Digirad Corporation (DRAD)

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Digirad Corporation (DRAD)

Q2 2013 Earnings Call

August 1, 2013 11:00 AM ET

Executives

Matthew Clawson – Allen & Caron

Matt Molchan – President and Chief Executive Officer

Jeffry R. Keyes – Chief Financial Officer

Analysts

Paul Thomas Nouri – Noble Equity Funds

Presentation

Operator

Good day, ladies and gentlemen and thank you for standing by, and welcome to the Digirad Corporation 2013 Second Quarter and Six-month Results Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions and instructions will be given at that time (Operator Instructions)

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

Matthew Clawson

Thank you, Jill, and thank you all very much for joining us this morning. If you didn't receive a copy of today's release and would like one, please contact our office at (949) 474-4300 after the call, and we'll be happy to get you on. 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 and 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 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 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 President and CEO, Matt Molchan. Joining Matt this morning is Jeff Keyes, Digirad's CFO. Matt and Jeff will discuss the 2013 second quarter results, update us on the company's 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 Matt Molchan. Good morning, Matt.

Matt Molchan

Good morning. Thanks, Matt, and thanks to everyone for joining us today on our second quarter 2013 results conference call. For those of you that might be joining us for the first time, my name is Matt Molchan, and I took over the CEO role at Digirad in July. Prior to that, I was the President of the company, and prior to that, I was responsible for running the company’s DIS division.

Before I discuss the second quarter, let me briefly touch on an additional announcement we made this morning. Yesterday, we closed on an agreement to sell technology for surgical imaging system we call Trapper to Novadaq Technologies. Trapper is a research and development initiative consisting of an imaging device in probe for use in surgical oncology. Based on our recent strategic shift, this technology was a non-core asset, which led to our decision to sell it at this time.

As part of the agreement, we received $2 million and up to $1 million in deferred contingent payments based on meeting specific regulatory and commercial milestones, and the potential for product royalties for a period of five years. Though a non-core asset for Digirad, Novadaq is well suited to develop this technology for the future. We believe this is a great outcome for both companies.

Now to summarize our results, we had a very solid quarter. Our first four quarter under the new operational and strategic framework we installed earlier this year. Results of the quarter were right in line with our internal expectations and show that the basic platform of our business is sound and the impacts of our restructuring are starting to be seen. We had year-over-year revenue increases on both Diagnostic Imaging and DIS sides of our business, which as those that you know that, that follow us regularly this hasn’t been the norm recently. From a commercial standpoint, we believe we are operating very well.

Overall, our current near-term goal is to make Digirad a leaner, more nimble, ultimately, stronger company, with a focus on generating income and cash flow as well as creating shareholder value. It’s obviously very early in the process of installing our new strategic framework, but I think we’re off to a great start in building a foundation for success going forward.

Let me recap briefly how we got here. Digirad has historically been a two-sided business. The Diagnostic Imaging side that is focused on selling advanced nuclear imaging cameras and the Digirad Imaging Solutions side or DIS, which is focused on providing in-office cardiology imaging services on an as needed, when needed and where needed basis. After months of market research and now assisting consultations with our Board of Directors, we concluded on a strategy to focus and concentrate our efforts on an outsourced services solutions of DIS.

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