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Digirad Corporation$4.45($.24)(5.12%)

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 Digirad Corporation Reports Financial Results for the Fourth Quarter and Twelve Months ended December 31, 2016
   Friday, February 24, 2017 6:00:29 AM ET

-- Year over year fourth quarter revenue increases 100%

-- Year over year fourth quarter net income increases 192%

-- During 2016, Company pays down $11.7 million on its credit facility

-- Company continues to pay regular quarterly cash dividend of $0.05 cents per share

Digirad Corporation (DRAD ) today reported its financial results for the fourth quarter and twelve months ended December 31, 2016.

Total revenues for the fourth quarter were $31.1 million, an increase of 100 percent compared to the prior year’s fourth quarter revenues of $15.6 million.

Net income for the fourth quarter was $2.0 million, or $0.10 diluted earnings per share (EPS), compared to net income of $0.7 million, or $0.03 diluted EPS from the same period in the prior year. Non-GAAP adjusted net income for the fourth quarter was $3.0 million, or $0.15 diluted EPS, compared to $1.3 million, or $0.07 diluted EPS from the same period in the prior year.

Non-GAAP adjusted EBITDA for the fourth quarter was $5.4 million, compared to $2.1 million in the same period in the prior year.

Total revenues for the twelve months ended December 31, 2016 were $125.5 million, an increase of 106 percent compared to the prior year’s revenues of $60.8 million.

Net income for the twelve months ended December 31, 2016 was $14.3 million, or $0.71 diluted EPS, compared to net income of $21.6 million, or $1.10 diluted EPS in the same period in the prior year. Non-GAAP adjusted net income for the twelve months ended December 31, 2016 was $7.2 million, or $0.36 diluted EPS, compared to non-GAAP adjusted net income of $4.5 million, or $0.23 diluted EPS in the same period in the prior year.

Non-GAAP adjusted EBITDA for the twelve months ended December 31, 2016 was $16.8 million, compared to $7.2 million in the same period in the prior year. A reconciliation of non-GAAP adjusted net income and non-GAAP adjusted EBITDA is provided later in this release.

The results for the fourth quarter and twelve months ended December 31, 2016 include the results of the recent acquisition of DMS Health, which closed on January 1, 2016.

Digirad President and CEO Matt Molchan said, "We are very pleased with our results for the quarter, where we experienced exceptional product sales performance, as well as great performance from our service businesses, capping off a transformational year for Digirad."

Molchan continued, "I am also pleased to report we have completed all of our operational integration activities related to the DMS Health acquisition, and will now be focusing our efforts on leveraging our combined resources as we move forward. Additionally, since entering our credit facility at the beginning of the year, we have paid down $11.7 million of the initial balance, including three extra principal payments. We continue to generate significant cash flow to maintain our stable dividend, fund organic growth and pursue accretive acquisitions."

The Company previously announced a cash dividend of $0.05 cents per share that will be paid on February 28, 2017, to shareholders of record on February 15, 2017.

<span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">Conference Call Information</span>

A conference call is scheduled for 10:00 a.m. EST on February 24, 2017 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 http://drad.client.shareholder.com; an archived replay of the webcast will be available within 15 minutes of the end of the conference call.

<span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">Use of Non-GAAP Financial Measures by Digirad Corporation</span>

This Digirad news release presents the non-GAAP financial measures "adjusted net income," "adjusted net income per diluted share," 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, goodwill impairment, acquisition related contingent consideration adjustments, investment impairment loss, transaction and integration costs associated with DMS Health Technologies, 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 February 24, 2017.

<span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">About Digirad Corporation</span>

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 medical equipment and services, including diagnostic imaging and patient monitoring, 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.

<span data-mce-style="text-decoration: underline;" style="text-decoration: underline;">Forward-Looking Statements</span>

This press release contains statements that are forward-looking statements as defined within the Private Securities Litigation Reform Act of 1995. Some of these forward-looking statements can be identified by the use of forward-looking words such as "believes," "expects," "may," "will," "should," "seek," "approximately," "intends," "plans," "estimates," or "anticipates," or the negative of those words or other comparable terminology, or in specific statements such as the Company’s ability to deliver value to customers, the ability to grow and generate positive cash flow, the ability to execute on restructuring activities, and ability to successfully execute acquisitions. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements made. These risks are detailed in Digirad’s filings with the U.S. Securities and Exchange Commission, including the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports. Readers are cautioned to not 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 the forward-looking statements contained herein.

(Financial tables follow)

Digirad Corporation
Consolidated Statements of Operations
(Unaudited)
                                                    Three Months Ended            Twelve Months Ended
                                                    December 31,                  December 31,
(in thousands, except per share amounts)            2016           2015           2016           2015
Revenues:
Services                                            $   23,015     $   11,683     $   95,511     $   46,407
Product and product-related                         8,119          3,895          29,956         14,419
Total revenues                                      31,134         15,578         125,467        60,826
Cost of revenues:
Services                                            18,720         9,048          75,515         35,968
Product and product-related                         3,772          1,838          14,179         6,949
Total cost of revenues                              22,492         10,886         89,694         42,917
Gross profit                                        8,642          4,692          35,773         17,909
Total gross profit percentage                       27.8       %   30.1       %   28.5       %   29.4       %
Services gross profit percentage                    18.7       %   22.6       %   20.9       %   22.5       %
Product and product-related gross profit percentage 53.5       %   52.8       %   52.7       %   51.8       %
Operating expenses:
Marketing and sales                                 2,161          1,051          10,049         4,741
General and administrative                          4,088          3,009          19,988         9,888
Amortization of intangible assets                   578            134            2,313          506
Goodwill impairment                                 338            --             338            --
Total operating expenses                            7,165          4,194          32,688         15,135
Income from operations                              1,477          498            3,085          2,774
Other income (expense):
Other income (expense), net                         627            (233       )   212            (233       )
Interest expense, net                               (320       )   (12        )   (1,412     )   (24        )
Total other income (expense)                        307            (245       )   (1,200     )   (257       )
Income before income taxes                          1,784          253            1,885          2,517
Income tax benefit                                  194            425            12,417         19,123
Net income                                          $   1,978      $   678        $   14,302     $   21,640
Net income per share:
Basic                                               $   0.10       $   0.03       $   0.73       $   1.13
Diluted                                             $   0.10       $   0.03       $   0.71       $   1.10
Dividends declared per common share                 $   0.05       $   0.05       $   0.20       $   0.20
Weighted average shares outstanding - basic         19,764         19,404         19,594         19,210
Weighted average shares outstanding - diluted       20,173         19,933         20,067         19,690
Digirad Corporation
Consolidated Balance Sheets
(Unaudited)
(in thousands)                                                                                                         December 31,       December 31,
                                                                                                                       2016               2015
Assets:
Current assets:
Cash and cash equivalents                                                                                              $    2,203         $    15,868
Securities available-for-sale                                                                                          917                3,227
Accounts receivable, net                                                                                               14,503             7,274
Inventories, net                                                                                                       5,987              4,381
Restricted cash                                                                                                        1,376              233
Other current assets                                                                                                   2,093              764
Total current assets                                                                                                   27,079             31,747
Property and equipment, net                                                                                            31,407             6,252
Intangible assets, net                                                                                                 11,628             3,079
Goodwill                                                                                                               6,237              2,897
Deferred tax assets                                                                                                    27,019             18,578
Restricted cash                                                                                                        2,100              --
Other assets                                                                                                           793                1,560
Total assets                                                                                                           $    106,263       $    64,113
Liabilities:
Current liabilities:
Accounts payable                                                                                                       $    6,514         $    1,369
Accrued compensation                                                                                                   3,962              2,453
Accrued warranty                                                                                                       196                213
Deferred revenue                                                                                                       3,123              1,673
Current portion of long-term debt                                                                                      5,358              --
Other current liabilities                                                                                              3,520              2,998
Total current liabilities                                                                                              22,673             8,706
Long-term debt, net of current portion                                                                                 16,070             --
Other liabilities                                                                                                      1,039              1,252
Total liabilities                                                                                                      39,782             9,958
Stockholders’ equity:
Preferred stock, $0.0001 par value: 10,000,000 shares authorized; no shares issued or outstanding                      --                 --
Common stock, $0.0001 par value: 80,000,000 shares authorized; 19,892,557 and 19,416,070 shares issued and outstanding 2                  2
(net of treasury shares) at December 31, 2016 and 2015, respectively
Treasury stock, at cost; 2,588,484 shares at December 31, 2016 and 2015                                                (5,728       )     (5,728      )
Additional paid-in capital                                                                                             151,696            153,860
Accumulated other comprehensive loss                                                                                   (52          )     (240        )
Accumulated deficit                                                                                                    (79,437      )     (93,739     )
Total stockholders’ equity                                                                                             66,481             54,155
Total liabilities and stockholders’ equity                                                                             $    106,263       $    64,113
                         Digirad Corporation
                         Reconciliation of Non-GAAP Financial Measures
                         (Unaudited)
                                                                                            Three Months Ended        Twelve Months Ended
                                                                                            December 31,              December 31,
(in thousands, except per share amounts)                                                    2016         2015         2016           2015
Net income                                                                                  $  1,978     $  678       $   14,302     $   21,640
                         Acquired intangible amortization                                   578          131          2,313          496
                         Acquisition related contingent consideration valuation adjustment  (56      )   113          (64        )   (60        )
                         Investment impairment loss                                         --           278          414            278
                         Transaction and integration costs of DMS Health Technologies       173          595          1,921          1,338
                         Goodwill impairment                                                338          --           338            --
                         Income tax items                                                   25           (446     )   (12,071    )   (19,145    )
Non-GAAP Adjusted net income                                                                $  3,036     $  1,349     $   7,153      $   4,547
Net income per share - diluted                                                              $  0.10      $  0.03      $   0.71       $   1.10
                         Acquired intangible amortization                                   0.03         0.01         0.12           0.03
                         Acquisition related contingent consideration valuation adjustment  --           0.01         --             --
                         Investment impairment loss                                         --           0.01         0.02           0.01
                         Transaction and integration costs of DMS Health Technologies       0.01         0.03         0.10           0.07
                         Goodwill impairment                                                0.02         --           0.02           --
                         Income tax items                                                   --           (0.02    )   (0.60      )   (0.97      )
Non-GAAP Adjusted net income per share - diluted                                            $  0.15      $  0.07      $   0.36       $   0.23
                                                                                Three Months Ended        Twelve Months Ended
                                                                                December 31,              December 31,
(in thousands)                                                                  2016         2015         2016           2015
Net income                                                                      $  1,978     $  678       $   14,302     $   21,640
             Acquisition related contingent consideration valuation adjustment  (56      )   113          (64        )   (60        )
             Investment impairment loss                                         --           278          414            278
             Transaction and integration costs of DMS Health Technologies       173          595          1,921          1,338
             Goodwill impairment                                                338          --           338            --
             Depreciation and amortization                                      2,552        690          9,889          2,441
             Stock-based compensation                                           270          166          1,024          616
             Interest income                                                    (2       )   (7       )   (14        )   (39        )
             Interest expense                                                   322          19           1,426          63
             Income tax benefit                                                 (194     )   (425     )   (12,417    )   (19,123    )
Non-GAAP Adjusted EBITDA                                                        $  5,381     $  2,107     $   16,819     $   7,154
Reflects fair value adjustment to estimate of contingent consideration related to acquisitions.
Reflects impairment losses related to investment in Perma-Fix Medical.  Amount consists of a write-down of the investment to its fair market value that was considered other than temporary.
Reflects diligence, transaction, and integration costs related to the acquisition of DMS Health Technologies.
Reflects income tax effect for adjusted financial data and acquisition related income tax adjustments, and release of previously reserved net operating loss carryforwards.
Per share amounts are computed independently for each discrete item presented. Therefore, the sum of the quarterly per share amounts will not necessarily equal to the total for the year, and sum of individual items may not equal the total.
                         Digirad Corporation
                         Reconciliation of Non-GAAP Financial Measures
                         (Unaudited)
                                                                                            Three Months Ended
(in thousands, except per share amounts)                                                    December 31,     March 31,       June 30,     September 30,    December 31,
                                                                                            2015             2016            2016         2016             2016
Net income (loss)                                                                           $    678         $   11,609      $  998       $    (283  )     $    1,978
                         Acquired intangible amortization                                   131              577             578          578              578
                         Acquisition related contingent consideration valuation adjustment  113              --              (3       )   (5         )     (56        )
                         Investment impairment loss                                         278              --              --           414              --
                         Transaction and integration costs of DMS Health Technologies       595              1,450           171          127              173
                         Goodwill impairment                                                --               --              --           --               338
                         Income tax items                                                   (446       )     (12,333    )    67           170              25
Non-GAAP Adjusted net income                                                                $    1,349       $   1,303       $  1,811     $    1,001       $    3,036
Net income (loss) per share - diluted                                                       $    0.03        $   0.58        $  0.05      $    (0.01 )     $    0.10
                         Acquired intangible amortization                                   0.01             0.03            0.03         0.03             0.03
                         Acquisition related contingent consideration valuation adjustment  0.01             --              --           --               --
                         Investment impairment loss                                         0.01             --              --           0.02             --
                         Transaction and integration costs of DMS Health Technologies       0.03             0.07            0.01         0.01             0.01
                         Goodwill impairment                                                --               --              --           --               0.02
                         Income tax items                                                   (0.02      )     (0.62      )    --           0.01             --
Non-GAAP Adjusted net income per share - diluted                                            $    0.07        $   0.07        $  0.09      $    0.05        $    0.15
                                                                                Three Months Ended
(in thousands)                                                                  December 31,     March 31,       June 30,     September 30,    December 31,
                                                                                2015             2016            2016         2016             2016
Net income (loss)                                                               $    678         $   11,609      $  998       $    (283  )     $    1,978
             Acquisition related contingent consideration valuation adjustment  113              --              (3       )   (5         )     (56        )
             Investment impairment loss                                         278              --              --           414              --
             Transaction and integration costs of DMS Health Technologies       595              1,450           171          127              173
             Goodwill impairment                                                --               --              --           --               338
             Depreciation and amortization                                      690              2,465           2,383        2,489            2,552
             Stock-based compensation                                           166              223             257          274              270
             Interest income                                                    (7         )     (5         )    (4       )   (3         )     (2         )
             Interest expense                                                   19               375             383          345              322
             Income tax expense (benefit)                                       (425       )     (12,461    )    37           202              (194       )
Non-GAAP Adjusted EBITDA                                                        $    2,107       $   3,656       $  4,222     $    3,560       $    5,381
Reflects fair value adjustment to estimate of contingent consideration related to acquisitions.
Reflects impairment losses related to investment in Perma-Fix Medical.  Amounts consist of impairment of a Supply Agreement entered into between the two parties, a loss related to the initial excess of the transaction price over fair value and a write-down of the investment to its fair market value that was considered other than temporary.
Reflects diligence, transaction, and integration costs related to the acquisition of DMS Health Technologies.
Reflects income tax effect for adjusted financial data and acquisition related income tax adjustments, and release of previously reserved net operating loss carryforwards.
Per share amounts are computed independently for each discrete item presented. Therefore, the sum of the quarterly per share amounts will not necessarily equal to the total for the year, and sum of individual items may not equal the total.
Digirad Corporation
Supplemental Debt Information
(Unaudited)
The following table reflects outstanding principal balances and interest rates under the Company’s credit facility at December 31, 2016:
(in thousands)         Balance                                        Interest Rate
Term A                 $                      17,382                  3.15                   %
Term B                 4,581                                          5.65                   %
Revolver               --                                             2.69                   %
Total borrowing        $                      21,963
Term A amortizes over a 7-year period with scheduled amortization ending in January 2021, with the remaining amount due in a balloon payment.
Term B amortizes over a 3-year period with scheduled amortization ending in January 2019. Through December 31, 2016, the Company has made three extra payments in the same amount as the scheduled payments.
Digirad Corporation
Supplemental Cash Flow Information
(Unaudited)
                                          Twelve Months Ended December 31,
(in thousands)                            2016        2015       2014
Net cash provided by operating activities $   10,834  $   3,720  $   4,280
Purchases of property and equipment       $   6,185   $   1,424  $   1,258
For more information contact:
Jeff Keyes
Chief Financial Officer
858-726-1600
ir@digirad.com

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