Star Equity (STRR) 8-K Results of Operations and Financial Condition

Exhibit 99.1

News Release

For immediate release	For more information contact:
August 4, 2017	Jeff Keyes
	Chief Financial Officer
	858-726-1600
	ir@digirad.com

Digirad Corporation Reports Financial Results for the

Second Quarter and Six Months Ended June 30, 2017

•Increases dividend 10% to $0.055 cents per share

•Confirms 2017 financial guidance

Suwanee, GA. - August 4, 2017-Digirad Corporation (Nasdaq: DRAD) today reported its financial results for the second quarter and six months ended June 30, 2017.

Total revenues for the second quarter were $29.8 million, compared to $32.1 million in the second quarter of the prior year.

Net loss for the second quarter was $2.8 million, or $0.14 net loss per diluted share, compared to net income of $1.0 million, or $0.05 net income per diluted share in the same period in the prior year. Non-GAAP adjusted net income for the second quarter was $1.7 million, or $0.08 adjusted net income per diluted share, compared to adjusted net income of $1.8 million, or $0.09 adjusted net income per diluted share in the same period in the prior year. Non-GAAP adjusted EBITDA for the second quarter was $2.5 million, compared to $4.2 million in the same period in the prior year.

Total revenues for the six months ended June 30, 2017 were $58.9 million, compared to the prior year's revenues for the first six months of $63.2 million.

Net loss for the six months ended June 30, 2017 was $4.8 million, or $0.24 net loss per diluted share, compared to net income of $12.6 million, or $0.63 net income per diluted share in the same period in the prior year. Non-GAAP adjusted net income for the six months ended June 30, 2017 was $1.5 million, or $0.07 adjusted net income per diluted share, compared to adjusted net income of $3.2 million, or $0.16 adjusted net income per diluted share in the same period in the prior year. Non-GAAP adjusted EBITDA for the six months ended June 30, 2017 was $4.3 million, compared to $7.9 million in the same period in the prior year.

Operating cash flow for the six months ended June 30, 2017 was $3.5 million, compared to the prior year's operating cash flow for the first six months of $3.8 million. Non-GAAP free cash flow was $2.9 million for the six months ended June 30, 2017, compared to $1.0 million in the same period in the prior year.

Digirad President and CEO Matt Molchan said, “We are very pleased with the performance of our service businesses during the quarter, which include the Digirad Imaging Solutions and Mobile Healthcare divisions. Both businesses had a solid quarter and strong year to date performance and continue to generate strong cash flow on a consistent basis. Further, the operational changes we made in Mobile Healthcare appear to be taking hold, and we are optimistic of continued success." Molchan continued, “Our product businesses, which include the Diagnostic Imaging and Medical Device Sales and Services divisions, had a tougher quarter related to closing capital equipment deals due to temporary delays in capital spending by customers, which we believe is mainly due to uncertainty around the Affordable Care Act. Although we can’t predict exactly when the uncertainty around capital spending will lift, our team has worked very hard to build a robust order pipeline giving us high confidence in eventual improvement in these businesses."

"Despite order delays in our product businesses, our service businesses are performing above plan, which makes us confident in achieving our full year financial guidance range for the year. In addition, we expect to continue to generate significant cash flow for our shareholders as demonstrated by our strong free cash flow generation so far this year. This confidence in our cash generation ability and the recent refinancing of our credit facility, which allows significantly more flexibility in capital allocation as well as a lower cost of capital, is allowing us to raise our quarterly cash dividend by 10% to $0.055 cents per share. We are very pleased that we can provide this enhanced cash return to shareholders. As we move forward, we'll continue to review ways to further enhance shareholder value."

The announced cash dividend of $0.055 cents per share will be paid on August 30, 2017, to shareholders of record on August 18, 2017.

2017 Financial Guidance

The Company reaffirms its previously announced fiscal year 2017 financial guidance, which is to generate revenues of approximately $125 million, non-GAAP adjusted EBITDA of between $14 and $15 million, adjusted net income per diluted share of between $0.10 and $0.15, and free cash flow of between $9 and $10 million.

Conference Call Information

A conference call is scheduled for 11:00 a.m. EDT on August 4, 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.

Use of Non-GAAP Financial Measures by Digirad Corporation

This Digirad news release presents the non-GAAP financial measures “adjusted net income (loss),” “adjusted net income (loss) per diluted share,” “adjusted EBITDA”, and "free cash flow". The most directly comparable measure for these non-GAAP financial measures are net income (loss), net income (loss) per diluted share, and operating cash flow. 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, litigation reserve, loss on extinguishment of debt and non-recurring related income tax adjustments. Further excluded in the measure of adjusted EBITDA are interest, taxes, depreciation, amortization and stock-based compensation. Free cash flow is calculated by subtracting cash paid for capital expenditures, net of dispositions from operating cash flow.

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 August 4, 2017.

About Digirad Corporation

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.

Forward-Looking Statements

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

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(in thousands, except per share amounts)	2017			2016			2017			2016
Revenues:
Services	$	23,539		$	24,666		$	46,413		$	48,671
Product and product-related	6,247			7,424			12,453			14,576
Total revenues	29,786			32,090			58,866			63,247
Cost of revenues:
Services	18,950			19,179			37,405			37,685
Product and product-related	3,803			3,146			7,321			6,732
Total cost of revenues	22,753			22,325			44,726			44,417
Gross profit	7,033			9,765			14,140			18,830
Total gross profit percentage	23.6		%	30.4		%	24.0		%	29.8		%
Services gross profit percentage	19.5		%	22.2		%	19.4		%	22.6		%
Product and product-related gross profit percentage	39.1		%	57.6		%	41.2		%	53.8		%
Operating expenses:
Marketing and sales	2,269			2,837			4,669			5,462
General and administrative	5,937			4,878			11,041			11,292
Amortization of intangible assets	578			578			1,156			1,157
Total operating expenses	8,784			8,293			16,866			17,911
(Loss) income from operations	(1,751		)	1,472			(2,726		)	919
Other expense:
Other (expense) income, net	—			(58		)	—			14
Interest expense, net	(303		)	(379		)	(618		)	(750		)
Loss on extinguishment of debt	(709		)	—			(709		)	—
Total other expense	(1,012		)	(437		)	(1,327		)	(736		)
(Loss) income before income taxes	(2,763		)	1,035			(4,053		)	183
Income tax (expense) benefit	(9		)	(37		)	(795		)	12,424
Net (loss) income	$	(2,772	)	$	998		$	(4,848	)	$	12,607
Net (loss) income per share:
Basic	$	(0.14	)	$	0.05		$	(0.24	)	$	0.65
Diluted	$	(0.14	)	$	0.05		$	(0.24	)	$	0.63
Dividends declared per common share	$	0.05		$	0.05		$	0.10		$	0.10
Weighted average shares outstanding – basic	19,979			19,529			19,957			19,489
Weighted average shares outstanding – diluted	19,979			20,038			19,957			19,991

Digirad Corporation

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share data)	June 30, 2017			December 31, 2016
Assets:
Current assets:
Cash and cash equivalents	$	1,782		$	2,203
Securities available-for-sale	187			917
Accounts receivable, net	13,643			14,503
Inventories, net	5,908			5,987
Restricted cash	358			1,376
Other current assets	1,880			2,093
Total current assets	23,758			27,079
Property and equipment, net	29,839			31,407
Intangible assets, net	10,472			11,628
Goodwill	6,237			6,237
Deferred tax assets	26,878			27,019
Restricted cash	100			2,100
Other assets	1,010			793
Total assets	$	98,294		$	106,263
Liabilities:
Current liabilities:
Accounts payable	$	5,661		$	6,514
Accrued compensation	4,940			3,962
Accrued warranty	174			196
Deferred revenue	2,807			3,123
Current portion of long-term debt	—			5,358
Other current liabilities	4,493			3,520
Total current liabilities	18,075			22,673
Long-term debt, net of current portion	17,478			16,070
Other liabilities	2,230			1,039
Total liabilities	37,783			39,782
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; 19,977,984 and 19,892,557 shares issued and outstanding (net of treasury shares) at June 30, 2017 and December 31, 2016, respectively	2			2
Treasury stock, at cost; 2,588,484 shares at June 30, 2017 and December 31, 2016	(5,728		)	(5,728		)
Additional paid-in capital	150,070			151,696
Accumulated other comprehensive loss	(83		)	(52		)
Accumulated deficit	(83,750		)	(79,437		)
Total stockholders’ equity	60,511			66,481
Total liabilities and stockholders’ equity	$	98,294		$	106,263

Digirad Corporation

Reconciliation of Non-GAAP Financial Measures

(Unaudited)

		Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except per share amounts)		2017			2016			2017			2016
Net (loss) income		$	(2,772	)	$	998		$	(4,848	)	$	12,607
	Acquired intangible amortization	578			578			1,156			1,157
	Acquisition related contingent consideration valuation adjustment(1)	—			(3		)	(57		)	(3		)
	Transaction and integration costs of DMS Health Technologies(2)	—			171			—			1,621
	Litigation reserve(3)	1,339			—			1,339			—
	Loss on extinguishment of debt	709			—			709			—
	Income tax items(4)	1,806			67			3,154			(12,207		)
Non-GAAP adjusted net income		$	1,660		$	1,811		$	1,453		$	3,175
Net (loss) income per share - diluted(5)		$	(0.14	)	$	0.05		$	(0.24	)	$	0.63
	Acquired intangible amortization	0.03			0.03			0.06			0.06
	Acquisition related contingent consideration valuation adjustment(1)	—			—			—			—
	Transaction and integration costs of DMS Health Technologies(2)	—			0.01			—			0.08
	Litigation reserve(3)	0.07			—			0.07			—
	Loss on extinguishment of debt	0.04			—			0.04			—
	Income tax items(4)	0.09			—			0.16			(0.61		)
Non-GAAP adjusted net income per share - diluted(5)		$	0.08		$	0.09		$	0.07		$	0.16

		Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)		2017			2016			2017			2016
Net (loss) income		$	(2,772	)	$	998		$	(4,848	)	$	12,607
	Acquisition related contingent consideration valuation adjustment(1)	—			(3		)	(57		)	(3		)
	Transaction and integration costs of DMS Health Technologies(2)	—			171			—			1,621
	Litigation reserve(3)	1,339			—			1,339			—
	Loss on extinguishment of debt	709			—			709			—
	Depreciation and amortization	2,588			2,383			5,167			4,848
	Stock-based compensation	296			257			559			480
	Interest expense, net	303			379			618			750
	Income tax expense (benefit)	9			37			795			(12,424		)
Non-GAAP adjusted EBITDA		$	2,472		$	4,222		$	4,282		$	7,879

⁽¹⁾Reflects fair value adjustment to estimate of contingent consideration related to acquisitions.

⁽²⁾Reflects diligence, transaction, and integration costs related to the acquisition of DMS Health Technologies.

⁽³⁾Reflects tentative legal settlement reserve for wage and hour litigation, subject to court approval.

⁽⁴⁾Reflects income tax effect for adjusted financial data and acquisition related income tax adjustments, and adjustment to net operating loss carryforwards.

⁽⁵⁾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)		June 30, 2016			September 30, 2016			December 31, 2016			March 31, 2017			June 30, 2017
Net income (loss)		$	998		$	(283	)	$	1,978		$	(2,076	)	$	(2,772	)
	Acquired intangible amortization	578			578			578			578			578
	Acquisition related contingent consideration valuation adjustment(1)	(3		)	(5		)	(56		)	(57		)	—
	Investment impairment loss(2)	—			414			—			—			—
	Transaction and integration costs of DMS Health Technologies(3)	171			127			173			—			—
	Goodwill impairment	—			—			338			—			—
	Litigation reserve(4)	—			—			—			—			1,339
	Loss on extinguishment of debt	—			—			—			—			709
	Income tax items(5)	67			170			25			1,348			1,806
Non-GAAP adjusted net income (loss)		$	1,811		$	1,001		$	3,036		$	(207	)	$	1,660
Net income (loss) per share - diluted(6)		$	0.05		$	(0.01	)	$	0.10		$	(0.10	)	$	(0.14	)
	Acquired intangible amortization	0.03			0.03			0.03			0.03			0.03
	Acquisition related contingent consideration valuation adjustment(1)	—			—			—			—			—
	Investment impairment loss(2)	—			0.02			—			—			��
	Transaction and integration costs of DMS Health Technologies(3)	0.01			0.01			0.01			—			—
	Goodwill impairment	—			—			0.02			—			—
	Litigation reserve(4)	—			—			—			—			0.07
	Loss on extinguishment of debt	—			—			—			—			0.04
	Income tax items(5)	—			0.01			—			0.07			0.09
Non-GAAP adjusted net income (loss) per share - diluted(6)		$	0.09		$	0.05		$	0.15		$	(0.01	)	$	0.08

		Three Months Ended
(in thousands)		June 30, 2016			September 30, 2016			December 31, 2016			March 31, 2017			June 30, 2017
Net income (loss)		$	998		$	(283	)	$	1,978		$	(2,076	)	$	(2,772	)
	Acquisition related contingent consideration valuation adjustment(1)	(3		)	(5		)	(56		)	(57		)	—
	Investment impairment loss(2)	—			414			—			—			—
	Transaction and integration costs of DMS Health Technologies(3)	171			127			173			—			—
	Litigation reserve(4)	—			—			—			—			1,339
	Loss on extinguishment of debt	—			—			—			—			709
	Goodwill impairment	—			—			338			—			—
	Depreciation and amortization	2,383			2,489			2,552			2,579			2,588
	Stock-based compensation	257			274			270			263			296
	Interest expense, net	379			342			320			315			303
	Income tax (benefit) expense	37			202			(194		)	786			9
Non-GAAP adjusted EBITDA		$	4,222		$	3,560		$	5,381		$	1,810		$	2,472

⁽¹⁾Reflects fair value adjustment to estimate of contingent consideration related to acquisitions.

⁽²⁾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.

⁽³⁾Reflects diligence, transaction, and integration costs related to the acquisition of DMS Health Technologies.

⁽⁴⁾Reflects tentative legal settlement reserve for wage and hour litigation, subject to court approval.

⁽⁵⁾Reflects income tax effect for adjusted financial data and acquisition related income tax adjustments, and adjustment to net operating loss carryforwards.

⁽⁶⁾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 Operating Cash Flow to Free Cash Flow

(Unaudited)

	Six Months Ended June 30,
(in thousands)	2017			2016
Net cash provided by operating activities	$	3,494		$	3,799
Purchases of property and equipment, net of dispositions	(615		)	(2,803		)
Free cash flow	$	2,879		$	996

Digirad Corporation

Supplemental Debt Information

(Unaudited)

The following table reflects outstanding principal balances and interest rates for the Company's debt at June 30, 2017 and December 31, 2016:

	June 30, 2017				December 31, 2016
(in thousands)	Balance		Interest Rate		Balance		Interest Rate
Comerica
Revolving Line of Credit (1)	$	17,478	3.60	%
Wells Fargo
Term A (2)					$	17,382	3.15	%
Term B (2)					4,581		5.65	%
Revolving Line of Credit (2)					—		2.69	%
Total borrowing	$	17,478			$	21,963

⁽¹⁾ A Revolving Credit Agreement was entered into with Comerica Bank on June 21, 2017. The agreement consists of a revolving credit facility with a five-year term, maturing on June 21, 2022.

⁽²⁾ All tranches of the Wells Fargo Credit Facility were paid in full on June 21, 2017 upon entering into a Revolving Credit Agreement with Comerica Bank.

Digirad Corporation

Supplemental Segment Information

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2017			2016 (1)			2017			2016 (1)
Revenue by segment:
Diagnostic Services	$	12,559		$	12,469		$	24,761		$	24,481
Diagnostic Imaging	2,943			3,418			5,726			7,000
Mobile Healthcare	10,980			12,197			21,652			24,190
Medical Device Sales and Service	3,304			4,006			6,727			7,576
Condensed consolidated revenue	$	29,786		$	32,090		$	58,866		$	63,247
Gross profit by segment:
Diagnostic Services	$	2,730		$	2,907		$	5,566		$	5,455
Diagnostic Imaging	1,053			1,851			2,179			3,566
Mobile Healthcare	1,859			2,581			3,442			5,532
Medical Device Sales and Service	1,391			2,426			2,953			4,277
Condensed consolidated gross profit	$	7,033		$	9,765		$	14,140		$	18,830
Income (loss) from operations by segment:
Diagnostic Services	$	402		$	222		$	738		$	203
Diagnostic Imaging	(261		)	641			(463		)	1,022
Mobile Healthcare	(133		)	178			(947		)	600
Medical Device Sales and Service	(420		)	602			(715		)	715
Segment (loss) income from operations	(412		)	1,643			(1,387		)	2,540
Litigation reserve	(1,339		)	—			(1,339		)	—
Transaction and integration costs of DMS Health Technologies	—			(171		)	—			(1,621		)
Condensed consolidated (loss) income from operations	$	(1,751	)	$	1,472		$	(2,726	)	$	919

⁽¹⁾ Segment information has been reclassified to conform to the current year presentation.