Star Equity Holdings Inc (STRR) 2007 Q4 法說會逐字稿

Ladies and gentlemen, thank you very much for standing by, and welcome to the Digirad Corporation 2007 Fourth Quarter and Year-End Results Conference Call.

During today's presentation, all parties will be in a listen-only mode, and following the presentation, the conference will be open for question and answers. As a reminder, if you do have a -- if you need any operator assistance at any time during the conference, please press the star, followed by the zero. As a reminder, this call is being recorded Thursday, February 7th of 2008.

I would now like to turn the call over to Dan Matsui with Allen & Caron. Please go ahead, sir.

Thank you, Michael. Good morning, and thank you for joining us today. If you didn't receive today's press release and would like a copy, please contact Nathan Abler in our California office at 949-474-4300, and he'll send you a copy. Also, this call is being broadcast live over the Internet and may be accessed at Digirad's website at WWW.DIGIRAD.COM. Shortly after the call, a replay will be available on their website.

I'd like to remind everyone that certain statements made during this conference call, including the question-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; margins; operations; mobile imaging services; equipment upgrades; benefits from relationships with academic medical institutions; competitive advantages; higher throughput and cost savings expected from camera fleet upgrades; potential acquisitions; and financial results.

These forward-looking statements are based upon 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, technological change; industry trends; changes in the Company's markets; and competition.

More information about risk and uncertainties is available in the Company's filings with the United States Securities and Exchange Commission, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and this morning's press release.

The information discussed during this conference call should be used in conjunction with 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.

On the call for Digirad are Mark Casner, Chief Executive Officer, and Todd Clyde, Chief Financial Officer. They will discuss the Company's business activities and financial results and comment on their strategy and outlook. A question-and-answer period will follow.

I will now turn the call over to Digirad Chief Executive, Mark Casner. Mark?

Thank you, Dan, and good morning, everyone. During the past two years, we have been focused on improving the bottom-line performance at Digirad, wiping out the majority of the $10 million loss posted in 2005. I am pleased with our efforts to reign in these costs during a difficult environment in the imaging arena. It is important to recognize, however, that in the same two-year period, our top-line revenues grew nearly 9%, from approximately $68 million in 2005 to $74 million in 2007, despite the elimination of stress agent revenue during this time span. Today, our Company is stronger than ever, and we are poised to return to double-digit growth in the years ahead.

In the past few months, we have been laying the groundwork for the growth strategies that will guide us in 2008 and beyond. Let me take a few moments to outline some of these in more detail, beginning with our product division.

During 2007, we embarked on a plan to increase the visibility of our sales team across the country. Our direct sales force today is divided into nine regions and led by some of the most experienced personnel in the field. To complement this team, we have added a number of dealerships that reach nearly every critical state in the continental United States. This will help us increase our visibility into more deals and tap into relationships we otherwise would not penetrate.

Historically, we have not had a strong presence in the hospital market, but that began to change last year, and we expect that trend to continue into 2008. Our portable lightweight cameras are ideally suited for a hospital environment, where transporting many patients is difficult, if not impossible. Our camera is an ideal adjunct to any nuclear imaging department.

Digirad has been in the forefront of solid-state technology and nuclear imaging. We introduced the first solid-state camera more than seven years ago and in the interim have introduced a number of advances that continue to distinguish our cameras from other manufacturers.

At this fall's 2007 [ASNIC] meeting, we introduced [Exact] and nSPEED, two revolutionary concepts that will enhance the clinical assessment process with our novel attenuation correction approach and improve the speed of our cameras to allow a physician to possibly reduce the isotopic dose requirement. We have been conducting a comparative trial with nSPEED that is expected to be published in the next few months.

As reported in our last call, we also are focusing on cost reduction and reliability programs, coupled with the revenue growth initiatives just mentioned, with an expectation of driving the product segment to profitability during 2008 for the first time in its history.

Now, let me shift to the core of our strategy for 2008, continued expansion of our Centers of Influence.

Our acquisition of Ultrascan in May 2007 served as the nucleus of this initiative that has now spread to four other premier medical centers in the country, including Penn State, Vanderbilt, Methodist Hospital in Houston, and UCLA. Vanderbilt is already contributing top-line revenues, and we expect the other three to gain ground in the first half of 2008. We are in active discussion with a number of other Center of Influence prospects and plan to make additional announcements throughout the year. We will be updating you with our progress, beginning with the Q1 earnings release scheduled for late April.

Profitability will remain a focus in the imaging services business as we improve the utilization of our imaging services fleet. The key to success for any organization is its ability to execute on its plans. We believe we have a strong foundation that will support our growth platform while maintaining our discipline on the bottom line. Our strategy is simple and straightforward, our focus is clear, and we expect that 2008 will be the year we return to double-digit growth.

I'll now turn the call over to Todd Clyde, our Chief Financial Officer, who will provide more specific detail regarding our performance. Todd?

Thank you, Mark, and good morning, everyone.

Please note that all quarterly comparisons are for the fourth quarter 2007 compared to the fourth quarter 2006 and all full-year comparisons are for the 12 months ended December 31, 2007 compared to 12 months ended December 31, 2006 unless otherwise noted.

Consolidated revenues for the fourth quarter of 2007 were $18.8 million, a 9% increase from $17.2 million in the fourth quarter of 2006.

DIS revenue increased 16% to $13.4 million for the fourth quarter 2007 from $11.6 million in the fourth quarter the prior year.

Product-related revenue decreased $200,000, or 4%, to $5.4 million in 2007 on sales of 18 cameras, compared to $5.6 million in the fourth quarter of 2006 on sales of 17 cameras.

Consolidated revenues for the full-year 2007 increased $2 million, or 3%, to $73.9 million compared to $71.9 million in 2006.

DIS revenue was $52.4 million in 2007, compared to $49.6 million for 2006.

Product-related revenue was $21.5 million, including sales of 73 cameras, compared to $22.3 million in the prior year and including sales of 71 cameras.

Consolidated gross profit decreased by 9% to $4.5 million for 2007 fourth quarter, principally due to the decreased DIS profitability attributable to greater-than-normal seasonality and a disruption in radioisotope supplied (sic) announced previously.

We also ruled out our initiative to pay our DIS personnel on a full-time basis in an effort to reduce turnover and improve our consistency in delivering the same team to the same doctor office.

Gross margin was 24% of revenues in the fourth quarter of 2007, compared to 28% of revenues in 2006.

Consolidated gross profit for full-year 2007 increased by 8% to $20.5 million, or 28% of revenues, compared to $19.1 million, or 26% of revenues in 2006.

Net loss for the fourth quarter 2007 was $1.1 million, or a loss of $0.06 per share, compared to a quarter 2006 net loss of $149,000, or $0.01 per share. The $1 million increase in net loss for the fourth quarter of 2007 was due in part to the decline in [VIS] gross profit, increased amortization costs associated with the intangible assets arising from the Ultrascan acquisition, and $185,000 and -- of $185,000 and a fourth quarter charge of $300,000 primarily from the impairment of certain long-term assets.

The net loss for the full year 2007 declined more than 75% to $1.4 million, or $0.07 per share, compared to a net loss of $6.3 million, or $0.34 per share incurred in 2006.

Total operating expenses for the full year 2007 declined 32% of revenues from 38% of revenues in 2006.

During the fourth quarter 2007, DIS operated 136 units, both nuclear and ultrasound, with an overall asset utilization rate of 60%, compared to 83 units, all nuclear, which was before the acquisition of ultrasound, and an asset utilization rate of 56% for the fourth quarter '06.

We continue the upgrade of our mobile imaging services fleet by replacing six single-headed cameras with our multi-headed CardiusXPO configuration. The fleet of mobile cameras now includes 61 multi-headed cameras, and we will finalize the upgrade program during 2008.

Looking forward, our key focus for 2008 will be driving DIS revenue growth through our Centers of Influence strategy; increasing our mobile imaging fleet utilization, which should translate into profitability during 2008 for our DIS business; and reaching profitability for the first time in the history of our product business as we increase product-related revenue, reduce costs, and improve reliability in this business segment. We believe this will allow us to improve on our 2007 results.

We reaffirm our guidance published on January 8 of this year. For full-year 2008, we anticipate consolidated revenues in a range of $80 million to $84 million, consisting of DIS imaging services revenue of $59 million to $61 million and product-related revenue of $21 million to $23 million, and a consolidated net result for 2008 to range from net income of $500,000 to a net loss of $1 million, including estimated stock-based compensation of approximately $1 million.

We will now take questions. Operator?

Thank you, sir. (OPERATOR INSTRUCTIONS)

The first question comes from the line of Tim Lee with Karas and Company. Please go ahead.

Morning, Tim.

Good morning, Tim.

Hey, just a couple of questions. First, in terms of your targets or your compensation targets for sales and earnings, has the Board set that out yet, or are we still waiting on that?

We should put out a release within the next kind of three to four days with the specifics on that. It looks like we're heading towards being compensated on a blend of revenue and income.

And [inaudible] walked away for the specifics for the couple days, but in broad brush strokes, I mean, are they ahead of what you're targeting toward -- you know, for the investment community, or just any color you can provide on that, please.

Yes, Tim, I think it's going to parallel to a certain extent what we proposed last year. Clearly, there's a push from the Board for us to exceed our guidance, much as there was last year. So I think you can expect that the numbers that come out in the 8-K will be a little more aggressive than the guidance.

Okay. And then just kind of following up, I mean is there any push by the or any plan by the Board to potentially increase share ownership within the management team by setting some certain thresholds that senior managers or even board members used to hold?

I can tell you that we've had ongoing discussions about that, but no resolution has yet been defined, and so I think stay tuned. My guess is that will be a continuing source of discussion for the Board this year.

Okay, and then just one last one. Just in terms of the -- you had mentioned the change of the comp plan of the DIS folks. I guess what was exactly changed? And you had mentioned there has been some turnover.

And, also, given where the stock price has come in here over the last 12 months, is that kind of -- what's that doing to the turnover here with -- among the employees?

Actually, turnover, I'm pleased to say it's coming down. Todd mentioned very briefly during his remarks some of the things that we've done to begin to accelerate that process. As you know, we talked about it kind of ad nauseam over the last few years, but I'm pleased to say that with the arrival of Marc Shapiro and his team, with human resources, with some of the initiatives that we rolled out, this new salary program that Todd was referring to -- one of the major concerns of our staff was that some weeks they were working 30 hours and the next week 40 hours and the next week 20 hours or whatever, and I think there was an inconsistency to their salary expectations. So we attempted to smooth that out, and we rolled that program out in September.

The chief complaint of our customers was the inconsistency of the staffing pattern, so one week they'd have one team and the next week another team.

So what we've done now with this guaranteed salary program is [inaudible] really two birds with one stone. The staffing is much more consistent, and we are now averaging -- I think Michael Keenan's latest report was that 77% of our customers are getting the same team every week, which is above our target of 75%. So it's resulted in increased customer retention, reduced turnover, and we expect continued improvement throughout 2008.

Thank you. I'll jump back in queue.

Tim, I think it's fair -- I know you're jumping back in. I'll just make a comment here. In the near term, we expect this to have some -- put some pressures on our margin. It did put some pressures on the margin in the fourth quarter, and that will continue in -- probably at least in the first half of the year. We'll have to update you as that -- as we go forward. There's always a transition that happens. We've obviously added a little bit more expense, and the way that we'll pull that back out is by driving more efficiency and utilization into the staffing model, as well as into the fleet.

So we feel good about where we're heading. We do expect our revenues to improve as we head into the first quarter. We will definitely be looking at losses for the few quarters ahead and then expect to see improved profitability and drive that forward as we head into the back half of the year.

Thank you.

Thanks, Tim.

Thank you, sir. Our next question comes from the line of David Khtikian with JPMorgan. Please go ahead.

Hi, Mark. Hi, Todd.

Good morning, David.

Good morning, David.

Can we start off, Todd -- I know I've asked before. I'm probably not going to get it, but is there any way you can share what you think in general Ultrascan may have contributed for the year in '07, or is that something you guys are still probably not giving out?

Yes, we're -- we're actually -- I mean what I'd tell you is we're pleased with the results that we've received from Ultrascan. You know we put some numbers out there originally at the beginning of the year, so if we're pleased, we would have hit the middle to the higher end of that range, so you can kind of figure that out. So you know we're pretty close to getting a contribution of about $5 million out of that business. I won't go into the absolute specifics.

We continue to look at ways to roll ultrasound out throughout the country, and we do have many deals pending right now where we'll continue to gain some traction. We are doing ultrasound outside of just the Southeast but in a limited manner. We do see that as part of the growth plan, and we're pleased that we're starting to get some traction in other locations.

Okay, great. On the ultrasound, can you just provide the split? You have 136 units in the fleet now. Can you give us the split between ultrasound and nuclear? I know it looks like you added one unit in the quarter.

Yes, that's really all we added, and that was a nuclear camera. I think we have -- I want to say the number is 83 servicing units in the -- that are nuclear cameras --

Okay.

-- and the rest are ultrasound.

Okay, great. And then going back to the DIS, the payment plan, so is -- just to get a little more clarity -- I didn't quite catch it. I mean should just think about the first half as being front-loaded as far as cost goes and then gross margins kind of coming up in the back half, or --

And that's going to be contingent on our ability to drive the efficiency of the labor up because essentially what you're doing is you're paying for indirect -- more indirect hours than you would have historically paid with the intent of reducing your turnover costs and recruiting costs, so that's where you see some offsetting savings.

And then as you drive them to be more efficient, your just overall labor relationship to the revenue dollar will improve back to where we would like it to be. So we realize that we're kind of making a short-term investment for a long-term benefit.

Okay. And then do you have the turnover rate for '07? I know you had given that coming out of '06. Do you know where that sort of stand (sic) in '07?

We want to really start to focus on other higher-level indicators, David, so we're going to give a specific, but we will tell you that it is down. We did see progress, and we expect more progress in the future. So we're kind of driving to the point of -- well, it's moving on to trend, focus on that revenue and the Centers of Influence initiative.

Sure, okay. I'll hop back in queue. Thanks.

Thanks.

Thanks, David.

Thank you. (OPERATOR INSTRUCTIONS)

Our next question comes from the line of Stephen Silk with C. Silk and Sons. Please go ahead.

Good morning.

Morning, Stephen.

Morning, Stephen.

Good morning. Can you tell me how much cash was used during the year to upgrade the fleet?

We invested about $8 million in the CapEx line. If you break that down to the fleet, it was about $4.5 million [inaudible] towards the fleet, and this was our largest investment in the fleet.

What was your depreciation for the quarter? I'm assuming it would be increasing as you start working off these higher investments?

Yes, get the exact number here.

I'm trying to get an idea of cash flow for the quarter and for the year.

Yes, we actually have generated positive free cash flow in the quarter, if you just go for the fourth quarter, of $900,000. I don't have a detailed-enough sheet in front of me to give you the exact depreciation number.

That's fine. I was really kind of just trying to get to the cash flow number. So --

Yes, it was positive for the quarter, Stephen.

Okay. I'm interested in the ramping up of the Centers of Influence and tying that in somewhat to your guidance. You said that [Vandi] is already adding revenue to the top line. We've heard of four others. So how long does it take for -- when something is signed for you to start seeing revenue? And then is there somewhat of a group of early adopters within the Center? And then a timeframe when it gets more accepted and you start getting more accessibility and a quicker amount of people that might be signing up?

Yes, let me try to answer that. I think part of the problem is we don't have a big-enough sample size yet, Stephen, to tell you that there's a pattern that's developed yet. Typically -- well, Vanderbilt, we hit the ground running almost from day one in part because we kind of pre-sold practices even before we had that contract in place. I think our expectation is that we will begin to revenue within 90 days of contract signing, and that's mostly contingent upon -- it's not just signing the contract with the university or the hospital; it's -- then we have to go out and market to the physician community and get those contracts. That's really where the revenue comes from.

So there is some lag time between COI contract signing and physician contract signing, and then it's all the normal stuff about hiring staff and opening hubs and getting radioactive materials, licenses, and all that good stuff. So I'd say typically within 90 days.

Clearly, as we've kind of put out -- and some of you or maybe all of you have seen the illustration that we've shown during a number of the most recent investor presentations where we've basically identified our target list as A, B, or C markets, an A market being roughly the equivalent of an MRA, so 8 million -- 8 to $10 million-a-year revenue opportunity; a B market in the $5 million range; and a C market in the $3 million range. And, clearly, those markets will ramp up at different speeds, but our full expectation is that within 36 months, each one of those markets will reach maturity.

There is a bit of a hockey stick, though, with that, so it's a little slower in the beginning and fairly rapid growth between years two and three, kind of before they reach their full potential. So if you haven't seen that yet, that illustration actually was part of our JPMorgan presentation that we issued as an 8-K a few weeks ago. You can go out and see that.

So I know we're being a little vague here, Stephen. What we've -- and I mentioned this during my -- a few discussion points that I had. We will begin to update the Street with each quarter how many Centers of Influence we have under contract and what are the gross revenues attributable to that strategy.

Well, it leads me to my next question about your guidance for the year and how much is built into what revenue might come from Centers of Influence and what are you expecting as far as growth, or is it going to be flat as far as the legacy business, the core cardiologist that's going to be renting on a daily basis?

We do expect -- I wouldn't say that we expect the core business to be flat. Recognizably, we had more lost business than we would have anticipated in the West region during 2007. We saw that lost business rate come way down the last quarter of the year, and that has continued to stay down. In fact, we've actually started to now recoup some of those customers that had left. So we see that as a positive trend.

Now, obviously, when you're on a slope of a service business, it takes a little time to turn the curve and then start it to go in the right direction again. So we actually expect growth out of the base business, and then we expect some contribution from the Centers of Influence. I would say that we're not expecting 5 to $10 million out of the Centers; we're expecting something less than that based on the ramp-up, but the run rate should be a pretty decent run rate when we leave the year.

And your initial --

[Inaudible].

I'm sorry, go ahead.

Go ahead.

In your initial statement, you were talking about the change in the hospital environment. Will that lead to more product sales?

That's clearly our intent, Stephen. You know, what we've discovered is a couple things. One -- one's very parochial in that the State of California, one of the interesting quirks to the earthquake regulations, OSHPOD, is that a camera on wheels is exempt from those regulations. So what we found is our camera's a much easier sale into those hospitals, and every hospital in California right now is being renovated. So it's -- as they have begun to take a look at their imaging departments -- our camera today is not a good primary camera, but it's a wonderful adjunct for, again, those folks that need to have the portability aspect, getting to the ER, the ICU, the CCU. So we do expect more visibility there.

And just as importantly, even our cardiac camera -- it's important to recognize is of the, I don't know, 16 million or so nuclear imaging procedures performed in the country last year, fully 60% of those were cardiac, and in those cases, our expectation is to be able to go in and sell a hospital a cardiac-dedicated camera, not replace their general new camera, but the fact is that most of their patients are cardiac-related anyway. So it historically has not been a market that we've played in, but we are placing greater emphasis on it this year.

Back to the legacy business. The loss and now the rebirth of that part of the business, is that something where the reimbursement trends had to be worked out and the physicians had to recognize what needed to be done for them to come back to you? And how do you see that as it moves into 2008?

We didn't really lose business because of the reimbursement issues, to be perfectly honest. Clearly, the Deficit Reduction Act had an impact for a lot of folks. It had relatively minimal impact on us. I think we've reported before it had about an 8, 8.5% decrease last year. But we really didn't lose customers because of that.

I think in the West, our particular issues there were a competitor that had very aggressive pricing and a very aggressive posture in the market that caused some of our customers to move over from that pricing perspective. Interestingly enough, that competitor now is feeling the effects of that lower price point, and many of those customers are now coming back to us. So we are actively targeting them, and our expectation is that we will get some of that business back this year.

Was that a quality-of-picture issue, or they could no longer and sustain the lower prices, and so when it came back to being equal, they decided to take a look back at you?

Well, I think it was probably a whole host of things, Stephen. Clearly, the reason we lost the business was a pricing issue, but then they've run into a problem where they can't deliver on their promises. They clearly are using different technology than ours.

One of their reasons for upgrading the fleet, quite frankly, was beginning to differentiate our technology from everybody else's, and with this new triple-headed camera out there, there isn't a comparable camera out there on the market today. So I'd like to think they came back because of the service, I'd like to think they came back because of the technology, and ultimately, they came back because we're the long-term player, and there's a sense of reliability and stability that some of these other players couldn't deliver on.

And my last question is, how can you avoid the radioisotope supply problem that you had in the fourth quarter, and anything you can do to prevent that from happening again?

Yes, that's a great question. Unfortunately, that hurt a lot of people. That one Canadian reactor that went down supplied roughly 75% of the world's supply, and you may know that the Canadian government actually had to intervene there to get that restarted. And that's part of the problem. I think that when you don't have very many sources for a key ingredient, that's going to have some impact.

So here are some of the things that we're doing about it. One is that we do have dual-source arrangements now with our product vendors. The generic event for Cardiolite is happening now. It will be off patent by July, and we do expect that there will be other players out there that will have generic products available for us.

And one of the neat aspects of the nSPEED product, which we have rolled out, has been released, and what we're waiting for is approval from some of the governing bodies, but if we can get to a point where we can begin to reduce dosage, we really think that that will have a significant impact going forward.

Just one more thing. Since you're getting near your cash, you generated $900,000 in cash. The stock price is getting near your cash-per-share level. Any chance of taking a couple million dollars and buying some stock back?

That has not been a hot-button point for the Board to date, Stephen, and I think you touched on part of the reason why. I think when you're in a more aggressive, positive cash flow position, it's a lot easier to do that, and then, obviously, it becomes a timing issue. Is your stock still at a point where you want to buy it back? But at this point in time, I think the Board is not comfortable proceeding down that pathway.

Okay. Thank you very much for taking my calls.

And, Stephen, just to answer the question you posed earlier, we generated $1.5 million of depreciation and amortization in Q4, $5 million for the whole year. Obviously, the increment there is that amortization out of the Ultrascan purchase. We have a little bit of an increase in depreciation as we've pushed more triple-headed cameras into the DIS [inaudible]. So we're probably at about a $6-plus million run rate level on that.

Thank you very much.

Yes.

Thank you, sir. We have a follow-up question from the line of Tim Lee. Please go ahead.

Hey, just two real quick ones. In terms of the DIS utilization rate that you think you're at 60% now, what is your target for this year, and I mean is there a -- [inaudible] hockey-stick-type effect or a gradual ramp?

You know, Tim, I'd love to just see any progress. I mean, seriously, like the last year, we really didn't move that number. We don't have a specific target that we're going to communicate today, but we do expect it to improve by the time we get to the end of the year. We have communicated in the past that we've got to get it over the 70% mark, so that's our longer-term target, and we'll keep dragging for that.

And let me just add one thought there, Tim. One of the advantages -- and again, one of the reasons we're so excited about the Centers of Influence strategy, is the ability to get those utilization numbers and those density numbers within that sphere of influence, if you will.

So you look at what's happened in the Atlanta market, we actually are above the 70% utilization level affiliated the Emory thing. So as we begin to migrate those programs around the country -- and, again, remember that Methodist Hospital in Houston, we have hubs there, and UCLA, we have a hub in LA and whatever, so we're trying to target, initially at least, those geographic areas where we already have an infrastructure to support those COIs, and now we have the ability to improve that utilization.

So we do have an expectation that that will continue to improve. I agree with Todd; any improvement right now only helps our bottom line, and so we certainly have internal targets that we're trying to drive towards, and again, as these COIs begin to ramp up, our expectation is that we'll continue to improve.

And then just one last one. In terms of your '08 DIS outlook of 59 to 61 million, of that, I mean what's the contribution from the Centers of Influence if you -- would you share that with us?

Well, we said a minute ago that it was less than $5 million, Tim.

Okay, thank you.

Thank you, sir. Now, a follow-up from the line of David Khtikian for JPMorgan. Please go ahead.

Thanks, guys. Just a few other quick questions. How are we thinking about CapEx for '08, Todd? I know there were some -- with the upgrades and such, the number came up a little bit this year. How do we think about '08?

Yes, I think that's a good question. So it's about $8 million this year. I would expect it to probably be back in around the $6 million range.

Okay. And then how many hubs were added in '07 and in 4Q? Did you guys give that number? I don't know if I missed it.

We didn't get the number specifically. I think we added four hubs in total, and I think we maybe closed down a couple.

Yes, probably a net two, David, for the year.

Okay. I think that's all I had. Thank you.

Thank you, David.

Thank you, sir. Got a follow-up question from the line of Stephen Silk. Please go ahead.

I was just wondering, the Center of Influence -- do you have a target as far as the -- maybe a yearly number or a quarterly number that you would like to add as Centers of Influence?

Yes, what we've talked about is we'd like to do a minimum of four a year or one a quarter. I can tell you that we're already ahead of that pace, Stephen, and we will begin to report -- as I said, with each quarter, we'll report to you our progress -- number of centers under contract and revenue contribution.

So we actually finished '07 with five. We have a number of discussions going on right now, so stay tuned. We will continue to update you, and there's no -- from our perspective, it's -- we'll sign as many as we can and have Mr. Keenan try to do what he can to ramp these up as quickly as possible, so there's no artificial barrier to us adding any number of them. We've just for modeling purposes talked about four a year.

Do you think there will be a time when it will be more -- an easier sell because what you've done has been recognized and they're happy to hear from you or they'll come to you saying, "How do we do this?"

Well, clearly, that's our expectation, and quite frankly, it's already begun to resonate. As we talk to whatever respective Center of Influence, one of the distinct advantages that we have is we can have the ones that we've already talked to, and certainly, Emory has been a model citizen for us. Having them act as a reference for us has been enormous.

Terrific. Thank you.

Keep in mind, Stephen, that when we sign up a center, that gives us the influencer in the region. It doesn't mean that we don't have to go out and blitz the area and pound on the doors for the internal medicine physician groups and cardiologists that are willing to join under that umbrella. We still have to do all that legwork, and that's where all the heavy lifting happens and the translation from no revenue in the territory to starting to get real sizable revenue.

The historical experience in the Georgia market is that then eventually you start to do some servicing for the center themselves, but that usually doesn't happen out of the gate, and that's why there's a delay. So even if we sign up four, that doesn't translate to revenue out of the gate.

I understand that, but I would think that you're kind of walking in with a seal of approval --

Yes.

-- being able to bring the name of the hospital with you, number one, and as you have begun to get a history, whether it's within that region or outside of the region, somebody that can get called on to confirm the potential for increased revenue within the internist's office.

Right. And there's no question that that doesn't have a positive impact for us.

That's right. That is the hypothesis, and we are seeing that, too.

Terrific. Okay. Best of luck.

Thanks.

Thank you.

Thank you, sir. (OPERATOR INSTRUCTIONS)

Gentlemen, there are no further questions. I'd like to turn it back over to Mr. Casner. Please go ahead, sir.

Thank you, Michael, and thank all of you for joining us again this morning and your continued interest in Digirad. We look forward to updating our progress throughout the year, and our next call is scheduled for late April, and we'll look forward to talking with you then. Thank you.

Thanks, everybody.

Thank you, sir.

Ladies and gentlemen, this does conclude the Digirad Corporation 2007 Fourth Quarter and Year-End Results Conference Call. You may now disconnect. Thank you for using the Teleconferencing Center.