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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)
October 31, 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 File Number) (IRS Employer
of 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 (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 October 31, 2006, the Company issued a press release announcing financial
results for the fiscal quarter ended September 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
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99.1 Press Release dated October 31, 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: October 31, 2006
Exhibit 99.1
Digirad Reports 2006 Third Quarter and Nine Months Results
POWAY, Calif.--(BUSINESS WIRE)--Oct. 31, 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 third quarter and first nine months of 2006.
Review of Operations
"We made good progress during the quarter in many areas that are
key to our drive to profitability," said Chief Executive Officer Mark
Casner. "Gross margin improved in our product business compared to
last year's third quarter, and the consolidated net loss declined by
nearly 25%. Revenue from the sale of our proprietary nuclear imaging
systems met our expectations for the period, and DIS leasing service
revenue was only slightly lower than we had forecasted. We attribute
the shortfall in DIS revenue primarily to a sharper than anticipated
seasonal slowdown in demand this past summer."
"Throughout this year, we have maintained our focus on reducing
our cost structure as we drive toward profitability. In earlier
releases we described our success in renegotiating our pharmacy
contracts and improving our hub operations. These efforts continued in
the third quarter, resulting in headcount reduction and other cost
saving measures. We continue to evaluate the productivity of our hubs
and will selectively close and open hubs based upon achieving our
performance objectives."
Casner continued, "Our DIS camera upgrade program continues, with
eight triple-head cameras now in operation in our 83-unit DIS fleet.
We are pleased by the performance of these cameras. As we anticipated,
our new system's high-definition solid-state (HDSD) digital detector
technology and other advanced features provide a more comfortable
experience for the patient, and more rapid throughput and excellent
image quality for the physician-user. Another important benefit is
that the XPO platform reduces our cost per system compared to previous
designs.
"In our product business, we sold 17 cameras during this year's
third quarter compared to 14 in the third quarter of 2005, and we
anticipate shipping a comparable number of systems in the fourth
quarter. We have noted that the cardiac nuclear market is under
pressure this year, a trend that started last year and is expected to
continue. While our sales numbers remain somewhat flat, they do
represent an increase in market share. We believe the release of our
advanced Cardius XPO line of imaging systems for nuclear cardiology
will help us sustain this increase in market share.
"We believe that these improvements to our operating platform and
cost structure, and the advanced technology and performance we offer
in both our DIS and product businesses, are moving us toward our goal
of sustainable revenue and earnings growth. We currently expect
Digirad's performance to improve in the fourth quarter compared to the
third, and we look for further improvements in 2007."
Third Quarter Results
For the three months ended September 30, 2006, consolidated
revenues decreased 3.7% to $16.7 million compared to $17.4 million for
the third quarter of 2005.
DIS revenue decreased 9.6% to $11.4 million for this year's third
quarter. This compares to DIS revenue for the third quarter of 2005 of
$12.6 million, which included stress agent revenue of approximately
$1.1 million. DIS service days for the third quarter of 2006 were
3,262 compared to 3,471 for the same period last year.
As previously announced, beginning in June 2006, DIS phased out
providing stress agents used in some imaging procedures. Instead, DIS'
physician customers now provide these agents. Management estimates
that this change reduced DIS revenue in the third quarter by
approximately $1.1 million 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, but 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, increased 11.9% to $5.3
million for the third quarter of 2006 versus $4.7 million for the
third quarter of 2005.
Consolidated gross margin for the three months ended September 30,
2006 increased to 24.5% from 19.6% for the third quarter of 2005.
DIS gross margin was 23.8% for this year's third quarter compared
to 26.9% for the third quarter of 2005. "As previously announced, we
changed the focus and responsibilities of some of our DIS personnel
towards increased operational as opposed to administrative tasks as we
seek to drive each DIS hub to profitability. Accordingly, beginning in
the third quarter, some personnel costs previously accounted for as
general and administrative expense were reported as cost of goods
sold. This resulted in approximately $300,000 in additional cost of
goods sold in the period," Mr. Casner explained.
Product segment gross margin improved to 25.9% for the third
quarter of 2006 versus 0.3% for last year's third quarter. The
favorable impact on gross margin in this year's third quarter of
higher sales volume, operational efficiencies and lower camera
maintenance costs was offset by lower average selling prices related
to product mix, and a $250,000 additional reserve against inventory in
anticipation of the transition to the XPO series. Results for the
third quarter of 2005 reflected $700,000 of excess capacity costs due
to low production volumes in that quarter.
The net loss for the third quarter of 2006 was $2.1 million, or
$0.11 per share, including stock-based compensation expense of
$344,000. This compares to a net loss of $2.8 million, or $0.15 per
share, for the third quarter of 2005, which included stock-based
compensation expense of $103,000.
Cash and equivalents and securities available for sale at
September 30, 2006 were $44.1 million compared to $49.5 million at
December 31, 2005. Net receivables were $7.2 million at September 30,
2006 compared to $8.1 million at December 31, 2005. Net inventories
were $5.8 million at September 30, 2006 compared to $5.1 million at
December 31, 2005.
Nine Months Results
For the nine months ended September 30, 2006, consolidated
revenues increased 7.7% to $54.7 million compared to $50.8 million for
the first nine months of 2005. DIS revenue was essentially unchanged
at $38.0 million compared to $38.2 million last year. Product revenue
increased 32.1% to $16.7 million from $12.6 million. Overall gross
margin for this year's first nine months improved to 25.9% versus
23.6% for the same period last year.
The net loss for the first nine months of 2006 was $6.1 million,
or $0.33 per share, which includes stock-based compensation expense of
$1.4 million. This compares to a net loss for the first nine months of
2005 of $6.8 million, or $0.37 per share, including stock-based
compensation expense of $411,000.
Fourth Quarter and 2006 Guidance
Management currently expects DIS revenue for the fourth quarter
ending December 31, 2006 in the range of $11.1 million to $11.5
million, which would include the impact of the change in the delivery
of stress agents; product revenue between $4.9 million and $5.3
million; and consolidated revenues between $16.0 million and $16.8
million. The consolidated loss for the fourth quarter is expected to
be between $1.1 million and $1.6 million, including estimated
stock-based compensation expense of $335,000.
For 2006 as a whole, the Company now anticipates consolidated
revenues in the range of $70.7 million and $71.5 million, consisting
of DIS revenue between $49.1 million and $49.5 million (including the
impact of the stress agent delivery change) and product revenue
between $21.6 million and $22.0 million; and a consolidated loss
between $7.3 million and $7.8 million, including estimated stock-based
compensation expense of $1.7 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 #8452379.
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 expectations of improved performance from our upgrade of the DIS
fleet to the mobile version of the Cardius 3 XPO system, our
expectations of achieving reduced operating costs as a result of
headcount reductions, hub closures and other cost cutting measures;
our statements regarding increasing our market share in a declining
market; statements regarding the expected financial impact of our
decision to discontinue offering stress agents and, in general, our
anticipated financial results for the fourth quarter of 2006, 2006
fiscal year and our anticipated further performance improvement in
2007. 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 Ended Nine Months Ended
September 30, September 30,
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2006 2005 2006 2005
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Revenues:
DIS $11,388 $12,604 $38,008 $38,166
Product 5,314 4,748 16,671 12,618
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Total revenues 16,702 17,352 54,679 50,784
Cost of revenues:
DIS 8,681 9,208 29,080 27,115
Product 3,937 4,735 11,450 11,692
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Total cost of revenues 12,618 13,943 40,530 38,807
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Gross profit 4,084 3,409 14,149 11,977
Operating expenses:
Research and development 1,036 914 3,249 2,767
Sales and marketing 2,272 1,825 6,797 5,560
General and administrative 3,455 3,742 11,689 11,255
Amortization of intangible
assets 6 139 35 173
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Total operating expenses 6,769 6,620 21,770 19,755
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Loss from operations (2,685) (3,211) (7,621) (7,778)
Interest and other, net 551 384 1,480 929
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Net loss $(2,134) $(2,827) $(6,141) $(6,849)
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Net loss per share - basic and
diluted $(0.11) $(0.15) $(0.33) $(0.37)
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Weighted average shares
outstanding:
Basic and diluted 18,782 18,690 18,751 18,390
========= ======== ======== ========
Stock-based compensation
expense is included in the
above as follows:
Cost of DIS revenue $33 $23 $125 $84
Cost of Product revenue 24 9 66 45
Research and development 41 15 129 54
Sales and marketing 89 8 237 39
General and administrative 157 48 832 189
Digirad Corporation
Condensed Consolidated Balance Sheets
(in thousands)
Sep. 30, Dec. 31,
2006 2005(1)
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(Unaudited)
Assets
Cash and cash equivalents $4,368 $16,303
Securities available-for-sale 39,732 33,202
Accounts receivable, net 7,158 8,132
Inventories, net 5,810 5,136
Other current assets 1,857 1,687
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Total current assets 58,925 64,460
Property and equipment, net 9,108 9,582
Intangibles, net 439 402
Restricted cash 60 60
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Total assets $68,532 $74,504
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Liabilities and stockholders' equity
Accounts payable $2,161 $2,152
Accrued compensation 2,857 2,585
Accrued warranty 824 825
Other accrued liabilities 3,729 4,614
Deferred revenue 2,805 2,858
Current portion of long-term debt 319 766
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Total current liabilities 12,695 13,800
Long-term debt, net of current portion 162 368
Deferred rent 313 348
Total stockholders' equity 55,362 59,988
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Total liabilities and stockholders' equity $68,532 $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: Digirad Corporation
Todd Clyde, CFO
858-726-1600
ir@digirad.com
or
Investor Contact:
Neil Berkman Associates
310-826-5051
info@BerkmanAssociates.com