Digirad Corporation (DRAD)

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Digirad (DRAD)

Q4 2012 Earnings Call

February 28, 2013 10:00 am ET


Matthew Clawson - Partner of Investor Relations Group

Todd P. Clyde - Chief Executive Officer, President and Director

Jeffry R. Keyes - Chief Financial Officer


Paul Nouri - Noble Equity Funds

Ross Taylor - Somerset Capital Advisers LLC

Adam J. Peck - Heartland Advisors, Inc.



Good day, ladies and gentlemen, and thank you for standing by and welcome to the Digirad Corporation 2012 Fourth Quarter and Year End Results Conference call. [Operator Instructions] This call is being recorded today, Thursday, February 28, 2013.

I would now like to turn the call over to Mr. Matt Clawson, of Allen & Caron. Go ahead, sir.

Matthew Clawson

Thank you, Jo, and thank everyone this morning for joining us on the call. If you didn't receive a copy of today's release and would like one, feel free to contact our office at (949) 474-4300. I will be happy to get you one. Also, this call is being broadcast live over the web and may be accessed at Digirad's website at 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 securities laws.

These forward-looking statements include statements about the company’s revenues, costs and expenses, margin, operation, portable imaging services, product division, financial results, estimated market share 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 or uncertainties include, but are not limited to, business and economic conditions, technological change, industry trends, changes in the company’s market and competition. More information about 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, and this morning’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.

Hosting the call today from Digirad is CEO, Todd Clyde. Joining Todd this morning on the call are Jeff Keyes, Digirad's CFO; Jeff Eberwein, Chairman of Digirad's board; and Matt Molchan, President of the DIS division and incoming President of Digirad. Todd and Jeff will discuss the 2012 fourth quarter, and year end preliminary results, update us on the company's new strategy and comment on the company's outlook. A question-and-answer period will then follow.

With that, I'd like to turn the call over to Todd Clyde. Good morning, Todd.

Todd P. Clyde

Thanks, Matt and I appreciate everyone joining us today for our fourth quarter and full year 2012 conference call. I'm very pleased to begin by saying we had a good fourth quarter, which we all see as a positive sign for a much more interesting 2013. Our Digirad Imaging Solutions business, that we call DIS, was solid, even though the results in our Northeastern hubs took a slight hit in October due to the impact of Hurricane Sandy.

Our camera business had an improved quarter but continues to be challenged with operational inefficiencies. As much of you know, for more than a year, we have been in the midst of a strategic analysis of how to position the company and its businesses for maximum value to the markets we serve and a critical importance to our shareholders. Over the past 3 years or more, the markets we play in, namely the hospital nuclear camera sales market, in-office nuclear camera sales market and in-office imaging services markets, have experienced a great deal of volatility in terms of reimbursement, healthcare reform, poor economic trends and insurance and regulatory changes. These resulted in our having to carefully consider the most effective manner to improve our businesses and drive value to our shareholders.

We conducted an in-depth market research to look at many possible strategic directions, including partnerships, acquisitions divestitures and new product development and new services. We have also considered the views of our shareholders, including reconstituting our board by adding 4 new board members at the end of April and early May of 2012, all who came at the recommendation of our largest shareholders.

We believed it was important to allow the new board the appropriate amount of time to digest and consider all of the strategic options for the business. Based on this effort and the counsel from our new board, we have decided to focus strategically on growing and expanding the footprint and cash flow from our DIS services business and also the positive cash that we receive out of our service and maintenance business, which is linked to our diagnostic imaging business, or what we have historically referred to as our product business.

Of course, we will continue to sell our solid-state cameras into the marketplace, we will simply be restructuring the imaging camera part of the diagnostics imaging business to no longer burn cash in this business. Our main focus with this strategy is to maximize cash flow from operations and return value directly to our shareholders. After this restructuring, we believe we will be able to drive annualized free cash flow in the range of approximately $3 million, to $4 million. In tandem, we will launch a more aggressive stock repurchase program, which the board has voted to increase from its existing $2 million in current availability to $5 million available for repurchase, in order to return value directly to our shareholders.

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