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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 (Date of earliest event reported)
February 17, 2006
DIGIRAD CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 000-50789 33-0145723
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(State or other jurisdiction (Commission (IRS
of incorporation) File Number) EmployerIdentification No.)
13950 Stowe Drive
Poway, California 92064
(Address of principal executive offices, including zip code)
(858) 726-1600
(Registrant=s telephone number, including area code)
N/A
(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 (see General Instruction A.2. below):
[ ] 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))
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Item 1.01. Entry into a Material Definitive Agreement
On February 16, 2006, the Board of Directors of Digirad Corporation (the
ACompany@) approved a cash bonus pool for the year ended 2005 of sixty thousand
dollars ($60,000) for six senior executives, including Todd Clyde, the Company=s
Chief Financial Officer and Senior Vice President, Finance, Richard Conwell, the
Company=s Senior Vice President of Technology, and Vera Pardee, the Company=s
General Counsel and Senior Vice President, payable in the amount of ten thousand
dollars ($10,000) each.
Item 2.02. Results of Operations and Financial Condition.
On February 17, 2006, the Company issued a press release announcing
financial results for the quarter and year ended December 31, 2005. A copy of
this press release is attached hereto as Exhibit 99.1.
This information and the exhibits hereto are being furnished and shall not
be deemed to be "filed" for purposes of Section 18 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the
liability of that section, nor shall they be deemed incorporated by reference in
any filing under the Securities Act of 1933, as amended, or the Exchange Act,
except as expressly set forth by specific reference in such a filing.
Item 9.01 Financial Statements and Exhibits.
(c) Exhibits.
Exhibit No. Description
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99.1 Press Release dated February 17, 2006.
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/ Todd P. Clyde
-------------------------------
Todd P. Clyde
Chief Financial Officer
Date: February 17, 2006
Exhibit 99.1
Digirad Reports Fourth Quarter and 2005 Results;
Management Provides First Quarter and 2006 Guidance
POWAY, Calif.--(BUSINESS WIRE)--Feb. 17, 2006--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 fourth quarter and 2005, and provided financial
guidance for the first quarter and 2006.
"Fourth quarter revenues slightly exceeded our expectations,
inventories declined, and our cash position increased compared to the
third quarter. These are encouraging signs," said CEO Mark Casner.
"Revenue and gross margin in our product business increased in the
fourth quarter compared to the third quarter, although, as expected,
growth in DIS, our mobile imaging services business, remained
sluggish. We are optimistic that DIS will regain momentum beginning in
the second half of 2006 as our expanded and refocused sales
organization gains experience and our marketing initiatives gain
traction."
Fourth Quarter Results
For the three months ended December 31, 2005, consolidated
revenues were $17.4 million. This compares to consolidated revenues of
$17.8 million for the fourth quarter of 2004.
DIS revenue increased slightly to $12.0 million from $11.8 million
for the fourth quarter of 2004, but decreased sequentially compared to
$12.6 million for the third quarter of 2005. DIS service days for the
fourth quarter of 2005 were 3,247 compared to 3,256 for the same
period of 2004, reflecting a reduced pace of entering into new service
contracts.
Product segment revenue, which includes sales of gamma cameras,
upgrades, accessories and maintenance revenue, declined to $5.4
million for the fourth quarter of 2005 as compared to $6.0 million for
the fourth quarter of 2004, but increased sequentially compared to
$4.7 million for the third quarter of 2005 and $2.2 million for the
second quarter of 2005.
Consolidated gross margin for the three months ended December 31,
2005 was 18.8% compared to 30.9% for the same period of 2004. DIS
gross margin was 14.8% for the fourth quarter of 2005 compared to
27.6% for the same period of the prior year. DIS gross margin, before
the $1.0 million impact of the change in the depreciable life of the
DIS fleet cameras in the fourth quarter of 2005, was 23.2%. The
decline in adjusted DIS gross margin versus the prior year period
primarily reflected a decline in both staff efficiency and DIS system
utilization. Product segment gross margin was 28.1% for the fourth
quarter of 2005 compared to 0.5% for the third quarter of 2005 and
38.1% for the fourth quarter of 2004. The decline in gross margin
compared to the fourth quarter of 2004 was the result of fewer camera
sales and lower production volumes.
The net loss for the fourth quarter of 2005 was $2.8 million, or
$0.15 per share, including the $1.0 million impact of the change in
the depreciable life of the DIS fleet cameras. This compares to net
income for the fourth quarter of 2004 of $22,000, or $0.00 per diluted
share.
Cash and equivalents and securities available for sale at December
31, 2005 amounted to $49.5 million, versus $48.2 million at September
30, 2005 and $55.6 million at December 31, 2004. Inventories declined
to $5.1 million at December 31, 2005 from $6.5 million at September
30, 2005 and 7.0 million at December 31, 2004.
2005 Results
For the twelve months ended December 31, 2005, consolidated
revenues of $68.2 million were essentially unchanged compared to 2004.
DIS revenue increased 13% to $50.2 million for 2005 from $44.5 million
for 2004. Product revenue declined to $18.0 million from $23.6
million. Overall gross margin for 2005 was 22.4% versus 31.9% for the
prior year.
The net loss for 2005 was $9.6 million, or $0.52 per share. This
compares to net income for 2004 of $245,000, or $0.01 per share, when
calculated on a pro forma basis to account for the conversion of all
preferred stock into common stock in Digirad's initial public
offering.
Business Review
"I believe that Digirad is moving in the right direction," Casner
said. "In 2005 we broadened and deepened our management team and sales
and marketing organization, and identified opportunities for enhancing
our operating platform to increase operational efficiencies, increase
labor utilization and reduce service costs. Although our work is not
yet complete, we made great strides in building the organization we
are striving for, and we believe we are setting the foundation for a
return to sustainable revenue and profit growth.
"A key element of our strategy is to take advantage of the
increased efficiency and potential for higher image quality of our
advanced Cardius(R)-3 imaging system for nuclear cardiology. In our
DIS business, we are rolling out our mobile Cardius-3M system to
improve customer satisfaction as well as resource management and
system utilization going forward. We see opportunities for expansion
of our DIS business. For example, we currently are evaluating the
potential to expand our mobile imaging services business beyond
nuclear medicine to modalities such as echocardiography and vascular
ultrasound.
"In our products business, the efficiency advantages of our
Cardius-3 system continue to be well-received in the marketplace. To
take advantage of the opportunity to increase our market position, we
have launched a refocused and data-driven marketing program, and are
making progress on our software and technical development efforts for
our Cardius family of imaging products to offer improved image quality
and reliability, improvements we expect to begin releasing to our
customers in mid-2006.
"The mobility, small size and light weight of our products are
important competitive advantages for Digirad that give us a solid
foundation on which to build and should provide a variety of
opportunities for growth in both our DIS and our product businesses.
The key to our success is to effectively execute our strategy -- in
sales and marketing, operations, and product development. Based on our
accomplishments in 2005, I believe that Digirad is prepared to meet
these challenges successfully."
First Quarter and 2006 Guidance
Digirad management currently expects consolidated revenues for the
first quarter of 2006 to be between $16.7 million and $17.3 million,
consisting of DIS revenue between $12.0 million and $12.3 million and
product revenue between $4.7 million and $5.0 million. The
consolidated loss for the first quarter currently is expected to be
between $3.1 million and $3.4 million, before share-based compensation
expense of an estimated $700,000, or between $3.8 million and $4.1
million including the estimated share-based compensation expense.
"We currently expect Digirad's financial performance to improve by
the end of 2006," Casner said.
For the year as a whole, management currently expects consolidated
revenues to be between $70.0 million and $74.0 million, consisting of
DIS revenue between $49.0 million and $51.0 million and product
revenue between $21.0 million and $23.0 million. The consolidated loss
for 2006 currently is expected to be between $8.0 million and $10.0
million, before an estimated $2.6 million of share-based compensation
expense, or between $10.6 million and $12.6 million including the
estimated share-based compensation expense.
Management's Reasons for Presenting Non-GAAP Financial Measure
Digirad management evaluates and makes operating decisions using
various measures. These measures are generally based on the revenues
generated by its products and services and certain costs of producing
that revenue, such as cost of product or services sales, research and
development and selling, general and administrative expenses. One such
measure is net income (loss), excluding share-based compensation
expense under SFAS No. 123R, which is a non-GAAP financial measure
under Section 101 of Regulation G under the Securities Exchange Act of
1934, as amended. Because share-based compensation expense is a
non-cash accounting charge that the company was not required to record
in past periods, we believe that its exclusion from net income (loss)
provides useful supplemental information to our management and
investors regarding the performance of our business operations and
facilitates comparisons to our historical operating results. Our
management also uses this information internally for forecasting and
budgeting, as it believes that the measure is indicative of Digirad's
core operating results. Note, however, that non-GAAP net income (loss)
is a performance measure only, and its does not provide any measure of
the company's cash flow or liquidity. Non-GAAP financial measures
should not be considered as a substitute for measures of financial
performance in accordance with GAAP.
Conference Call
Digirad has scheduled a conference call at 11:00 a.m. ET today. A
simultaneous webcast 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 #4474380.
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 a high quality image 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 and 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
Digirad's expected revenues and losses for the first quarter and full
year of 2006, the expectation that its DIS business will regain
momentum during the second half of 2006, its plans to expand its
cardio imaging services to modalities beyond nuclear medicine, the
expected mid-2006 release of improved image quality and reliability
improvements in its Cardius family of products, and its expectations
regarding its ability to achieve sustainable revenue and profit
growth. 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 and improvements to its camera systems or new service
offerings 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.
Digirad Corporation
Consolidated Statements of Operations
(In thousands, except per share amounts)
Three Months Year
Ended Ended
December 31, December 31,
2005 2004 2005 2004
Revenue:
DIS $12,028 $11,781 $ 50,194 $44,505
Product 5,374 5,975 17,992 23,632
Total revenue 17,402 17,756 68,186 68,137
Cost of revenue:
DIS 10,242 8,529 37,273 31,005
Product 3,864 3,696 15,511 14,992
Stock-based compensation 27 39 156 381
Total cost of revenue 14,133 12,264 52,940 46,378
Gross profit 3,269 5,492 15,246 21,759
Operating expenses:
Research and development 968 785 3,680 2,982
Sales and marketing 1,854 2,135 7,374 7,626
General and administrative 3,607 2,604 14,675 9,769
Amortization and impairment of
intangible assets 6 16 179 64
Stock-based compensation 59 126 341 736
Total operating expenses 6,494 5,666 26,249 21,177
Income (loss) from operations (3,225) (174) (11,003) 582
Interest and other, net 455 196 1,384 (337)
Net income (loss) (2,770) 22 (9,619) 245
Accretion of deferred issuance
costs on preferred stock -- -- -- (161)
Net income (loss) applicable to
common stockholders $(2,770) $ 22 $ (9,619) $ 84
Net income (loss) per share(1):
Historical - basic $ (0.15) $ 0.00 $ (0.52) $ 0.01
Historical - diluted $ (0.15) $ 0.00 $ (0.52) $ 0.01
Pro-forma - basic $ (0.15) $ 0.00 $ (0.52) $ 0.02
Pro-forma - diluted $ (0.15) $ 0.00 $ (0.52) $ 0.01
Shares used in per share
calculations:
Historical weighted average
shares outstanding
Basic 18,701 18,048 18,468 10,095
Diluted 18,701 19,398 18,468 16,963
Pro-forma weighted average shares
outstanding
Basic 18,701 18,048 18,468 15,584
Diluted 18,701 19,398 18,468 16,963
(1) As a result of the conversion of our preferred stock into 12.4
million shares of our common stock upon the completion of our
initial public offering in June 2004 of 5,500,000 shares of our
common stock, there is a lack of comparability in the basic and
diluted net loss per share amounts for the periods presented
above.
Digirad Corporation
Consolidated Balance Sheets
(in thousands, except par value amounts)
December 31,
Assets 2005 2004
Cash and cash equivalents $ 16,303 $ 11,348
Securities available-for-sale 33,202 44,215
Accounts receivable, net 8,132 10,017
Inventories, net 5,136 6,980
Other current assets 1,687 1,620
Total current assets 64,460 74,180
Property and equipment, net 9,582 11,182
Intangibles, net 402 542
Restricted cash 60 120
Total assets $ 74,504 $ 86,024
Liabilities and stockholder's equity
Accounts payable $ 2,152 $ 4,313
Accrued compensation 2,585 2,410
Accrued warranty 825 1,219
Other accrued liabilities 4,614 2,651
Deferred revenue 2,858 2,344
Current portion of long-term debt 766 2,228
Total current liabilities 13,800 15,165
Long-term debt, net of current
portion 368 1,754
Other long-term liabilities 348 371
Stockholder's equity:
Preferred stock, $0.0001 par value:
10,000 shares authorized at
December 31, 2005 and 2004; no
shares issued or outstanding at
December 31, 2005 and 2004 -- --
Common stock, $0.0001 par value:
150,000 shares authorized at
December 31, 2005 and 2004; 18,705
and 18,075 shares issued and
outstanding at December 31, 2005
and 2004, respectively 2 2
Additional paid-in capital 150,202 149,845
Accumulated other comprehensive loss (221) (97)
Deferred compensation (279) (920)
Accumulated deficit (89,716) (80,096)
Total stockholder's equity 59,988 68,734
Total liabilities and stockholder's
equity $ 74,504 $ 86,024
CONTACT: Company Contact:
Digirad Corporation
Todd Clyde, 858-726-1600
ir@digirad.com
or
Investor Contact:
Neil Berkman Associates, 310-826-5051
info@BerkmanAssociates.com