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Edited Transcript of DRAD earnings conference call or presentation 3-May-19 3:00pm GMT

Q1 2019 Digirad Corp Earnings Call

Poway May 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Digirad Corp earnings conference call or presentation Friday, May 3, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Matthew Gabel Molchan

Digirad Corporation - President, CEO & Director

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Presentation

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Operator [1]

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Greetings and welcome to the Digirad Corporation First Quarter 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Matt Molchan, President and CEO. Please go ahead, sir.

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Matthew Gabel Molchan, Digirad Corporation - President, CEO & Director [2]

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Thank you, Kevin. Good morning and thank you all for joining us today for our first quarter 2019 results conference call. My name is Matt Molchan, and I am Digirad's President and CEO. Also on the call with me today is Digirad's Chairman of the Board, Jeff Eberwein; and our COO and Interim Chief Financial Officer, David Noble.

We will discuss the 2019 first quarter financial results, provide an update on the company's strategy and comment on the company's outlook. A question-and-answer period will then follow. If you didn't receive a copy of our press release and would like one, please contact our office at (858) 726-1600 after the call, and we'll be happy to get you one.

Also, this call is being broadcast live over the Internet and may be accessed at Digirad's website via www.digirad.com. Shortly after the call, a replay will also be available on the company's website.

I'd like to remind everyone that certain statements made during this conference call, including the question-and-answer period, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal security laws.

These forward-looking statements include, but are not limited to, statements about the company's revenues, costs and expenses, margin, operation, financial results, acquisitions and other topics related to Digirad's business strategy and outlook.

These forward-looking statements are based on current assumptions and expectations and involve risks and uncertainties that could cause actual events and financial performance to differ materially. Risks and uncertainties include, but are not limited to, business and economic conditions, technological change, industry's trends, changes in the company's market and competition.

More information about the risks and uncertainties is available in the company's filings with the U.S. Securities and Exchange Commission, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K as well as today's press release.

The information discussed on this morning's conference call should be used in conjunction with the consolidated financial statements and notes included in those reports and speak only as of the date of this call. The company undertakes no obligation to update these forward-looking statements.

In the earnings release today and in my comments, I make reference to both GAAP results as well as adjusted results. The adjusted results are non-GAAP and do not include nonrecurring charges. I will also make references to adjusted EBITDA, which is a non-GAAP measure that further excludes depreciation, amortization, interest, taxes and stock-based compensation.

Finally, I'll make references to free cash flow, which is a non-GAAP measure taking operating cash flow and subtracting cash paid for capital expenditures. We believe the presentation of these non-GAAP measures, along with our GAAP financial statements and reconciliations, provide a more thorough analysis of our ongoing financial performance. You can find the reconciliation of our results on a GAAP versus non-GAAP basis in the earnings release.

We continue to work very diligently at positioning our company in anticipation of the formation and implementation of our previously announced HoldCo strategy. We are excited as we move closer to our eventual transformation into HoldCo, which we believe will give our company its best opportunity to grow and maximize value per share over the long term.

HoldCo, once it is fully functional, expects to make high-return internal investments as well as look for attractive acquisition opportunities in addition to repurchasing shares. Share repurchases will be evaluated against organic growth, investments and acquisitions, and the company expects to continually allocate capital to maximize shareholder value.

As we push towards HoldCo, we made a lot of significant changes that will contribute to the success of our new strategy. During the quarter and until now, we have accomplished the following. We entered into a new asset-based loan agreement with Sterling National Bank for $20 million and used the proceeds from the loan to refinance and terminate our agreement with Comerica Bank.

We invested into a joint venture with ATRM Holdings, Inc. to purchase lumber and other raw materials. We issued an S1 to raise additional capital through our preferred shares offering.

We created a new Digirad subsidiary, Star Real Estate Holdings USA, which purchased 3 modular building factories and established positive cash flow leasebacks for these facilities. And we sold our fourth and final Fargo, North Dakota building for $750,000, bringing the total sales price for all 4 Fargo buildings to $1.7 million.

Additionally, we have laser focused our operating teams on the performance of our current operating units. This was highlighted by our Digirad Imaging Solutions or DIS unit within Diagnostic Services, which performed very well during the quarter with revenue growth of 7% and adjusted EBITDA growth 30% year-over-year, outperforming our expectations for revenue and adjusted EBITDA.

Now here's a more detailed summary of the quarter's activities. Total revenue for the first quarter of 2019 was $23.9 million compared to $25.5 million for the same period last year. Our overall gross margin in the first quarter of 2019 was 16.6% compared to 18.1% in last year's first quarter.

In Diagnostic Services, revenue and gross margin percentage for the first quarter was $11.7 million and 22% compared to $12 million and 18.7% in the last year's first quarter. The decrease in Diagnostic Services revenue compared to the prior year quarter was primarily due to the sale of our Telerhythmics business as of October 31, 2018, resulting in a loss of revenues going forward, but that was partially offset by DIS' higher volume of days ran and studies performed and an increase in the average mobile imaging rate per day.

Our Mobile Healthcare business produced revenue and gross margin percentage in the first quarter of $9.7 million and 6.4% compared to $10.6 million and 10.5% for the same period in the prior year. The quarter-over-quarter gross profit decrease in Mobile Healthcare business was primarily due to lower scan volume related to extreme weather conditions.

In our Diagnostic Imaging business, revenue and gross margin for the first quarter 2019 was $2.5 million and 31.2% compared to $2.8 million and 43.8% in the prior year first quarter. The decrease in Diagnostic Imaging revenue was due to a lower volume and a less favorable mix of cameras sold.

Moving on to the bottom line results for the first quarter. We had an adjusted net loss of $1 million or $0.05 adjusted net loss per share compared to adjusted net loss of $1.4 million or $0.07 adjusted net loss per share in the first quarter last year. Adjusted EBITDA was $0.8 million for the first quarter of 2019 compared to $1.0 million in the first quarter of last year.

For the first quarter, operating cash outflow was $2.2 million and free cash outflow was $2.3 million compared to operating cash inflow of $0.4 million and free cash inflow of $0.3 million in the first quarter of last year. As of March 31, 2019, the outstanding balance on our credit facility was $12.5 million, and overall net debt position, including all cash and cash equivalents, was $11.7 million.

Finally, as announced in today's press release, the first quarter of 2019 was within our expectations for revenue and adjusted EBITDA. We also announced our financial guidance for 2019, which is to generate revenues from continuing operations of between $95 million and $100 million, non-GAAP adjusted EBITDA between $5.5 million and $6.5 million and free cash flow between $3 million and $4 million.

Now I'd like to turn the call over to the operator for any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) If there are no questions at this time, I'd like to turn the floor back over to management for any further or closing comments.

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Matthew Gabel Molchan, Digirad Corporation - President, CEO & Director [2]

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Thank you, Kevin. As always, we appreciate all our shareholders and your continued feedback and support. We're looking forward to our next update call.

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Operator [3]

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Thank you. That does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.