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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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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)
May 2, 2006
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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 Employer
of incorporation) File Number) Identification 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 2.02. Results of Operations and Financial Condition
On May 2, 2006, the Company issued a press release announcing financial results
for the fiscal quarter ended March 31, 2006. 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 May 2, 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
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Todd P. Clyde
Chief Financial Officer
Date: May 2, 2006
Exhibit 99.1
Digirad Reports 2006 First Quarter Results;
Management Reaffirms 2006 Guidance
POWAY, Calif.--(BUSINESS WIRE)--May 2, 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 first quarter of
2006 that exceeded previous expectations, and reaffirmed guidance for 2006.
"In the first quarter of 2006 we met or exceeded our goals for virtually
every financial and operational category in both our product business and DIS
mobile imaging services," said CEO Mark Casner. "We are encouraged by this
performance, which reflected the improving productivity of our expanded and
refocused sales organization and the impact of our targeted and data-driven
marketing initiatives. We anticipate further progress as we continue
implementing our strategy to achieve sustainable revenue and profit growth."
Casner continued, "We are meeting internal milestones we have set for our
software and technical development programs to enhance the image quality and
reliability of our advanced Cardius(R)-3 imaging system for nuclear cardiology,
and are on plan to begin releasing these enhancements to our customers in
mid-2006. We already have rolled out a limited number of mobile Cardius-3M
systems in our DIS fleet, and the initial customer response is positive. In
addition to improving customer service, we expect this upgrade to help reduce
employee turnover and improve resource utilization in DIS."
First Quarter Results
For the three months ended March 31, 2006, consolidated revenues increased
5.5% to $19.0 million. This compares to consolidated revenues of $18.0 million
for the first quarter of 2005 and $17.4 million for the fourth quarter of 2005.
DIS revenue increased 7.3% to $13.2 million for this year's first quarter
from $12.3 million for the first quarter of 2005, and increased sequentially
compared to $12.0 million for the fourth quarter of 2005. DIS service days for
the first quarter of 2006 were 3,461 compared to 3,381 for the same period last
year, reflecting acceleration in the pace of entering into new service contracts
compared to recent quarters.
Product segment revenue, which includes sales of gamma cameras, upgrades,
accessories and maintenance revenue, increased slightly to $5.7 million for the
first quarter of 2006 versus $5.6 million for the first quarter of 2005, and
increased sequentially compared to $5.4 million for the fourth quarter of 2005.
Consolidated gross margin for the three months ended March 31, 2006,
declined to 23.2% from 28.7% for the first quarter of 2005, but increased
sequentially compared to 18.8% for the fourth quarter of 2005.
DIS gross margin was 21.1% for this year's first quarter compared to 29.7%
for the first quarter of 2005 and 14.7% for the fourth quarter of 2005. The
sequential increase in DIS gross margin reflected improved staff efficiency and
system utilization as well as lower depreciation expense versus the immediately
preceding quarter.
Product segment gross margin improved to 28.0% for the first quarter of
2006 versus 26.5% for the first quarter of 2005 and 27.9% for the fourth quarter
of 2005, reflecting operational efficiencies and lower maintenance costs
stemming from improved product reliability.
The net loss for the first quarter of 2006 was $2.8 million, or $0.15 per
share, including share-based compensation expense of $471,000. This compares to
a net loss for the first quarter of 2005 of $981,000, or $0.05 per share, which
included share-based compensation expense of $178,000. Before share-based
compensation expense, the net loss for the first quarter of 2006 was $2.3
million, or $0.12 per share, and the net loss for the first quarter of 2005 was
$803,000, or $0.04 per share.
Cash and equivalents and securities available for sale at March 31, 2006,
were $46.8 million compared to $49.5 million at December 31, 2005. Net
inventories declined to $4.1 million at March 31, 2006, from $5.1 million at
December 31, 2005, and $7.0 million at December 31, 2004.
Second Quarter and 2006 Guidance
Casner said that effective on June 1, 2006, DIS plans no longer to provide
certain stress agents used in a portion of imaging procedures. Instead, DIS'
physician customers will provide these agents. "While we expect this change to
reduce DIS revenue by approximately $400,000 in the second quarter and about
$2.6 million for 2006 compared to what it otherwise would have been under our
original delivery model, we expect DIS gross margin to increase by 50 to 100
basis points and little to no impact on DIS net earnings. We will continue to
seek ways to make all of our DIS operations more efficient and profitable," he
said.
Digirad management currently expects DIS revenue for the second quarter of
2006 in the range of $12.7 million to $13.0 million, including the impact of the
change in the delivery of stress agents. Product revenue is expected to be
between $5.1 million and $5.3 million, and consolidated revenues between $17.8
million and $18.3 million. The consolidated loss for the second quarter
currently is expected to be between $2.8 million and $3.1 million, including the
estimated share-based compensation expense of $400,000, or between $2.4 million
and $2.7 million, before the anticipated share-based compensation expense.
For the year as a whole, management reaffirmed its previous guidance for
consolidated revenues 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. Management continues to expect the consolidated loss for 2006 to
be between $10.6 million and $12.6 million, including the estimated share-based
compensation expense of $2.6 million, or between $8.0 million and $10.0 million,
before the anticipated share-based compensation expense.
Note Regarding Non-GAAP Financial Measures
Because share-based compensation expense is a non-cash accounting charge
that the company was not required to record in past periods, management believes
that its exclusion from net income (loss) provides useful supplemental
information regarding the Company's performance and facilitates comparisons to
historical operating results. Management also uses this information 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 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 #2037699.
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 second quarter and full
year of 2006, the expectation for progress in achieving its strategy for growth,
its expectations regarding reductions in turnover and resource utilization, and
its expectations regarding the effects of its decision to discontinue the
delivery of stress agents. 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
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
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2006 2005
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Revenue:
DIS $ 13,217 $ 12,322
Product 5,738 5,648
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Total revenue 18,955 17,970
Cost of revenue:
DIS 10,432 8,659
Product 4,130 4,154
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Total cost of revenue 14,562 12,813
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Gross profit 4,393 5,157
Operating expenses:
Research and development 1,096 922
Sales and marketing 2,459 2,039
General and administrative 4,129 3,405
Amortization and impairment of
intangible assets 9 16
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Total operating expenses 7,693 6,382
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Loss from operations (3,300) (1,225)
Interest and other, net 496 244
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Net loss $ (2,804) $ (981)
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Net loss per share -- basic and
diluted $ (0.15) $ (0.05)
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Weighted average shares outstanding:
Basic and diluted 18,710 18,105
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The composition of stock-based
compensation is as follows:
Cost of DIS Revenue $ 20 $ 34
Cost of Product revenue 18 25
Research and development 42 22
Sales and marketing 75 21
General and administrative 316 76
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$ 471 $ 178
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Digirad Corporation
Condensed Consolidated Balance Sheets
(in thousands)
Assets March 31, December 31,
2006 2005(1)
(Unaudited)
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Cash and cash equivalents $ 17,127 $ 16,303
Securities available-for-sale 29,651 33,202
Accounts receivable, net 9,026 8,132
Inventories, net 4,137 5,136
Other current assets 1,557 1,687
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Total current assets 61,498 64,460
Property and equipment, net 9,600 9,582
Intangibles, net 454 402
Restricted cash 60 60
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Total assets $ 71,612 $ 74,504
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Liabilities and stockholder's equity
Accounts payable $ 2,565 $ 2,152
Accrued compensation 2,425 2,585
Accrued warranty 779 825
Other accrued liabilities 4,112 4,614
Deferred revenue 2,869 2,858
Current portion of long-term debt 593 766
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Total current liabilities 13,343 13,800
Long-term debt, net of current
portion 298 368
Deferred rent 336 348
Total stockholder's equity 57,635 59,988
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Total liabilities and stockholder's
equity $ 71,612 $ 74,504
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(1) The condensed consolidated balance sheet as of December 31,
2005, has been derived from the audited financial statements as of
that date.
Digirad Corporation
Reconciliation of Non-GAAP to GAAP Results of Operations
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31, 2006
As Non-GAAP Non-
Reported Adjustments(a) GAAP
Gross profit $ 4,393 $ 38(b) $ 4,431
Operating expenses 7,693 (433)(b) 7,260
Loss from operations (3,300) 471(b) (2,829)
Net loss $(2,804) $ 471 $(2,333)
Loss per share, basic and diluted $ (0.15) $ (0.12)
Shares used in computing loss per
share (in thousands):
Basic and diluted 18,710 18,710
Three Months Ended
March 31, 2005
As Non-GAAP Non-GAAP
Reported Adjustments(a)
Gross profit $ 5,157 $ 59(c) $ 5,216
Operating expenses 6,382 (119)(c) 6,263
Loss from operations (1,225) 178(c) (1,047)
Net loss $ (981) $ 178 $ (803)
Loss per share, basic and diluted $ (0.05) $ (0.04)
Shares used in computing loss per
share (in thousands):
Basic and diluted 18,105 18,105
(a) These adjustments reconcile the Company's GAAP results of
operations to its non-GAAP results of operations. The Company
believes that presentation of results, excluding items such as
non-cash, stock-based compensation, provides meaningful
supplemental information to both management and investors that is
indicative of the Company's core operating results and facilitates
comparison of operating results across reporting periods. The
Company uses these non-GAAP measures when evaluating its financial
results as well as for internal planning and forecasting purposes.
In addition, management's bonus compensation is based on its
performance against these non-GAAP measures. These non-GAAP
measures should not be viewed as a substitute for the Company's
GAAP results. The Company adopted the fair-value recognition
provisions of SFAS No. 123 revised (123R) to expense stock-based
compensation in its fiscal quarter ended March 31, 2006. Prior to
the adoption of SFAS No. 123R, the Company accounted for employee
stock-based compensation using the intrinsic value method
prescribed by APB No. 25 and the disclosure-only provisions of
SFAS No. 123.
(b) These adjustments reflect the non-cash, stock-based compensation
expense as measured under SFAS No. 123R related to unvested stock
options. The fair-value calculated expense as determined on the
awards' grant date is recognized as the awards vest.
(c) These adjustments reflect the non-cash, stock-based compensation
expense as measured under APB No. 25 related primarily to
stock option grants awarded immediately prior to the Company's
initial public offering in June 2004. Note that neither the
Company's GAAP nor non-GAAP results of operations in fiscal year
2005 included the accounting impact had the Company chosen to
apply the fair-value recognition provisions of SFAS No. 123R.
CONTACT: Digirad Corporation
Todd Clyde, 858-726-1600
ir@digirad.com
or
Neil Berkman Associates (investors)
310-826-5051
info@BerkmanAssociates.com