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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)
August 3, 2006
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DIGIRAD CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 000-50789 33-0145723
-------- --------- ----------
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation) 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:
[_] 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 August 3, 2006, the Company issued a press release announcing financial
results for the fiscal quarter ended June 30, 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
- --------------- ---------------------------------------------------------------
99.1 Press Release dated August 3, 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: August 3, 2006
Exhibit 99.1
Digirad 2006 Second Quarter and
First Half Results Exceed Previous Guidance; Consolidated Revenues
Increased 23%; Management Increases 2006 Guidance
POWAY, Calif.--(BUSINESS WIRE)--Aug. 3, 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 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.
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
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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
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Total cost of revenues 13,350 12,051 27,912 24,864
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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
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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
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Total current assets 61,066 64,460
Property and equipment, net 9,322 9,582
Intangibles, net 446 402
Restricted cash 60 60
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Total assets $70,894 $74,504
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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
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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.
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