8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8‑K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934

Date of Report: October 28, 2014

(Date of earliest event reported)

DIGIRAD CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	000-50789	33-0145723
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

1048 Industrial Court,

Suwanee, GA 30024

(Address of principal executive offices, including zip code)

(858) 726-1600

(Registrant’s telephone number, including area code)

Not Applicable

(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:

[ ] 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))

Item 2.02.  Results of Operations and Financial Condition

On October 30, 2014, Digirad Corporation issued a press release announcing financial results for the three and nine months ended September 30, 2014. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

On October 28, 2014, James B. Hawkins resigned from his position as a member of the Board of Directors of the Company (the “Board”), effective immediately.  Mr. Hawkins resigned his position due to requirements of his other business interests. Mr. Hawkins served on the Company’s Audit Committee and was the Chair of the Company’s Compensation Committee. Mr. Hawkins resignation was not the result of any disagreement related to any matter involving the Company’s operations, policies or practices. 

The Board has elected Mr. Michael A. Cunnion to replace Mr. Hawkins on the Audit Committee and Mr. John M. Climaco to replace Mr. Hawkins as Chair of the Compensation Committee.

Item 9.01.  Financial Statements and Exhibits

(a) Financial statements:

None

(b) Pro forma financial information:

None

(c) Shell company transactions:

None

(d)  Exhibits:

99.1 Press Release of Digirad Corporation dated October 30, 2014

99.2 Information Related to the Use of Non-GAAP Financial Measures    

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/ Jeffry R. Keyes
	Jeffry R. Keyes Chief Financial Officer

Date:    October 30, 2014

Exhibit Index

Exhibit No.	Description
99.1	Press Release dated October 30, 2014, announcing financial results for the three and nine months ended September 30, 2014.
99.2	Information Related to the use of Non-GAAP Financial Measures.

EX-99.1

Exhibit 99.1

News Release

For immediate release	For more information contact:
October 30, 2014	Jeffry Keyes
	Chief Financial Officer
	858-726-1600
	ir@digirad.com

Digirad Corporation Reports Financial Results for Third Quarter and Nine Months of 2014

• Year over year revenue growth of 12% for the quarter and 13% for the nine months ended 2014

• Updates 2014 financial guidance to the high end of previously announced ranges

• Announces a regular quarterly cash dividend of $0.05 cents per share

Suwanee, GA.- October 30, 2014 - Digirad Corporation (Nasdaq: DRAD) today reported its financial results for the third quarter and nine months ended September 30, 2014.

Total revenues for the 2014 third quarter were $13.9 million, an increase of 12 percent compared to the prior year’s third quarter revenues of $12.4 million. Adjusted income for the 2014 third quarter was $1.2 million, or $0.06 per diluted share, the same as the prior year quarter. Adjusted EBITDA for the 2014 third quarter was $1.7 million, compared to $1.5 million for the prior year quarter.

Total revenues for the first nine months of 2014 were $41.5 million, an increase of 13 percent compared to the same period in the prior year. Adjusted net income for the first nine months of 2014 was $2.6 million, or $0.14 per diluted share, compared to adjusted net loss of $0.2 million, or $0.01 loss per diluted share for the same period in the prior year. Adjusted EBITDA for the first nine months of 2014 was $4.0 million, compared to $1.3 million for the same period in the prior year. A reconciliation of adjusted net income and adjusted EBITDA is provided later in this release.

Digirad President and CEO Matt Molchan said, “I am very pleased with the results this quarter, and also for our 2014 year so far. Our revenues once again increased this quarter, and also for the first nine months of 2014. Excluding the impact of our recent Telerhythmics acquisition, our year over year revenues increased 3 percent during the third quarter; showing we are growing both organically as well as from our acquisitions.”

“The integration of Telerhythmics, our new cardiac event monitoring business, continues to go well, and as planned. We are continuing to work on full integration of our sales programs and operational activities so we can poise Telerhythmics for growth in the future.”

The Company’s cash, cash equivalents and available-for-sale securities balance at September 30, 2014 was $21.8 million, an increase from the June 30, 2014 balance of $21.4 million. This increase primarily reflects cash flow generation of the business, partially offset by payment of cash dividends.

The Company also announced a cash dividend of $0.05 cents per share that will be paid on November 24, 2014, to shareholders of record on November 12, 2014.

2014 Financial Guidance

The Company also today announced that it expects to achieve at the upper end of its previously announced financial guidance ranges for revenue, non-GAAP adjusted diluted earnings per share and non-GAAP adjusted EBITDA.

The previously announced 2014 financial guidance was to generate revenues between $53.5 million and $55.0 million; non-GAAP adjusted diluted earnings per share between $0.13 and $0.15; and non-GAAP adjusted EBITDA between $4.5 million and $5.0 million.

The Company's non-GAAP financial measure adjusted diluted earnings per share excludes restructuring charges and acquired intangible asset amortization. Adjusted EBITDA further excludes stock-based compensation expense.

Conference Call Information

A conference call is scheduled for 11:00 a.m. EDT on October 31, 2014, to discuss the results and management's outlook. The call may be accessed by dialing 877-407-9039 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 operating expenses,” “adjusted net income (loss)”, “adjusted net income (loss) per diluted share” and “adjusted EBITDA”. The most directly comparable measure for these non-GAAP financial measures are operating expenses, net income (loss) and diluted net income (loss) per share. The Company has included below unaudited adjusted financial information, which present the Company's results of operations after excluding restructuring charges, purchase intangible asset amortization, and gain on the sale of assets and license agreement, and in the measure of adjusted EBITDA, 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 October 30, 2014.

About Digirad Corporation

Digirad delivers convenient, effective, and efficient diagnostic solutions on an as needed, when needed, and where needed basis. Digirad is one of the largest national providers of in-office nuclear cardiology and ultrasound imaging services, and also provides cardiac event monitoring services. These services are provided to physician practices, hospitals and imaging centers through its Diagnostic Services business. Digirad also sells medical diagnostic imaging systems, including solid-state gamma cameras, for nuclear cardiology and general nuclear medicine applications, as well as provides service on the products sold through its Diagnostic Imaging business. For more information, please visit www.digirad.com. Digirad^® 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. 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 Income (Loss)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands, except per share amounts)	2014			2013			2014			2013
Revenues:
Diagnostic Services	$	10,821		$	9,489		$	31,716		$	27,903
Diagnostic Imaging	3,060			2,924			9,749			8,946
Total revenues	13,881			12,413			41,465			36,849
Cost of revenues:
Diagnostic Services	8,063			6,916			23,801			20,920
Diagnostic Imaging	1,409			1,679			5,308			5,501
Total cost of revenues	9,472			8,595			29,109			26,421
Gross profit	4,409			3,818			12,356			10,428
Total gross profit percentage	31.8		%	30.8		%	29.8		%	28.3		%
Diagnostic Services gross profit percentage	25.5		%	27.1		%	25.0		%	25.0		%
Diagnostic Imaging gross profit percentage	54.0		%	42.6		%	45.6		%	38.5		%
Operating expenses:
Research and development	—			24			—			1,020
Marketing and sales	1,157			1,042			3,497			3,287
General and administrative	2,047			1,754			6,235			6,427
Amortization of intangible assets	93			55			263			178
Restructuring charges	80			79			659			1,693
Gain on sale of assets and license agreement	—			(1,568		)	—			(1,568		)
Total operating expenses	3,377			1,386			10,654			11,037
Income (loss) from operations	1,032			2,432			1,702			(609		)
Other income (expense):
Interest and other income, net	14			13			46			52
Interest expense	(10		)	(5		)	(27		)	(10		)
Total other income	4			8			19			42
Income (loss) before income taxes	1,036			2,440			1,721			(567		)
Income tax benefit (expense)	(8		)	72			(18		)	44
Net income (loss)	$	1,028		$	2,512		$	1,703		$	(523	)
Net income (loss) per share – basic	$	0.06		$	0.14		$	0.09		$	(0.03	)
Net income (loss) per share – diluted	$	0.05		$	0.14		$	0.09		$	(0.03	)
Dividends declared per common share	$	0.05		$	—		$	0.15		$	—
Weighted average shares outstanding – basic	18,601			18,328			18,558			18,890
Weighted average shares outstanding – diluted	18,895			18,580			18,853			18,890

Digirad Corporation

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands)	September 30, 2014			December 31, 2013
Assets
Current assets:
Cash and cash equivalents	$	12,793		$	18,744
Securities available-for-sale	9,022			7,673
Accounts receivable, net	6,594			5,430
Inventories, net	3,543			3,881
Other current assets	760			697
Restricted cash	477			244
Total current assets	33,189			36,669
Property and equipment, net	4,902			4,153
Intangible assets, net	2,670			353
Goodwill	1,337			184
Other assets	70			92
Total assets	$	42,168		$	41,451
Liabilities and stockholders’ equity
Accounts payable	$	1,760		$	611
Accrued compensation	3,247			3,472
Accrued warranty	139			137
Deferred revenue	1,423			1,631
Other accrued liabilities	2,043			1,774
Total current liabilities	8,612			7,625
Other liabilities	889			440
Total liabilities	9,501			8,065
Stockholders’ equity:
Preferred stock	—			—
Common stock	2			2
Treasury stock	(5,728		)	(5,728		)
Additional paid-in capital	154,565			156,968
Accumulated other comprehensive loss	(21		)	(2		)
Accumulated deficit	(116,151		)	(117,854		)
Total stockholders’ equity	32,667			33,386
Total liabilities and stockholders’ equity	$	42,168		$	41,451

Digirad Corporation

Reconciliation of Non-GAAP Financial Measures

(Unaudited)

		Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except per share amounts)		2014			2013			2014			2013
Total operating expenses		$	3,377		$	1,386		$	10,654		$	11,037
	Restructuring charges(1)	(80		)	(79		)	(659		)	(1,693		)
	Gain on sale of assets and license agreement(4)	—			1,568			—			1,568
Non-GAAP Adjusted operating expenses		$	3,297		$	2,875		$	9,995		$	10,912
Net income (loss)		$	1,028		$	2,512		$	1,703		$	(523	)
	Restructuring charges(1)	80			79			659			1,693
	Gain on sale of assets and license agreement(4)	—			(1,568		)	—			(1,568		)
	Acquired intangible amortization	90			51			256			169
	Income tax items(2)	(1		)	—			(7		)	—
Non-GAAP Adjusted net income (loss)		$	1,197		$	1,074		$	2,611		$	(229	)
Net income (loss) per share - diluted		$	0.05		$	0.14		$	0.09		$	(0.03	)
	Restructuring charges(1)(3)	—			—			0.03			0.09
	Gain on sale of assets and license agreement(4)	—			(0.08		)	—			(0.08		)
	Acquired intangible amortization(3)	—			—			0.01			0.01
	Income tax items(2)(3)	—			—			—			—
Non-GAAP Adjusted net income (loss) per share - diluted(3)		$	0.06		$	0.06		$	0.14		$	(0.01	)

		Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)		2014			2013			2014			2013
Net income (loss)		$	1,028		$	2,512		$	1,703		$	(523	)
	Restructuring charges(1)	80			79			659			1,693
	Gain on sale of assets and license agreement(4)	—			(1,568		)	—			(1,568		)
	Depreciation and amortization	497			475			1,441			1,447
	Stock-based compensation	96			74			207			300
	Interest and other income, net	(14		)	(13		)	(46		)	(52		)
	Interest expense	10			5			27			10
	Income tax expense (benefit)	8			(72		)	18			(44		)
Non-GAAP Adjusted EBITDA		$	1,705		$	1,492		$	4,009		$	1,263

⁽¹⁾Reflects nonrecurring charges primarily related to restructuring of the Diagnostic Imaging reporting segment and lease termination of the Poway, CA facility.

⁽²⁾ Reflects income tax effect for adjusted financial data.

⁽³⁾ 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.

⁽⁴⁾  Reflects a nonrecurring gain related to the sale of assets associated with an uncommercialized surgical imaging system, and the licensing of certain existing Company technology.

Digirad Corporation

Reconciliation of Non-GAAP Financial Measures

(Unaudited)

		Three Months Ended
(in thousands, except per share amounts)		September 30, 2013			December 31, 2013			March 31, 2014			June 30, 2014			September 30, 2014
Total operating expenses		$	1,386		$	2,908		$	3,597		$	3,680		$	3,377
	Restructuring charges(1)	(79		)	(35		)	(441		)	(138		)	(80		)
	Gain on sale of assets and license agreement(2)	1,568			—			—			—			—
Non-GAAP Adjusted operating expenses		$	2,875		$	2,873		$	3,156		$	3,542		$	3,297
Net income (loss)		$	2,512		$	787		$	(148	)	$	823		1,028
	Restructuring charges(1)	79			35			441			138			80
	Gain on sale of assets and license agreement(2)	(1,568		)	—			—			—			—
	Acquired intangible amortization	$	51		$	51		64			102			90
	Income tax items(3)	—			—			(4		)	(2		)	(1		)
Non-GAAP Adjusted net income (loss)		$	1,074		$	873		$	353		$	1,061		$	1,197
Net income (loss) per share - diluted(4)		$	0.14		$	0.04		$	(0.01	)	$	0.04		0.05
	Restructuring charges(1)(4)	—			—			0.02			0.01			—
	Gain on sale of assets and license agreement(2)(4)	(0.08		)	—			—			—			—
	Acquired intangible amortization(4)	—			—			—			0.01			—
	Income tax items(3)(4)	—			—			—			—			—
Non-GAAP Adjusted net income per share - diluted(4)		$	0.06		$	0.05		$	0.02		$	0.06		$	0.06

		Three Months Ended
(in thousands)		September 30, 2013			December 31, 2013			March 31, 2014			June 30, 2014			September 30, 2014
Net income (loss)		$	2,512		$	787		$	(148	)	$	823		$	1,028
	Restructuring charges(1)	79			35			441			138			80
	Gain on sale of assets and license agreement(2)	(1,568		)	—			—			—			—
	Depreciation and Amortization	475			466			453			485			497
	Stock-based Compensation	74			40			50			61			96
	Interest and other income, net	(13		)	(11		)	(17		)	(15		)	(14		)
	Interest expense	5			5			8			9			10
	Income tax benefit (expense)	(72		)	(1		)	2			8			8
Non-GAAP Adjusted EBITDA		$	1,492		$	1,321		$	789		$	1,509		$	1,705

⁽¹⁾Reflects nonrecurring charges primarily related to restructuring of the Diagnostic Imaging reporting segment and lease termination of the Poway, CA facility.

⁽²⁾Reflects a nonrecurring gain related to the sale of assets associated with an uncommercialized surgical imaging system, and the licensing of certain existing Company technology.

⁽³⁾ Reflects income tax effect for adjusted financial data.

⁽⁴⁾ 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.

EX-99.2

Exhibit 99.2

Use of Non-GAAP Financial Measures

In addition to financial results calculated in accordance with U.S. generally accepted accounting principles (“GAAP”), information containing non-GAAP financial measures for Digirad Corporation (the “Company”) was disclosed in the Company's press release (the “Press Release”) dated October 30, 2014 announcing results for the three and nine months ended September 30, 2014 that accompanied a conference call held by the Company on October 31, 2014. The non-GAAP financial measures disclosed by the Company should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations to those financial statements should be carefully evaluated. The non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. The Company has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures. Management encourages readers to rely upon the GAAP numbers, but includes the non-GAAP financial measures as supplemental metrics to assist readers. Definitions of the non-GAAP financial measures are included in the Press Release.

In the Press Release, the Company presented the non-GAAP financial measures “adjusted operating expenses”, “adjusted net income (loss)”, “adjusted net income (loss) per diluted share” and "adjusted EBITDA". Company management uses these non-GAAP financial measures to evaluate the Company's performance. As the Company's core business is providing healthcare services and products to the healthcare industry, Company management finds it useful to use financial measures that do not include charges associated with restructuring activities, acquired intangible asset amortization or monetization of uncommercialized technology previously under development. While we may have these types of items and charges in the future, Company management believes that they are not reflective of the day-to-day offering of its products and services and relate more to strategic, multi-year corporate actions, without predictable trends, and that may obscure the trends and financial performance of the Company's core business. In the case of "adjusted EBITDA", Company management believes the exclusion of interest, taxes, depreciation, amortization, and stock-based compensation is a very common measure utilized in the investment community and it helps Company management benchmark its operations and results with the industry.

The limitation associated with using these non-GAAP financial measures is that these measures exclude items that impact the Company's current period operating results. This limitation is best addressed by using these non-GAAP financial measures in combination with “operating expenses”, “net income (loss)” and “net income (loss) per diluted share” (the most comparable GAAP measures) because these non-GAAP financial measures do not reflect items that impact current period operating results and may be higher or lower than the most comparable GAAP measure.