Digirad Corporation Reports Third Quarter 2009 Financial Results

POWAY, CA--(Marketwire - October 22, 2009) - Digirad Corporation (NASDAQ: DRAD) today reported the Company continued to generate positive cash flow, improved gross margins in its DIS (Digirad Imaging Solutions) business, and maintained its total cash and investments position of more than $31 million in its third quarter ended September 30, 2009, staying on track to record positive net earnings for the year, despite lower camera sales in its product segment.

Digirad CEO Todd Clyde said, “We continue to drive toward our key 2009 goal of sustained profitability and positive cash flow, even in the midst of health care reimbursement uncertainty and a difficult economic environment. We are improving our revenues and margins in DIS. We are happy to report the introduction of our second of two new products this year, including our c.pax image management solution for our camera and DIS customers. Although capital equipment budgets at both the hospital and private practice remain low, we believe our new proprietary Cardius® X-ACT imaging system, introduced earlier this year, is ideally suited for large volume nuclear medicine departments and practices. We believe that we are well positioned to grow our revenues and market share when the economic recovery begins.”

Third Quarter Financial Highlights:

-- Total revenue was $16.9 million, compared to $20.2 million in the third quarter of 2008, mainly due to the sale of fewer nuclear gamma cameras that resulted from economy-driven tightening of hospital budgets and debt availability. DIS revenue declined slightly to $12.9 million compared to $14.0 million in the third quarter of 2008 and the second quarter of 2009. Product revenues also declined to $4.0 million compared to $6.2 million in the third quarter 2008 and $5.0 million in the second quarter of 2009.

-- Gross profit was $4.5 million, or 27% of revenue, compared to $4.8 million, or 24%, in the third quarter of 2008.

-- Net loss was $(0.4) million, or $(0.02) per share, compared to net loss of $(0.9) million, or $(0.05) per share, in the third quarter of 2008.

-- Cash and cash equivalents and securities available-for-sale totaled $31.1 million, or $1.64 per share at September 30, 2009, net of approximately $500,000 invested in the Company’s stock as part of its 10b-18 buyback program. Cash and cash equivalents and securities available-for-sale were $28.3 million at December 31, 2008 and $31.5 million at June 30, 2009.

-- DIS asset utilization was 63% on 147 systems (nuclear and ultrasound), compared to 57% on 158 systems (nuclear and ultrasound) during the third quarter of 2008.

Year-to-Date Financial Highlights:

-- Total revenue was $53.2 million, compared to $58.4 million for the first nine months of 2008, mainly due to the sale of certain DIS hubs earlier this year and fewer nuclear gamma camera sales. DIS revenue was $40.3 million for the first nine months of this year compared to $42.0 million for the first nine months of 2008, and Product revenues were $12.9 million compared to $16.3 million for the first nine months of 2008.

-- Gross profit was $15.5 million, or 29% of revenue, compared to $13.8 million, or 24%, for the first nine months of 2008.

-- Net income was $0.4 million, or $0.02 per share, compared to net loss of $3.4 million, or $(0.18) per share, for the first nine months of 2008.

-- DIS asset utilization was 63% on 149 systems (nuclear and ultrasound), compared to 59% on 150 systems (nuclear and ultrasound) during the first nine months of 2008.

Clyde continued, “Camera sales continue to be lower than we anticipated, requiring additional restructuring in the third quarter to align our cost structure to our camera business. We continue to make progress in stabilizing all areas of our business, despite the uncertainty in our current health care market. We are encouraged with the positive momentum in our DIS business, which is helping to offset our declining camera sales. I am very proud of our team, as they have shown great ability to navigate through this constantly changing economic and health care environment.”

Conference Call Information

A conference call is scheduled for 11:00 a.m. EDT today to discuss the results and management’s outlook. The call may be accessed by dialing 866-226-4514 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 www.digirad.com; an archived replay of the webcast will be available within 15 minutes of the end of the conference call.

About Digirad Corporation

Digirad is a leading provider of diagnostic imaging products, and personnel and equipment leasing services. For more information, please visit www.digirad.com. Digirad®, Digirad Imaging Solutions®, and Cardius® are registered trademarks of Digirad Corporation.

Forward-Looking Statements

This press release contains statements that are forward-looking statements as defined within the Private Securities Litigation Reform Act of 1995. These include statements regarding the efficacy of Digirad’s centers of influence model, the status of the negotiation of the sale or closure of underperforming hub locations, and the ability to achieve positive cash flow and profitability, drive technology progress and improve services utilization to grow market share. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements made, including the risks associated with changes in business conditions, technology, customers’ business conditions, reimbursement, radiopharmaceutical shortages, economic outlook, operational policy or structure, acceptance and use of Digirad’s camera systems and services, reliability, recalls, and other risks detailed in Digirad’s filings with the U.S. Securities and Exchange Commission, including 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 Unaudited Condensed Consolidated Statements of Operations (In thousands, except per share amounts) Three Months Ended Nine Months Ended September 30, September 30, -------------------- --------------------- 2009 2008 2009 2008 --------- --------- ---------- --------- Revenues: DIS $ 12,903 $ 13,954 $ 40,319 $ 42,032 Product 4,025 6,249 12,878 16,339 --------- --------- ---------- --------- Total revenues 16,928 20,203 53,197 58,371 Cost of revenues: DIS 9,563 11,235 29,285 33,534 Product 2,852 4,145 8,402 11,046 --------- --------- ---------- --------- Total cost of revenues 12,415 15,380 37,687 44,580 --------- --------- ---------- --------- Gross profit 4,513 4,823 15,510 13,791 Operating expenses: Research and development 864 654 2,490 1,959 Marketing and sales 1,698 2,036 5,422 6,433 General and administrative 2,139 2,941 6,783 8,952 Amortization of intangible assets 133 173 448 542 Restructuring loss 193 -- 338 -- --------- --------- ---------- --------- Total operating expenses 5,027 5,804 15,481 17,886 --------- --------- ---------- --------- Income (loss) from operations (514) (981) 29 (4,095) Interest and other, net 100 112 385 675 --------- --------- ---------- --------- Net income (loss) $ (414) $ (869) $ 414 $ (3,420) ========= ========= ========== ========= Net income (loss) per share - basic and diluted $ (0.02) $ (0.05) $ 0.02 $ (0.18) ========= ========= ========== ========= Weighted average shares outstanding: Basic 19,020 18,964 18,989 18,943 ========= ========= ========== ========= Diluted 19,020 18,964 19,439 18,943 ========= ========= ========== ========= Stock-based compensation expense is included in the above as follows: Cost of DIS revenue $ 6 $ 12 $ 20 $ 44 Cost of Product revenue 14 13 43 38 Research and development 9 11 27 37 Marketing and sales 21 30 69 85 General and administrative 95 151 302 426 Digirad Corporation Condensed Consolidated Balance Sheets(1) (in thousands) September 30, December 31, 2009 2008 ------------- ------------- (unaudited) Assets Cash and cash equivalents $ 12,880 $ 13,525 Securities available-for-sale 18,188 14,759 Accounts receivable, net 8,558 9,324 Inventories, net 6,740 4,978 Property and equipment held for sale -- 1,122 Other current assets 1,398 1,982 ------------- ------------- Total current assets 47,764 45,690 Property and equipment, net 10,838 13,428 Intangible assets, net 1,385 1,833 Goodwill 184 184 Restricted cash -- 60 ------------- ------------- Total assets $ 60,171 $ 61,195 ============= ============= Liabilities and stockholders’ equity Accounts payable $ 2,373 $ 2,197 Accrued compensation 3,038 3,457 Accrued warranty 532 906 Other accrued liabilities 2,336 2,811 Deferred revenue 2,469 2,723 ------------- ------------- Total current liabilities 10,748 12,094 Deferred rent 171 142 Total stockholders’ equity 49,252 48,959 ------------- ------------- Total liabilities and stockholders’ equity $ 60,171 $ 61,195 ============= ============= (1) The condensed consolidated balance sheet as of December 31, 2008, has been derived from the audited financial statements as of that date.