Digirad Corporation Reports Third-Quarter 2008 Financial Results

Revenue Growth Driven by Product Sales and Centers of Influence; Operating
Margin, Net Margin Continue Quarterly Improvement

POWAY, Calif., Oct. 23 /PRNewswire-FirstCall/ -- Digirad Corporation
(Nasdaq: DRAD), a leading provider of medical diagnostic imaging systems and
services to physicians' offices, hospitals and imaging centers, today reported
financial results for its third-quarter ended September 30, 2008.
Chief Executive Officer Todd Clyde stated: "I'm pleased to announce third
quarter consolidated revenues reached a record level of $20.2 million. This
was driven by solid camera sales and growth in our Digirad Imaging Solutions'
(DIS) centers of influence locations."
Clyde said that the Company's product division also achieved a milestone
of profitability in the quarter and also stated the revenue generated from the
centers of influence strategy is an indication of emerging success of this
other key initiative.
"Looking forward, we will focus our efforts on attaining profitability and
generating positive cash flow," Clyde added. "We will also continue to invest
in our product technology platform and the customer service capabilities of
our mobile imaging services."
Third-Quarter Highlights:
-- Total revenue rose to a record $20.2 million, compared to $18.8 million
in third-quarter 2007. DIS revenues grew to $14.0 million from $13.5 million
in third-quarter 2007, and product sales increased to $6.2 million from $5.3
million in third-quarter 2007. Total revenue for the first and second quarters
of 2008 was $18.3 million and $19.9 million, respectively.
-- Gross profit was $4.8 million, or 24 percent of revenue, compared to
$4.8 million, or 25 percent, in third-quarter 2007. Gross margin for the first
and second quarters of 2008 was 24 percent and 23 percent, respectively.
-- Operating expenses were $5.8 million, or 29 percent of revenue,
compared to $5.7 million, or 31 percent of revenue, in third-quarter 2007.
Operating expenses for the first and second quarters of 2008 were $6.1 million
and $6.0 million, respectively.
-- Net loss was $869,000, or $(0.05) per share, compared to net loss of
$588,000, or $(0.03) per share, in third-quarter 2007; the increase in net
loss is primarily due to a $272,000 reduction in interest and other income
compared to third-quarter 2007. Net loss for the first and second quarters of
2008 was $1.4 million and $1.2 million, respectively.
-- Cash and cash equivalents and securities available-for-sale totaled
$25.6 million, or $1.35 per share, on September 30, 2008. Cash and cash
equivalents and securities available-for-sale were $31.7 million on December
31, 2007; $26.4 million on March 31, 2008; and $26.9 million on June 30, 2008.
The decline since year-end 2007 occurred primarily during first-quarter 2008
to fund, in approximately equal amounts, operational needs and capital
expenditures to expand mobile imaging services.
-- DIS asset utilization was 57 percent on 158 systems (nuclear and
ultrasound), compared to 62 percent on 135 systems (nuclear and ultrasound)
during third-quarter 2007.
Nine-Month Summary:
-- Total revenue rose to $58.4 million, compared to $55.1 million for
nine-months 2007. DIS revenues were $42.0 million compared to $39.0 million
for nine-months 2007, and product sales were $16.3 million, compared to $16.1
million for nine-months 2007.
-- Gross profit was $13.8 million, or 24 percent of revenue, compared to
$16.0 million, or 29 percent, for nine-months 2007. The decline in gross
margin was largely the result of costs related to initiatives to reduce
turnover of mobile imaging services personnel and upgrading the Company's
fleet of mobile imaging systems.
-- Operating expenses were $17.9 million, or 31 percent of revenue,
compared to $17.6 million, or 32 percent of revenue, for nine-months 2007.
-- Net loss was $3.4 million, or $(0.18) per share, compared to a net loss
of $276,000, or $(0.01) per share, for nine-months 2007; the increase in net
loss reflecting the decline in gross margin and lower interest income,
compared to nine-months 2007.
Management Updates Guidance for Full-Year 2008
Management anticipates consolidated revenues in a range of $77.0 million
to $78.5 million, consisting of DIS revenue of $55 million to $56.0 million
and product-related revenue of $22.0 million to $22.5 million. Management
expects a consolidated net loss in a range of $3.5 million to $4.5 million,
including estimated stock-based compensation expense of $750,000.
Conference Call Information
A conference call is scheduled for 11:00 a.m. EDT today to discuss the
results and management's outlook. 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
Digirad Corporation provides diagnostic nuclear and ultrasound imaging
systems and services to physicians' offices, hospitals and other medical
services providers for cardiac, vascular, and general imaging applications.
Digirad's Cardius XPO line of nuclear imaging cameras use patented solid-state
technology and unique multi (dual, triple) head design for superior
performance and advanced features for sharper digital images, faster
processing, compact size, lighter weight for portability, ability to handle
patients up to 500 pounds, and improved patient comfort compared to standard
nuclear cameras. Digirad's 2020tc general-purpose nuclear imager has a small
footprint and may also be configured for fixed or mobile use to supplement
primary imaging. Digirad's installed base of equipment exceeds 550 systems; in
addition, a mobile fleet of 158 nuclear and ultrasound imaging systems is
being used in 22 states and the District of Columbia, primarily in the
eastern, midwestern and southwestern United States. 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
Statements 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. Examples of such
forward looking statements include statements regarding revenues, gross
margins, operating expenses, net results, stock-based compensation,
anticipated revenue in 2008 and revenue from the Company's centers of
influence, product division sales, and, in general, anticipated financial
results for 2008. Actual performance and benefits results may differ
materially from those set forth in this press release due to risks and
uncertainties inherent in Digirad's business including, without limitation,
changes in business conditions, technology, customers' business conditions,
work force, suppliers, business prospects, 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, 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.
Investor Contact:
Dan Matsui
Allen & Caron
949-474-4300

Company Contact:
Todd Clyde, CEO
858-726-1600
ir@digirad.com

[Financial tables next pages]

Digirad Corporation
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(unaudited)

Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007

Revenues:
DIS $13,954 $13,500 $42,032 $39,020
Product 6,249 5,274 16,339 16,104

Total revenues 20,203 18,774 58,371 55,124

Cost of revenues:
DIS 11,235 10,166 33,534 28,771
Product 4,145 3,834 11,046 10,327

Total cost of revenues 15,380 14,000 44,580 39,098

Gross profit 4,823 4,774 13,791 16,026

Operating expenses:
Research and development 654 868 1,959 2,441
Sales and marketing 2,036 1,624 6,433 5,661
General and administrative 2,941 3,037 8,952 9,126
Amortization of intangible
assets 173 217 542 326

Total operating expenses 5,804 5,746 17,886 17,554

Loss from operations (981) (972) (4,095) (1,528)

Interest and other, net 112 384 675 1,252

Net loss $(869) $(588) $ (3,420) $(276)

Net loss per share -
basic and diluted $(0.05) $(0.03) $(0.18) $(0.01)

Weighted average shares
outstanding:
Basic and diluted 18,964 18,829 18,943 18,821

Stock-based compensation
expense is included in
the above as follows:

Cost of DIS revenue $12 $17 $44 $61
Cost of Product revenue 13 17 38 60
Research and development 11 18 37 62
Sales and marketing 30 2 85 67
General and administrative 151 145 426 574

Digirad Corporation
Condensed Consolidated Balance Sheets(1)
(in thousands)

September 30, December 31,
2008 2007
(unaudited)

Assets
Cash and cash equivalents $10,313 $14,922
Securities available-for-sale 12,938 16,740
Accounts receivable, net 9,970 8,536
Inventories, net 5,750 5,455
Other current assets 1,962 1,786

Total current assets 40,933 47,439

Property and equipment, net 16,628 16,235
Other intangible assets, net 2,088 2,631
Goodwill 2,650 2,650
Securities available-for-sale 2,319 --
Restricted cash 60 60

Total assets $64,678 $69,015

Liabilities and stockholders' equity

Accounts payable $ 2,616 $ 2,650
Accrued compensation 3,372 3,547
Accrued warranty 787 930
Other accrued liabilities 2,766 3,285
Deferred revenue 2,802 2,909
Current portion of long-term debt 102 213

Total current liabilities 12,445 13,534

Long-term debt, net of current
portion 62 --
Deferred rent 164 234

Total stockholders' equity 52,007 55,247

Total liabilities and
stockholders' equity $64,678 $69,015

(1) The condensed consolidated balance sheet as of December 31, 2007, has
been derived from the audited financial statements as of that date.

SOURCE Digirad Corporation

Investor Contact: Dan Matsui of Allen & Caron, +1-949-474-4300; or Company
Contact: Todd Clyde, CEO of Digirad Corporation, +1-858-726-1600,
ir@digirad.com