2006 2005 --------
-------- -------- -------- Revenues: DIS $13,403 $13,240 $26,620
$25,562 Product 5,619 2,222 11,357 7,870 -------- -------- --------
-------- Total revenues 19,022 15,462 37,977 33,432 Cost of
revenues: DIS 9,967 9,248 20,399 17,907 Product 3,383 2,803 7,513
6,957 -------- -------- -------- -------- Total cost of revenues
13,350 12,051 27,912 24,864 -------- -------- -------- --------
Gross profit 5,672 3,411 10,065 8,568 Operating expenses: Research
and development 1,117 931 2,213 1,853 Sales and marketing 2,066
1,696 4,525 3,735 General and administrative 4,105 4,108 8,234
7,513 Amortization and impairment of intangible assets 20 18 29 34
-------- -------- -------- -------- Total operating expenses 7,308
6,753 15,001 13,135 -------- -------- -------- -------- Loss from
operations (1,636) (3,342) (4,936) (4,567) Interest and other, net
433 301 929 545 -------- -------- -------- -------- Net loss
$(1,203) $(3,041) $(4,007) $(4,022) -------- -------- --------
-------- Net loss per share - basic and diluted $(0.06) $(0.17)
$(0.21) $(0.22) -------- -------- -------- -------- Weighted
average shares outstanding: Basic and diluted 18,761 18,367 18,736
18,237 -------- -------- -------- -------- Stock-based compensation
expense is included in the above as follows: Cost of DIS revenue
$71 $27 $91 $61 Cost of Product revenue $23 $11 $41 $36 Research
and development $47 $18 $89 $40 Sales and marketing $74 $11 $149
$32 General and administrative $359 $63 $675 $139 Digirad
Corporation Condensed Consolidated Balance Sheets (in thousands)
June 30, December 31, 2006 2005(1) --------------- ---------------
(Unaudited) Assets Cash and cash equivalents $15,124 $16,303
Securities available-for-sale 31,601 33,202 Accounts receivable,
net 7,450 8,132 Inventories, net 5,193 5,136 Other current assets
1,698 1,687 --------------- --------------- Total current assets
61,066 64,460 Property and equipment, net 9,322 9,582 Intangibles,
net 446 402 Restricted cash 60 60 --------------- ---------------
Total assets $70,894 $74,504 --------------- ---------------
Liabilities and stockholders' equity Accounts payable $2,737 $2,152
Accrued compensation 3,083 2,585 Accrued warranty 789 825 Other
accrued liabilities 3,687 4,614 Deferred revenue 2,663 2,858
Current portion of long-term debt 414 766 ---------------
--------------- Total current liabilities 13,373 13,800 Long-term
debt, net of current portion 229 368 Deferred rent 325 348 Total
stockholders' equity 56,967 59,988 --------------- ---------------
Total liabilities and stockholders' equity $70,894 $74,504
=============== =============== (1) The condensed consolidated
balance sheet as of December 31, 2005, has been derived from the
audited financial statements as of that date. *T
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