Exhibit 99.1
Digirad Reports Third Quarter and Nine Months Results;
Management Updates Progress On Strategic Growth Plan
POWAY, Calif.--(BUSINESS WIRE)--Nov. 1, 2005--Digirad Corporation
(NASDAQ:DRAD), a leader in providing imaging services and solid-state
medical imaging products to physician offices, hospitals and imaging
centers, today announced financial results for the third quarter and
first nine months of 2005, and provided an update on the company's
progress in the implementation of its strategic growth plan as well as
financial guidance for the fourth quarter of 2005.
"We made solid progress during the third quarter and the fourth
quarter-to-date toward our goal of building a highly capable and
experienced management team with key senior and mid-level additions in
our DIS business and in sales, marketing, and operations. Our product
business posted improved operating results for the third quarter
versus the second quarter," said Chief Executive Officer Gary Burbach.
"While we anticipate that it will take time for us to achieve our
strategic goals and deliver the sustained revenue and earnings growth
that will build value for our shareholders, we believe that we are on
the right track and have the financial, technical and management
resources we need to do the job."
Third Quarter Results
For the three months ended September 30, 2005, consolidated
revenue increased to $17.4 million from $17.2 million for the third
quarter of 2004, and rose 12% from consolidated revenue of $15.5
million reported for the second quarter of 2005.
DIS revenue increased 14% to $12.6 million from $11.0 million for
the third quarter of 2004, reflecting a 14% increase in DIS service
days to 3,471 from 3,048 for the same period last year, but was down
sequentially compared to revenue of $13.2 million for the second
quarter of 2005. This was primarily attributable to normal seasonality
and a slower pace of entering into new service contracts, partly due
to management vacancies in the sales organization. Product segment
revenue, which includes sales of gamma cameras, upgrades, accessories
and maintenance revenue, declined to $4.7 million from $6.2 million a
year earlier, but increased compared to product segment revenue of
$2.2 million for the second quarter of 2005.
Consolidated gross margin for the three months ended September 30,
2005 was 19.6% compared to 33.4% for the same period of 2004. DIS
gross margin was 27.1% for this year's third quarter compared to 30.1%
for the same period last year. The decline in DIS gross margin versus
the prior year period primarily reflected adjustments in
pharmaceutical expenses and increased labor costs. Product segment
gross margin was 0.5% for the third quarter of 2005 compared to 40.8%
last year, the result of fewer camera sales and excess manufacturing
capacity costs of $0.7 million.
The net loss for the third quarter of 2005 was $2.8 million, or
$0.15 per share. This compares to net income for the third quarter of
2004 of $386,000, or $0.02 per diluted share.
Cash and equivalents and securities available-for-sale at
September 30, 2005 amounted to $48.2 million. Inventories declined to
$6.5 million at September 30, 2005 from $7.0 million at December 31,
2004 and $8.9 million at June 30, 2005.
Nine Months Results
For the nine months ended June 30, 2005, total revenue increased
to $50.8 million from $50.4 million for the first nine months of 2004.
DIS revenue increased 17% to $38.2 million from $32.7 million last
year. Product revenue declined to $12.6 million from $17.7 million.
Overall gross margin was 23.6% versus 32.3% for last year's first nine
months.
The net loss for the first nine months of 2005 was $6.8 million,
or $0.37 per share. This compares to net income of $62,000, or $0.01
per share, for the first nine months of 2004, when calculated on a pro
forma basis to account for the conversion of all preferred stock into
common stock in Digirad's initial public offering.
Business Review
"We achieved our primary operational objectives for the third
quarter, including improved results in our product segment and a
reduction in inventories compared to the second quarter, while
minimizing cash used in operations and maintaining our strong cash
position. Longer term, we know that improved execution in sales, DIS
operations, and product development are essential to achieving our
growth goals," Burbach said.
"During the third quarter and the fourth quarter-to-date, we
completed the re-building of our core sales management team with the
hiring of three regional sales directors, all recruited from senior
sales management positions with major competitors in the medical
imaging industry. Our sales leadership positions are now occupied by
seasoned executives with years of directly relevant industry
experience, and supported by VP of Marketing Randy Weatherhead, who
also joined us in the third quarter after previously serving as VP of
Sales and Marketing at Siemens Nuclear Medicine. We believe that our
team is capable of delivering improved performance as they move up the
learning curve over the next few quarters and further improve our
sales approaches and processes.
"During the third quarter we also were pleased to announce the
appointment of Mark L. Casner as President of our DIS leasing services
subsidiary. During the past ten years Mark has served in a variety of
increasingly senior management positions at companies that provide
medical imaging services, experience that makes him particularly
well-equipped to assist in improving operational efficiencies,
customer service and employee retention in our DIS business," Burbach
said. "Since 2003, Casner was President and Chief Operating Officer of
DMS Imaging, Maple Grove, Minnesota, which offers mobile diagnostic
services to more than 450 healthcare facilities nationwide."
Burbach added that clinical testing with the first mobile
Cardius-3M system in DIS was recently initiated, and two units are
currently in pilot evaluation. He said that the launch of this system
into regular operation in DIS is anticipated in the first quarter of
2006. "Among other benefits, we expect greater customer satisfaction
and cost reductions from our mobile Cardius-3M system," he said.
"We also moved forward with our program of software development
and other technical enhancements to our multi-head imaging products,
improvements we expect to introduce to the market beginning in
mid-2006. We believe that these efforts ultimately will allow us to
gain a larger market position for our dual head Cardius-2 imager and
our recently launched Cardius-3 camera.
"Overall, we believe that the nuclear cardiology camera and
physician-based imaging markets remain excellent opportunities for
Digirad. The mobility, small size and light weight of our products,
combined with our solid position in providing mobile leasing services
to cardiology offices, give us a strong platform on which to build. We
believe the hard work we are doing today will put us in a better
position to take advantage of Digirad's opportunities in the future,"
Burbach said.
Digirad management currently expects revenue for the fourth
quarter of 2005 to be between $16.2 million and $17.0 million, and the
fourth quarter loss to be between $2.4 million and $3.0 million. DIS
fourth quarter revenue is anticipated to be between $11.4 million and
$11.9 million.
During the fourth quarter, Digirad will perform an assessment of
its DIS camera fleet, and anticipates formalizing a plan which might
include upgrading or replacing some DIS cameras. This is an element of
the Company's strategy to allow the DIS lease service offering to
benefit from the most current features and reliability enhancements.
This assessment may result in a change in the depreciable life or
impairment of some of the current DIS cameras, and could create a
non-cash charge in the fourth quarter of 2005 that would be in
addition to the anticipated loss range provided above.
Conference Call
Digirad has scheduled a conference call at 4:45 p.m. EDT 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 #1838718.
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 above
regarding our anticipated financial results, including our expected
revenues and losses in the fourth quarter of 2005; the anticipated
positive results of the hiring of our new President of DIS, recent
sales and marketing hires and other improvements in our sales
management and direct selling organization; the expected positive
impact of recent inventory reductions; the anticipated successful
completion of trials of our Cardius-3 mobile camera; our anticipated
review of the DIS camera fleet and any resulting charges; and our long
term performance and plans for increasing market penetration in the
multi-head nuclear camera market. 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 the departure of employees and
related disruptions in our sales activities may affect Digirad's
products, customers, work force, suppliers and overall business
prospects and operations; the degree to which Digirad's imaging
systems and 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
imaging systems, including our Cardius-2 camera and recently launched
Cardius-3 camera, and services given its limited capabilities in these
areas; the degree to which recent changes in customer profiles may
reduce the number of days service initiated per new contract or
otherwise impact Digirad's business; Digirad's ability to retain and
attract key executives, qualified managers, engineers and imaging
technologists; Digirad's ability to manage risks relating to product
liability, warranty claims, recalls, property damage and personal
injury with respect to its imaging systems, including the Cardius-3;
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
Consolidated Statements of Operations
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
Revenue:
DIS $12,604 $11,023 $38,166 $32,725
Product 4,748 6,201 12,618 17,657
Total revenue 17,352 17,224 50,784 50,382
Cost of revenue:
DIS 9,185 7,702 27,031 22,476
Product 4,726 3,674 11,647 11,297
Stock-based compensation 32 96 129 342
Total cost of revenue 13,943 11,472 38,807 34,115
Gross profit 3,409 5,752 11,977 16,267
Operating expenses:
Research and development 899 872 2,712 2,197
Sales and marketing 1,817 1,852 5,519 5,492
General and administrative 3,694 2,521 11,069 7,164
Amortization and impairment of
intangible assets 139 16 173 48
Stock-based compensation 71 172 282 610
Total operating expenses 6,620 5,433 19,755 15,511
Income (loss) from operations (3,211) 319 (7,778) 756
Other income (expense):
Interest Income (expense) 374 61 978 (509)
Other income (expense) 10 6 (49) (24)
Total other income (expense) 384 67 929 (533)
Net income (loss) (2,827) 386 (6,849) 223
Accretion of deferred issuance
costs on preferred stock -- -- -- (161)
Net income (loss) applicable to
common stockholders $(2,827) $386 $(6,849) $62
Net income (loss) per share (1)
Historical - basic and diluted $(0.15) $0.02 $(0.37) $0.01
Pro-forma - basic $(0.15) $0.02 $(0.37) $0.02
Pro-forma - diluted $(0.15) $0.02 $(0.37) $0.01
Shares used in per share
calculations:
Historical weighted average
shares outstanding
Basic 18,690 18,011 18,390 7,388
Diluted 18,690 19,392 18,390 16,125
Pro-forma weighted average shares
outstanding
Basic 18,690 18,011 18,390 14,745
Diluted 18,690 19,392 18,390 16,125
(1) As a result of the conversion of our preferred stock into 12.4
million shares of our common stock upon the completion of our
initial public offering in June 2004 of 5,500,000 shares of our
common stock, there is a lack of comparability in the basic and
diluted net loss per share amounts for the periods presented
above.
Digirad Corporation
Consolidated Balance Sheets
(in thousands, except par value amounts)
September 30, December 31,
2005 2004
Assets
Cash and cash equivalents $10,926 $11,348
Securities available-for-sale 37,308 44,215
Accounts receivable, net 8,878 10,017
Inventories, net 6,462 6,980
Other current assets 1,746 1,620
Total current assets 65,320 74,180
Property and equipment, net 10,992 11,182
Intangibles, net 379 542
Restricted cash 120 120
Total assets $76,811 $86,024
Liabilities and stockholder's equity
Accounts payable $2,694 $4,313
Accrued compensation 2,195 2,410
Accrued warranty 865 1,219
Other accrued liabilities 3,758 2,651
Deferred revenue 3,033 2,344
Current portion of long-term debt 890 2,228
Total current liabilities 13,435 15,165
Long-term debt, net of current portion 480 1,754
Other long-term liabilities 354 371
Stockholder's equity:
Preferred stock, $0.0001 par value:
10,000 shares authorized at
September 30, 2005 and December 31,
2004; no shares issued or
outstanding at September 30, 2005
and December 31, 2004 -- --
Common stock, $0.0001 par value:
150,000 shares authorized at
September 30, 2005 and December 31,
2004; 18,697 and 18,075 shares
issued and outstanding at
September 30, 2005 and December 31,
2004, respectively 2 2
Additional paid-in capital 150,056 149,845
Accumulated other comprehensive loss (193) (97)
Deferred compensation (378) (920)
Accumulated deficit (86,945) (80,096)
Total stockholder's equity 62,542 68,734
Total liabilities and stockholder's equity $76,811 $86,024
CONTACT: Digirad Corporation
Todd Clyde, 858-726-1600
ir@digirad.com
or
Investor Contact:
Neil Berkman Associates
310-277-5162
info@BerkmanAssociates.com