Digirad Corporation Reports Financial Results for the Third Quarter and Nine Months Ended September 30, 2018

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  • Discusses progress on new “HoldCo” strategy
  • Announces sale of Telerhythmics business
  • Approves a new Stock Buy Back Plan, replacing Dividends
  • Reaffirms 2018 financial guidance for Revenue and Free Cash Flow and updates its non-GAAP adjusted EBITDA guidance

SUWANEE, Ga., Nov. 02, 2018 — Digirad Corporation (Nasdaq: DRAD) today reported its financial results for the third quarter and nine months ended September 30, 2018.

Total revenues from continuing operations for the third quarter were $25.7 million, compared to $25.8 million in the third quarter of the prior year.

Net loss from continuing operations for the third quarter was $1.2 million, or $0.06 net loss per diluted share from continuing operations, compared to net loss of $7.3 million or $0.37 net loss per diluted share in the same period in the prior year. Non-GAAP adjusted net loss from continuing operations for the third quarter was $0.6 million, or $0.03 adjusted net loss from continuing operations per diluted share, compared to adjusted net income of $0.1 million, or $0.01 adjusted net income per diluted share in the same period in the prior year.

Non-GAAP adjusted EBITDA from continuing operations for the third quarter was $1.6 million, compared to $2.4 million in the same period in the prior year. Operating cash flow for the third quarter was negative $0.8 million, compared to the prior year’s operating cash flow for the third quarter of $0.6 million. Non-GAAP free cash flow was negative $0.4 million for the third quarter, compared to negative $0.2 million in the same period in the prior year.

Total revenues for the nine months ended September 30, 2018 were $78.3 million, compared to $78.3 million in the same period in the prior year.

Net loss from continuing operations for the nine months ended September 30, 2018 was $2.9 million, or $0.15 net loss per diluted share, compared to net loss of $12.4 million, or $0.62 net loss per diluted share in the same period in the prior year. Non-GAAP adjusted net loss for the nine months ended September 30, 2018 was $1.6 million, or $0.08 adjusted net loss per diluted share, compared to adjusted net loss of $1.7 million, or $0.09 adjusted net loss per diluted share in the same period in the prior year.

Non-GAAP adjusted EBITDA for the nine months ended September 30, 2018 was $5.2 million, compared to $5.6 million in the same period in the prior year. Operating cash flow for the nine months ended September 30, 2018 was $2.2 million, compared to the prior year’s operating cash flow for the first nine months of $4.1 million. Non-GAAP free cash flow was $2.1 million for the nine months ended September 30, 2018, compared to $2.7 million in the same period in the prior year.

Digirad President and CEO Matt Molchan said, “Overall, our business had some challenges during the quarter, which we expect to be temporary in nature. Despite these challenges, we were still able to keep revenue flat on a year over year basis, with Diagnostic Services revenue outperforming over the prior year.  Our Digirad Imaging Solutions (DIS) unit within Diagnostic Services suffered weather related issues due to storms in the southeast but still managed to outperform the prior year quarter by 6%. Mobile Healthcare’s performance in the quarter was impacted by higher than normal equipment and trailer maintenance costs, however interim rental revenue continued to outperform increasing by 24% over the prior year’s quarter.”  Molchan continued, “Camera sales again impacted our revenue generation in Diagnostic Imaging, but a strong September bodes well for a good finish to the year as budgets for hospital systems’ capital expenditures are being funded.”

The proposed merger with ATRM Holdings, Inc. to form “HoldCo”, previously announced on September 10th, 2018 continues to progress with an anticipated closing in the spring of 2019. Additionally, the Company has chosen to eliminate the dividend so that it can instead buy back stock given the attractive valuation of the Company’s current stock price. HoldCo, once it is formed, expects to make high-return internal investments as well as look for attractive acquisition opportunities in addition to repurchasing shares. “Our mission is to grow and maximize value per share over the long-term, and we believe opportunistic share repurchases will better achieve this goal than continuing to pay dividends given our current stock price” said Digirad Chairman Jeff Eberwein. Under the new stock repurchase program, authorized by the Board of Directors, the Company may purchase up to 2 million shares of its common stock, which represents approximately 10% of the current shares outstanding. After completing this repurchase program, the Board will consider authorizing an additional share repurchase plan.

The Company intends to repurchase shares through authorized Rule 10b5-1 plans, open market purchases, privately-negotiated transactions, block purchases or otherwise in accordance with applicable federal securities laws, including Rule 10b-18 of the Securities Exchange Act of 1934, as amended. Share repurchases will be evaluated against organic growth investments and acquisitions, and the Company expects to continually allocate capital to its highest and best use.

In addition, the Company sold its Telerhythmics business to G Medical Innovations USA, Inc. for $1.95 million in cash. This sale will allow the Company to put even more focus on its cash generating imaging businesses and it will allow the Telerhythmics business to merge with a company in G Medical that is focused in the cardiac event monitoring space with exciting new technology on the horizon.  The Company intends to use the proceeds of the deal to further pay down its debt.

2018 Financial Guidance

The Company reaffirms its previously announced fiscal year 2018 financial guidance for revenues from continuing operations between $100 and $105 million and free cash flow between $4 and $5 million. The Company lowers its non-GAAP adjusted EBITDA from between $8.5 and $9.5 million to approximately $7.0 million. The updated guidance is based on adjusting the full year outlook based on the actual performance in the third quarter.

Conference Call Information

A conference call is scheduled for 11:00 a.m. EDT on November 2, 2018 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 https://drad.client.shareholder.com; 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 November 2, 2018.

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.