Digirad Corporation (DRAD)

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Digirad (DRAD)

Q3 2013 Earnings Call

November 01, 2013 11:00 am ET

Executives

Dan Matsui

Matthew G. Molchan - Chief Executive Officer, President and Director

Jeffry R. Keyes - Chief Financial Officer

Analysts

Edward Augustine Schwartz - Gregory J. Schwartz & Co., Inc.

Adam J. Peck - Heartland Advisors, Inc.

Aaron Kennon

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Digirad Corp. 2013 Third Quarter and 9 months Results Conference Call. [Operator Instructions] I would now like to turn the call over to Risa Dan Matsui. Please go ahead

Dan Matsui

Thank you, Marisa, 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 (858) 726 1600 after the call, and we would 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, operations, financial results, restructuring efforts 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 third 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.

Matthew G. Molchan

Thank you, Risa. Good morning, everyone. And thank you, all, for joining us today for our third quarter 2013 results conference call. I'm very pleased to report that we had another solid quarter, both financially and operationally. The second quarter in a row in which we hit or exceeded our overall plan in terms of revenues and expense control, leading to a return to profit. Total revenue for the quarter was $12.4 million, and we achieved earnings in the quarter of $2.5 million or $0.14 per diluted share, which included both normal operations and the gains from the sale of our surgical imaging technology to Novadaq Technologies in July. Our CFO, Jeff Keyes will go into the financial results more thoroughly in a few moments. But I'm happy to say that even when you pull out the gain from the Novadaq transaction, the third quarter was the most profitable quarter for Digirad since our IPO in 2004.

The third quarter was also our second full quarter under the new operational and strategic framework, we installed in early 2013. To recap briefly, after a thorough assessment in consultation with our reconstituted Board of Directors throughout the early part of this year, we installed a new strategy for Digirad that increased focus on our outsource services business that we call, Digirad Imaging Solutions, or DIS. We believe DIS is scalable and offers us the best opportunity for income, cash flow generation, and growth, particularly in the current health care environment. We're still in the midst of implementing this new strategy, and will be through the course of this year and 2014, but so far, we like what we're seeing. These very positive results seem to confirm that we made a smart choice and that we are headed in the right direction. I say this is the right strategy for the current health care environment because our customers are looking for ways to be more cost efficient and cost effective, given the uncertainties they're facing. DIS, an outsourcing model that allows our customers to limit their upfront capital expense cost, this is cost efficiency scenario, very well. We can provide our services on as-needed, where-needed, and when-needed basis, which is just what our customers are asking for. In addition, we closed a lot of new business in the third quarter, which is typically a slower quarter for us because of summer vacations and other similar interruptions. This year, however, we had growth in new contract activity and we are reasonably confident it will continue into the fourth quarter.

This focus on DIS is not to say we deemphasize our camera side of the business, which we call our Diagnostic Imaging business. Quite the contrary. The same health care dynamic is driving this business as well. The health care industry is looking for ways to be more cost-efficient and has seen that kind of potential in our cameras. Particularly, our portable and versatile ergo camera, which offers more convenience and more potential for diverse activity in a variety of hospital settings. It's a unique camera product, and we are seeing genuine enthusiasm for it in the field. We firmly believe that every hospital in America needs an ergo.

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