Digirad Corporation (Nasdaq: DRAD) reported today its financial
results for the first quarter ended March 31, 2019.
Total revenues from continuing operations for
the first quarter were $23.9 million, compared to $25.5 million in
the first quarter of the prior year.
Net loss from continuing operations for the
first quarter was $1.7 million, or $0.08 net loss per diluted
share, compared to net loss from continuing operations of $1.4
million, or $0.07 net loss per diluted share in the same period in
the prior year. Non-GAAP adjusted net loss from continuing
operations for the first quarter was $1.0 million, or $0.05 per
diluted share, compared to adjusted net loss of $1.4 million, or
$0.07 per diluted share in the same period in the prior year.
Operating cash flow for the first quarter was an
outflow of $2.2 million, compared to an inflow of $0.4 million for
the same period in the prior year. Non-GAAP adjusted EBITDA from
continuing operations for the first quarter was $0.8 million,
compared to $1.0 million in the same period in the prior year.
Non-GAAP free cash flow was an outflow of $2.3 million for the
first quarter, compared to an inflow of $0.3 million in the same
period in the prior year.
Digirad President and CEO Matt Molchan said,
“The first quarter of 2019 was within our expectations for revenue
and adjusted EBITDA. Our Diagnostic Imaging Solutions (DIS)
division performed well during the quarter with revenue growth of
7.0% year over year, outperforming our expectations for revenue and
adjusted EBITDA. Our Mobile Healthcare division was met with
extreme weather conditions throughout most of the first quarter,
which led to less available scanning days and a decrease in
expected revenue and adjusted EBITDA. Our Diagnostic Imaging
division met our expectations for both revenue and adjusted EBITDA
in the quarter. In terms of financing, we entered into a new
asset-based loan agreement with Sterling National Bank (SNB) for
$20 million. We used the proceeds from the SNB loan to refinance
and terminate our agreement with Comerica Bank.”
Significant progress was made towards the
formation of “HoldCo”, Digirad’s go-forward strategy previously
announced on September 10th, 2018. A new subsidiary of Digirad -
Star Real Estate Holdings USA (SRE) was created. This new division
will manage the real estate assets of Digirad and the future
“HoldCo” diversified holding company. SRE has already purchased 3
modular building factories and established positive cash flow lease
backs for these facilities. Additionally, Digirad’s fourth and the
final Fargo office building was recently sold for $750 thousand.
The other three buildings were sold last year. The total sales
price for all the Fargo properties was $1.7 million. As previously
stated, HoldCo, once it is fully functional, expects to make
high-return internal investments as well as look for attractive
acquisition opportunities in addition to repurchasing shares. Share
repurchases will be evaluated against organic growth investments
and acquisitions, and the Company expects to continually allocate
capital to maximize shareholder value.
Finally, Digirad Corporation has approximately
$83.7 million of usable net operating losses (“NOL”) in the U.S.,
which the Company considers to be a very valuable asset for its
stockholders. Protecting the value of this NOL asset limits
the amount of stock than can be repurchased over a given time
period. In order to protect the value of the NOL for all
stockholders, the Company has a charter amendment in place that
limits beneficial ownership of Digirad common stock to
4.99%. Stockholders who wish to own more than 4.99% of Digirad
common stock, or who already own more than 4.99% of Digirad common
stock and wish to buy more, may only acquire additional Shares with
the Board’s prior written approval.
If you have any questions, either prior to or
after our scheduled Earnings Conference call, please e-mail
ir@digirad.com.
2019 Financial Guidance
The Company announced its financial guidance for
2019, which is to generate revenues from continuing operations of
between $95 million and $100 million, non-GAAP adjusted EBITDA
between $5.5 million and $6.5 million and free cash flow between $3
million and $4 million.
Update on Proposed Preferred
Offering
Digirad filed a prospectus and registration
statement with the Securities and Exchange Commission (the initial
filing on March 12, 2019, as amended on April 9, 2019, the
“Prospectus”). Digirad continues to explore all options regarding
selling shares of preferred stock, including a sale limited to one
or several institutional investors in a private transaction.
However, it is unlikely that Digirad will proceed with its proposed
offering of nonconvertible preferred stock on substantially the
terms described in the Prospectus. Digirad is continuing to
speak with potential investors regarding potential investment,
which may be on terms similar to what was described in the
Prospectus or other terms, whether it is through a public or
private transaction, although there can be no assurance that a
transaction will close on these or any other terms.
Conference Call Information
A conference call is scheduled for 11:00 a.m.
EDT on May 3, 2019 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://ir.digirad.com/events-presentations; 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 (loss),” “adjusted net
income (loss) per diluted share,” “free cash flow”, 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 acquired intangible asset amortization, acquisition
related contingent consideration adjustments, unrealized gain
(loss) on available-for-sale securities, 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 May 3, 2019.
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
healthcare solutions and diagnostic imaging equipment and services,
provides hospitals, physician practices, and imaging centers
through 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 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
CorporationCondensed Consolidated Statements of
Operations(Unaudited)(In
thousands, except for per share amounts)
|
|
Three Months Ended March
31, |
|
|
|
|
2019 |
|
2018 |
Revenues: |
|
|
|
|
Services |
|
$ |
21,389 |
|
|
$ |
22,623 |
|
Product
and product-related |
|
2,523 |
|
|
2,842 |
|
Total
revenues |
|
23,912 |
|
|
25,465 |
|
Cost of revenues: |
|
|
|
|
Services |
|
18,194 |
|
|
19,261 |
|
Product
and product-related |
|
1,737 |
|
|
1,597 |
|
Total
cost of revenues |
|
19,931 |
|
|
20,858 |
|
Gross profit |
|
3,981 |
|
|
4,607 |
|
Total gross profit percentage |
|
16.6 |
% |
|
18.1 |
% |
Services gross profit percentage |
|
14.9 |
% |
|
14.9 |
% |
Product and product-related gross profit
percentage |
|
31.2 |
% |
|
43.8 |
% |
Operating
expenses: |
|
|
|
|
Marketing
and sales |
|
1,143 |
|
|
1,467 |
|
General
and administrative |
|
3,690 |
|
|
4,392 |
|
Amortization of intangible assets |
|
283 |
|
|
357 |
|
Total
operating expenses |
|
5,116 |
|
|
6,216 |
|
Loss from
operations |
|
(1,135 |
) |
|
(1,609 |
) |
Other expense: |
|
|
|
|
Other
expense, net |
|
(198 |
) |
|
(17 |
) |
Interest
expense, net |
|
(181 |
) |
|
(217 |
) |
Loss on
extinguishment of debt |
|
(151 |
) |
|
— |
|
Total other
expense |
|
(530 |
) |
|
(234 |
) |
Loss before income
taxes |
|
(1,665 |
) |
|
(1,843 |
) |
Income
tax benefit |
|
8 |
|
|
455 |
|
Net loss
from continuing operations |
|
(1,657 |
) |
|
(1,388 |
) |
Net
income from discontinued operations |
|
— |
|
|
5,494 |
|
Net (loss) income |
|
$ |
(1,657 |
) |
|
$ |
4,106 |
|
|
|
|
|
|
Net (loss) income per
share - basic and diluted |
|
|
|
|
Continuing
operations |
|
$ |
(0.08 |
) |
|
$ |
(0.07 |
) |
Discontinued
operations |
|
— |
|
|
0.27 |
|
Net (loss) income per
share - basic and diluted |
|
$ |
(0.08 |
) |
|
$ |
0.20 |
|
Dividends declared per
common share |
|
$ |
— |
|
|
$ |
0.055 |
|
Weighted average shares
outstanding – basic and diluted |
|
20,278 |
|
|
20,092 |
|
|
|
|
|
|
Net (loss) income |
|
$ |
(1,657 |
) |
|
$ |
4,106 |
|
Other comprehensive
income (loss): |
|
|
|
|
Reclassification of tax provision impact |
|
22 |
|
|
— |
|
Reclassification of unrealized gains on equity securities to
retained earnings |
|
— |
|
|
(17 |
) |
Total
other comprehensive income (loss) |
|
22 |
|
|
(17 |
) |
Comprehensive (loss)
income |
|
$ |
(1,635 |
) |
|
$ |
4,089 |
|
Digirad
CorporationCondensed Consolidated Balance
Sheets(Unaudited)(In
thousands)
|
|
March 31,2019 |
|
December 31,2018 |
Assets: |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash
equivalents |
|
$ |
797 |
|
|
$ |
1,545 |
|
Equity
securities |
|
17 |
|
|
153 |
|
Accounts
receivable, net |
|
13,361 |
|
|
12,642 |
|
Inventories,
net |
|
5,483 |
|
|
5,402 |
|
Restricted
cash |
|
168 |
|
|
167 |
|
Other
current assets |
|
1,522 |
|
|
1,285 |
|
Total
current assets |
|
21,348 |
|
|
21,194 |
|
Property and equipment,
net |
|
20,575 |
|
|
21,645 |
|
Operating lease
right-of-use assets |
|
3,681 |
|
|
— |
|
Intangible assets,
net |
|
4,944 |
|
|
5,228 |
|
Goodwill |
|
1,745 |
|
|
1,745 |
|
Restricted cash |
|
101 |
|
|
101 |
|
Deferred tax assets |
|
16 |
|
|
— |
|
Other assets |
|
2,183 |
|
|
681 |
|
Total
assets |
|
$ |
54,593 |
|
|
$ |
50,594 |
|
|
|
|
|
|
Liabilities: |
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts
payable |
|
$ |
4,808 |
|
|
$ |
5,206 |
|
Accrued
compensation |
|
3,246 |
|
|
3,862 |
|
Accrued
warranty |
|
230 |
|
|
197 |
|
Deferred
revenue |
|
1,414 |
|
|
1,687 |
|
Operating
lease liabilities, current portion |
|
1,251 |
|
|
— |
|
Other
current liabilities |
|
2,474 |
|
|
2,265 |
|
Total
current liabilities |
|
13,423 |
|
|
13,217 |
|
Long-term debt |
|
12,517 |
|
|
9,500 |
|
Deferred tax
liabilities |
|
121 |
|
|
121 |
|
Operating lease
liabilities, net of current portion |
|
2,564 |
|
|
— |
|
Other liabilities |
|
1,715 |
|
|
1,956 |
|
Total
liabilities |
|
30,340 |
|
|
24,794 |
|
|
|
|
|
|
Stockholders’
equity: |
|
|
|
|
Preferred stock, $0.0001
par value: 10,000,000 shares authorized; no shares issued or
outstanding |
|
— |
|
|
— |
|
Common stock, $0.0001 par
value: 80,000,000 shares authorized; 20,309,908 and 20,249,786
shares issued and outstanding (net of treasury shares) at
March 31, 2019 and December 31, 2018, respectively |
|
2 |
|
|
2 |
|
Treasury stock, at cost;
2,588,484 shares at March 31, 2019 and December 31, 2018 |
|
(5,728 |
) |
|
(5,728 |
) |
Additional paid-in
capital |
|
145,516 |
|
|
145,428 |
|
Accumulated other
comprehensive loss |
|
— |
|
|
(22 |
) |
Accumulated deficit |
|
(115,537 |
) |
|
(113,880 |
) |
Total
stockholders’ equity |
|
24,253 |
|
|
25,800 |
|
Total
liabilities and stockholders’ equity |
|
$ |
54,593 |
|
|
$ |
50,594 |
|
Digirad
CorporationReconciliation of Non-GAAP Financial
Measures(Unaudited)(In
thousands)
|
|
Three Months Ended March
31, |
|
|
2019 |
|
2018 |
|
|
|
|
|
Net loss from
continuing operations |
|
$ |
(1,657 |
) |
|
$ |
(1,388 |
) |
Acquired
intangible amortization |
|
283 |
|
|
357 |
|
Unrealized (gain) loss on equity securities (1) |
|
(28 |
) |
|
17 |
|
Restructuring costs (2) |
|
— |
|
|
97 |
|
Loss on
extinguishment of debt |
|
151 |
|
|
— |
|
Transaction Cost (3) |
|
230 |
|
|
— |
|
Income
tax benefit |
|
(8 |
) |
|
(455 |
) |
Non-GAAP
adjusted net loss from continuing operations |
|
$ |
(1,029 |
) |
|
$ |
(1,372 |
) |
|
|
|
|
|
Net loss per
diluted share from continuing operations |
|
$ |
(0.08 |
) |
|
$ |
(0.07 |
) |
Acquired
intangible amortization |
|
0.01 |
|
|
0.02 |
|
Unrealized (gain) loss on equity securities (1) |
|
— |
|
|
— |
|
Restructuring costs (2) |
|
— |
|
|
— |
|
Loss on
extinguishment of debt |
|
0.01 |
|
|
— |
|
Transaction Cost (3) |
|
0.01 |
|
|
— |
|
Income
tax benefit |
|
— |
|
|
(0.02 |
) |
Non-GAAP
adjusted net loss per basic and diluted share from continuing
operations (4) |
|
$ |
(0.05 |
) |
|
$ |
(0.07 |
) |
Digirad
CorporationReconciliation of Non-GAAP Financial
Measures(Unaudited)(In
thousands)
|
|
Three Months Ended March
31, |
|
|
2019 |
|
2018 |
Net loss from
continuing operations |
|
$ |
(1,657 |
) |
|
$ |
(1,388 |
) |
Unrealized (gain) loss on equity securities (1) |
|
(28 |
) |
|
17 |
|
Restructuring costs (2) |
|
— |
|
|
97 |
|
Loss on
extinguishment of debt |
|
151 |
|
|
— |
|
Depreciation and amortization |
|
1,809 |
|
|
2,265 |
|
Stock-based compensation |
|
112 |
|
|
201 |
|
Interest
expense, net |
|
181 |
|
|
217 |
|
Transaction cost (3) |
|
230 |
|
|
— |
|
Income
tax benefit |
|
(8 |
) |
|
(455 |
) |
Non-GAAP
adjusted EBITDA from continuing operations |
|
$ |
790 |
|
|
$ |
954 |
|
(1) Reflects change in fair value of investments
in equity securities.
(2) Reflects severance related costs.
(3) Reflects legal and other costs related to
the proposed ATRM merger and HoldCo establishment.
(4) 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
CorporationReconciliation of Operating Cash Flow
to Free Cash Flow(Unaudited)(In
thousands)
|
|
Three Months Ended March
31, |
|
|
2019 |
|
2018 |
Net cash (used
in) provided by operating activities |
|
$ |
(2,185 |
) |
|
$ |
420 |
|
Purchases of property
and equipment, net of dispositions |
|
(130 |
) |
|
(161 |
) |
Free cash
flow |
|
$ |
(2,315 |
) |
|
$ |
259 |
|
Digirad
CorporationSupplemental Debt
Information(Unaudited)(In
thousands)
The following table reflects outstanding principal balances and
interest rates for the Company’s debt at March 31, 2019 and
December 31, 2018:
|
|
March 31, 2019 |
|
December 31, 2018 |
|
|
Amount |
|
InterestRate |
|
Amount |
|
InterestRate |
Revolving Credit
Facility - SNB (1) |
|
$ |
12,517 |
|
|
5.00 |
% |
|
$ |
— |
|
|
— |
% |
Revolving Credit
Facility - Comerica (2) |
|
$ |
— |
|
|
— |
% |
|
$ |
9,500 |
|
|
4.87 |
% |
(1) Entered
into with Sterling National Bank in March 2019. The agreement
consists of a revolving credit facility with a five-year term,
maturing in March 2024.
(2) Entered
into with Comerica Bank in June 2017, which was subsequently
amended on January 30, 2018 and September 30, 2018. The Company
used a portion of the financing made available under the SNB Credit
Facility to refinance and terminate, effective as of March 29,
2019, its credit facility with Comerica Bank.
Digirad
CorporationSupplemental Segment
Information(Unaudited)(In
thousands)
|
|
Three Months Ended March
31, |
|
|
2019 |
|
2018 |
Revenue by segment: |
|
|
|
|
Diagnostic Services |
|
$ |
11,726 |
|
|
$ |
12,025 |
|
Diagnostic
Imaging |
|
2,523 |
|
|
2,842 |
|
Mobile
Healthcare |
|
9,663 |
|
|
10,598 |
|
Consolidated revenue |
|
$ |
23,912 |
|
|
$ |
25,465 |
|
Gross profit by
segment: |
|
|
|
|
Diagnostic
Services |
|
$ |
2,581 |
|
|
$ |
2,247 |
|
Diagnostic
Imaging |
|
786 |
|
|
1,245 |
|
Mobile
Healthcare |
|
614 |
|
|
1,115 |
|
Consolidated gross
profit |
|
$ |
3,981 |
|
|
$ |
4,607 |
|
Loss from operations by
segment: |
|
|
|
|
Diagnostic
Services |
|
$ |
1,736 |
|
|
$ |
993 |
|
Diagnostic
Imaging |
|
343 |
|
|
619 |
|
Mobile
Healthcare |
|
(623 |
) |
|
(51 |
) |
Unallocated
corporate and other expenses |
|
(2,591 |
) |
|
(3,170 |
) |
Condensed consolidated
loss from operations |
|
$ |
(1,135 |
) |
|
$ |
(1,609 |
) |
Depreciation and
amortization by segment: |
|
|
|
|
Diagnostic
Services |
|
$ |
304 |
|
|
$ |
596 |
|
Diagnostic
Imaging |
|
78 |
|
|
74 |
|
Mobile
Healthcare |
|
1,427 |
|
|
1,592 |
|
Total depreciation and
amortization |
|
$ |
1,809 |
|
|
$ |
2,262 |
|
For more
information contact: |
Jeffrey E.
Eberwein |
Chairman of the Board |
203-489-9501 |
ir@digirad.com |
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