STAR EQUITY HOLDINGS, INC. - FORM 8-K - EX-99.1 - EXHIBIT 99.1

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EX-99.2 - EXHIBIT 99.2 - STAR EQUITY HOLDINGS, INC.	exhibit992-q32017useofnonx.htm
8-K - 8-K - STAR EQUITY HOLDINGS, INC.	drad8-kq32017earningsrelea.htm

Exhibit 99.1

News Release



For immediate release	For more information contact:
November 3, 2017	Jeff Keyes
	Chief Financial Officer
	858-726-1600
	ir@digirad.com

Digirad Corporation Reports Financial Results for the

Third Quarter and Nine Months Ended September 30, 2017

•Announces regular quarterly cash dividend of $0.055 cents per share

•Updates 2017 financial guidance

Suwanee, GA. - November 3, 2017 - Digirad Corporation (Nasdaq: DRAD) today reported its financial results for the third quarter and nine months ended September 30, 2017.

Total revenues for the third quarter were $28.6 million, compared to $31.1 million in the third quarter of the prior year.

Net loss for the third quarter was $8.9 million, or $0.44 net loss per diluted share, compared to a net loss of $0.3 million, or $0.01 net loss per diluted share in the same period in the prior year. Non-GAAP adjusted net income for the third quarter was $1.5 million, or $0.07 adjusted net income per diluted share, compared to adjusted net income of $1.0 million, or $0.05 adjusted net income per diluted share in the same period in the prior year. Non-GAAP adjusted EBITDA for the third quarter was $3.0 million, compared to $3.6 million in the same period in the prior year.

Total revenues for the nine months ended September 30, 2017 were $87.4 million, compared to the prior year's revenues for the first nine months of $94.3 million.

Net loss for the nine months ended September 30, 2017 was $13.7 million, or $0.69 net loss per diluted share, compared to net income of $12.3 million, or $0.62 net income per diluted share in the same period in the prior year. Non-GAAP adjusted net income for the nine months ended September 30, 2017 was $2.9 million, or $0.15 adjusted net income per diluted share, compared to adjusted net income of $4.4 million, or $0.22 adjusted net income per diluted share in the same period in the prior year. Non-GAAP adjusted EBITDA for the nine months ended September 30, 2017 was $7.2 million, compared to $11.4 million in the same period in the prior year.

Operating cash flow for the nine months ended September 30, 2017 was $4.1 million, compared to the prior year's operating cash flow for the first nine months of $6.8 million. Non-GAAP free cash flow was $2.7 million for the nine months ended September 30, 2017, compared to $3.0 million in the same period in the prior year.

Digirad President and CEO Matt Molchan said, “Our service businesses performed well this quarter, with Diagnostic Services posting period over period growth for both the quarter and year, and Mobile Healthcare performing within our expectations with continued improvement from operational changes we made earlier this year. In our products businesses, we continue to have slower than expected capital equipment sales, which impacted our overall results. We believe this trend has continued in part due to uncertainty in the future of the Affordable Care Act. We still cannot predict exactly when the uncertainty around capital spending will lift, but in the meantime, we continue to build an order pipeline giving us confidence in eventual improvement in capital equipment sales."

Molchan continued, “We previously announced the cancellation of our partnership with Philips Healthcare, effective December 31, 2017. This cancellation has impacted a portion of our MDSS business, which includes our Philips product sales, as well as associated installation and warranty services; however, we will continue to run and operate the post-warranty service side of this business. While we will have to make some adjustments in the near term to unwind the Philips relationship, we believe our overall business remains strong, and will continue to generate cash and grow in the long-term. We remain committed to our dividend and growing stockholder value over time.”

The Company also announced its regular quarterly cash dividend of $0.055 cents per share, which will be paid on November 30, 2017, to shareholders of record on November 20, 2017.

2017 Financial Guidance

Based on slower capital spending and the expected impact of Philips Healthcare contract cancellation, the Company updated its previously announced fiscal year 2017 financial guidance. The Company expects to generate revenues of approximately $115 to $120 million, non-GAAP adjusted EBITDA of between $9.5 and $10.5 million, adjusted net income per diluted share of between $0.08 and $0.10, and free cash flow of between $5 and $6 million.

Conference Call Information

A conference call is scheduled for 11:00 a.m. EDT on November 3, 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 November 3, 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						Nine Months Ended
	September 30,						September 30,
(in thousands, except per share amounts)	2017			2016			2017			2016

Revenues:
Services	$	22,667		$	23,825		$	69,080		$	72,496
Product and product-related	5,888			7,261			18,341			21,837
Total revenues	28,555			31,086			87,421			94,333
Cost of revenues:
Services	18,629			19,110			56,034			56,795
Product and product-related	3,286			3,675			10,607			10,407
Total cost of revenues	21,915			22,785			66,641			67,202

Gross profit	6,640			8,301			20,780			27,131
Total gross profit percentage	23.3		%	26.7		%	23.8		%	28.8		%
Services gross profit percentage	17.8		%	19.8		%	18.9		%	21.7		%
Product and product-related gross profit percentage	44.2		%	49.4		%	42.2		%	52.3		%

Operating expenses:
Marketing and sales	1,992			2,426			6,661			7,888
General and administrative	3,878			4,608			14,919			15,900
Amortization of intangible assets	578			578			1,734			1,735
Goodwill impairment	2,580			—			2,580			—
Total operating expenses	9,028			7,612			25,894			25,523

(Loss) income from operations	(2,388		)	689			(5,114		)	1,608

Other expense:
Other expense, net	(237		)	(428		)	(237		)	(414		)
Interest expense, net	(224		)	(342		)	(842		)	(1,092		)
Loss on extinguishment of debt	—			—			(709		)	—
Total other expense	(461		)	(770		)	(1,788		)	(1,506		)

(Loss) income before income taxes	(2,849		)	(81		)	(6,902		)	102
Income tax (expense) benefit	(6,050		)	(202		)	(6,845		)	12,222
Net (loss) income	$	(8,899	)	$	(283	)	$	(13,747	)	$	12,324

Net (loss) income per share:
Basic	$	(0.44	)	$	(0.01	)	$	(0.69	)	$	0.63
Diluted	$	(0.44	)	$	(0.01	)	$	(0.69	)	$	0.62
Dividends declared per common share	$	0.055		$	0.05		$	0.155		$	0.15

Weighted average shares outstanding – basic	20,009			19,618			19,974			19,532
Weighted average shares outstanding – diluted	20,009			19,618			19,974			20,026

Digirad Corporation

Condensed Consolidated Balance Sheets

(Unaudited)



(in thousands, except share data)	September 30, 2017			December 31, 2016
Assets:
Current assets:
Cash and cash equivalents	$	1,103		$	2,203
Securities available-for-sale	79			917
Accounts receivable, net	14,002			14,503
Inventories, net	5,903			5,987
Restricted cash	359			1,376
Other current assets	1,874			2,093
Total current assets	23,320			27,079
Property and equipment, net	29,048			31,407
Intangible assets, net	9,894			11,628
Goodwill	3,657			6,237
Deferred tax assets	20,623			27,019
Restricted cash	100			2,100
Other assets	976			793
Total assets	$	87,618		$	106,263

Liabilities:
Current liabilities:
Accounts payable	$	5,571		$	6,514
Accrued compensation	3,566			3,962
Accrued warranty	167			196
Deferred revenue	2,751			3,123
Current portion of long-term debt	—			5,358
Other current liabilities	4,188			3,520
Total current liabilities	16,243			22,673
Long-term debt, net of current portion	18,500			16,070
Other liabilities	2,009			1,039
Total liabilities	36,752			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; 20,052,984 and 19,892,557 shares issued and outstanding (net of treasury shares) at September 30, 2017 and December 31, 2016, respectively	2			2
Treasury stock, at cost; 2,588,484 shares at September 30, 2017 and December 31, 2016	(5,728		)	(5,728		)
Additional paid-in capital	149,241			151,696
Accumulated other comprehensive loss	—			(52		)
Accumulated deficit	(92,649		)	(79,437		)
Total stockholders’ equity	50,866			66,481
Total liabilities and stockholders’ equity	$	87,618		$	106,263

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)		2017			2016			2017			2016

Net (loss) income		$	(8,899	)	$	(283	)	$	(13,747	)	$	12,324
	Acquired intangible amortization	578			578			1,734			1,735
	Acquisition related contingent consideration valuation adjustment⁽¹⁾	—			(5		)	(57		)	(8		)
	Investment impairment loss⁽²⁾	237			414			237			414
	Transaction and integration costs of DMS Health Technologies⁽³⁾	—			127			—			1,748
	Goodwill impairment⁽⁴⁾	2,580			—			2,580			—
	Litigation reserve⁽⁵⁾	—			—			1,339			—
	Loss on extinguishment of debt	—			—			709			—
	Income tax items⁽⁶⁾	6,956			170			10,110			(11,860		)
Non-GAAP adjusted net income		$	1,452		$	1,001		$	2,905		$	4,353

Net (loss) income per share - diluted⁽⁷⁾		$	(0.44	)	$	(0.01	)	$	(0.69	)	$	0.62
	Acquired intangible amortization	0.03			0.03			0.09			0.09
	Acquisition related contingent consideration valuation adjustment⁽¹⁾	—			—			—			—
	Investment impairment loss⁽²⁾	0.01			0.02			0.01			0.02
	Transaction and integration costs of DMS Health Technologies⁽³⁾	—			0.01			—			0.09
	Goodwill impairment⁽⁴⁾	0.13			—			0.13			—
	Litigation reserve⁽⁵⁾	—			—			0.07			—
	Loss on extinguishment of debt	—			—			0.04			—
	Income tax items⁽⁶⁾	0.35			0.01			0.51			(0.59		)
Non-GAAP adjusted net income per share - diluted⁽⁷⁾		$	0.07		$	0.05		$	0.15		$	0.22



		Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)		2017			2016			2017			2016

Net (loss) income		$	(8,899	)	$	(283	)	$	(13,747	)	$	12,324
	Acquisition related contingent consideration valuation adjustment⁽¹⁾	—			(5		)	(57		)	(8		)
	Investment impairment loss⁽²⁾	237			414			237			414
	Transaction and integration costs of DMS Health Technologies⁽³⁾	—			127			—			1,748
	Goodwill impairment⁽⁴⁾	2,580			—			2,580			—
	Litigation reserve⁽⁵⁾	—			—			1,339			—
	Loss on extinguishment of debt	—			—			709			—
	Depreciation and amortization	2,495			2,489			7,662			7,337
	Stock-based compensation	270			274			829			754
	Interest expense, net	224			342			842			1,092
	Income tax expense (benefit)	6,050			202			6,845			(12,222		)
Non-GAAP adjusted EBITDA		$	2,957		$	3,560		$	7,239		$	11,439

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

⁽²⁾ Reflects impairment loss related to write-down of available-for-sale securities to their 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 impairment of goodwill for MDSS reporting unit.

⁽⁵⁾ Reflects tentative legal settlement reserve, with preliminary court approval, for wage and hour litigation.

⁽⁶⁾ Reflects income tax effect for adjusted financial data and acquisition related income tax adjustments, and adjustment to net operating loss carryforwards.

⁽⁷⁾ 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)		September 30, 2016			December 31, 2016			March 31, 2017			June 30, 2017			September 30, 2017

Net (loss) income		$	(283	)	$	1,978		$	(2,076	)	$	(2,772	)	$	(8,899	)
	Acquired intangible amortization	578			578			578			578			578
	Acquisition related contingent consideration valuation adjustment⁽¹⁾	(5		)	(56		)	(57		)	—			—
	Investment impairment loss⁽²⁾	414			—			—			—			237
	Transaction and integration costs of DMS Health Technologies⁽³⁾	127			173			—			—			—
	Goodwill impairment⁽⁴⁾	—			338			—			—			2,580
	Litigation reserve⁽⁵⁾	—			—			—			1,339			—
	Loss on extinguishment of debt	—			—			—			709			—
	Income tax items⁽⁶⁾	170			25			1,348			1,806			6,956
Non-GAAP adjusted net income (loss)		$	1,001		$	3,036		$	(207	)	$	1,660		$	1,452

Net (loss) income per share - diluted⁽⁷⁾		$	(0.01	)	$	0.10		$	(0.10	)	$	(0.14	)	$	(0.44	)
	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			—			—			—			0.01
	Transaction and integration costs of DMS Health Technologies⁽³⁾	0.01			0.01			—			—			—
	Goodwill impairment⁽⁴⁾	—			0.02			—			—			0.13
	Litigation reserve⁽⁵⁾	—			—			—			0.07			—
	Loss on extinguishment of debt	—			—			—			0.04			—
	Income tax items⁽⁶⁾	0.01			—			0.07			0.09			0.35
Non-GAAP adjusted net income (loss) per share - diluted⁽⁷⁾		$	0.05		$	0.15		$	(0.01	)	$	0.08		$	0.07



		Three Months Ended
(in thousands)		September 30, 2016			December 31, 2016			March 31, 2017			June 30, 2017			September 30, 2017

Net income (loss)		$	(283	)	$	1,978		$	(2,076	)	$	(2,772	)	$	(8,899	)
	Acquisition related contingent consideration valuation adjustment⁽¹⁾	(5		)	(56		)	(57		)	—			—
	Investment impairment loss⁽²⁾	414			—			—			—			237
	Transaction and integration costs of DMS Health Technologies⁽³⁾	127			173			—			—			—
	Goodwill impairment⁽⁴⁾	—			338			—			—			2,580
	Litigation reserve⁽⁵⁾	—			—			—			1,339			—
	Loss on extinguishment of debt	—			—			—			709			—
	Depreciation and amortization	2,489			2,552			2,579			2,588			2,495
	Stock-based compensation	274			270			263			296			270
	Interest expense, net	342			320			315			303			224
	Income tax (benefit) expense	202			(194		)	786			9			6,050
Non-GAAP adjusted EBITDA		$	3,560		$	5,381		$	1,810		$	2,472		$	2,957

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

⁽²⁾ Reflects impairment loss related to write-down of available-for-sale securities to their 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 impairment of goodwill for Telerhythmics and MDSS reporting units.

⁽⁵⁾ Reflects tentative legal settlement reserve, with preliminary court approval, for wage and hour litigation.

⁽⁶⁾ Reflects income tax effect for adjusted financial data and acquisition related income tax adjustments, and adjustment to net operating loss carryforwards.

Digirad Corporation

Reconciliation of Operating Cash Flow to Free Cash Flow

(Unaudited)



	Nine Months Ended September 30,
(in thousands)	2017			2016
Net cash provided by operating activities	$	4,101		$	6,816
Purchases of property and equipment, net of dispositions	(1,393		)	(3,791		)
Free cash flow	$	2,708		$	3,025

Digirad Corporation

Supplemental Debt Information

(Unaudited)

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



	September 30, 2017				December 31, 2016
(in thousands)	Balance		Interest Rate		Balance		Interest Rate
Comerica
Revolving Line of Credit ⁽¹⁾	$	18,500	3.59	%	$	—
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	$	18,500			$	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 September 30,						Nine Months Ended September 30,
(in thousands)	2017			2016 ⁽¹⁾			2017			2016 ⁽¹⁾
Revenue by segment:
Diagnostic Services	$	12,171		$	12,070		$	36,932		$	36,551
Diagnostic Imaging	2,975			2,703			8,701			9,703
Mobile Healthcare	10,496			11,755			32,148			35,945
Medical Device Sales and Service	2,913			4,558			9,640			12,134
Condensed consolidated revenue	$	28,555		$	31,086		$	87,421		$	94,333
Gross profit by segment:
Diagnostic Services	$	2,586		$	2,479		$	8,152		$	7,934
Diagnostic Imaging	1,318			1,177			3,497			4,743
Mobile Healthcare	1,452			2,236			4,894			7,768
Medical Device Sales and Service	1,284			2,409			4,237			6,686
Condensed consolidated gross profit	$	6,640		$	8,301		$	20,780		$	27,131
Income (loss) from operations by segment:
Diagnostic Services	$	511		$	143		$	1,249		$	346
Diagnostic Imaging	149			(40		)	(314		)	982
Mobile Healthcare	(174		)	219			(1,121		)	819
Medical Device Sales and Service	(294		)	494			(1,009		)	1,209
Segment (loss) income from operations	192			816			(1,195		)	3,356
Litigation reserve	—			—			(1,339		)	—
Goodwill impairment	(2,580		)	—			(2,580		)	—
Transaction and integration costs of DMS Health Technologies	—			(127		)	—			(1,748		)
Condensed consolidated (loss) income from operations	$	(2,388	)	$	689		$	(5,114	)	$	1,608

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

Digirad Corporation

Impact of Philips Agreement Termination

(Unaudited)

On September 28, 2017, the Company received a notice of termination from Philips Healthcare that our Consolidated Agreement and Remote Insider agreement ("Philips Agreements") will be terminated upon the normal close of business on December 31, 2017 ("Termination Date"). After the Termination Date, the Company will no longer operate as a manufacturer's sales representative in the defined Upper Midwest region of the United States in the contract, as well as not install or warranty products sold in the same region.

The following table reflects financial information recorded for the respective quarterly and year to date periods that are directly related to activity under the Philips Agreements that will be terminated as of December 31, 2017.



	Three Months Ended September 30,					Nine Months Ended September 30,
(in thousands)	2017			2016		2017			2016
Revenues:
Product sales commissions	$	666		$	1,834	$	2,584		$	4,006
Install and warranty	135			216		420			$	441
Total revenues	801			2,050		3,004			4,447

Cost of revenues	317			416		1,160			1,143

Gross profit	484			1,634		1,844			3,304

Operating expenses	647			873		2,023			2,309

	$	(163	)	$	761	$	(179	)	$	995

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