Star Equity Holdings Inc (STRR) 2012 Q2 法說會逐字稿

Good morning, ladies and gentlemen, thank you for standing by. Welcome to the Digirad Corporation 2012 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. (Operator Instructions). This conference is being recorded today, July 26, 2012. I would now like to turn the conference over to Matt Clawson of Allen & Caron. Please go ahead.

Thank you, Ian. And thank you all very much for joining us this morning. If you didn't receive a copy of today's press release and would like one, please contact our office at 949-474-4300 after the call and we will be happy to send 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 from 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 marketshare 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 condition, 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 US 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 Todd Clyde, President and CEO. Todd will discuss the 2012 second-quarter and six-month results, update us on the Company's strategies and comment on the Company's outlook. The question-and-answer period will then follow. With that, I'd like to turn the call over to Todd Clyde. Good morning, Todd.

Thanks, Matt, and I appreciate everyone for joining us today on our second-quarter 2012 conference call. I will make some brief remarks this morning and then I'll turn the floor over for questions.

As many of you know, we have completed the restructuring of our Board of Directors over the last few weeks and we are in the midst of a major Board-driven reassessment of our corporate and business strategies going forward. When that process is complete, I will make a full report of our plans to our stockholders.

That does not indicate a standstill mode at Digirad. We continue to make progress in the marketplace and in our product development efforts, both of which will deliver value as we go forward. Also, we are continuing to make progress in our search process for a new CFO. We have spoken to some excellent candidates and I expect we'll be able to select a candidate who will be a great fit for our business. From a personal standpoint, I'm especially motivated to complete this task, but I also want to make sure that we hire the right person for the business at this critical juncture.

I'm pleased to report that we have made progress on several important issues during the quarter. Most importantly we see seated four new Board members, all high-quality individuals with experience ranging from those who are current Wall Street investors to seasoned medical device executives, all of whom are dedicated to driving shareholder value.

Our new Board members are Chuck Gillman, Jeff Eberwein, Jim Hawkins and John Climaco. As a whole, we believe their mix of skills, backgrounds and perspectives, their commitment to shareholders and their sense of strategic and value-creation urgency will be a great addition to our Board as we move into this new and exciting period for Digirad.

The Board has created a strategic advisory committee that is engaged in looking at a wide variety of options for growth and value realization. Our primary goal has always been to increase shareholder value and we believe we now have the right mix of skill and experience to create and drive shareholder value through executing the right strategic plan.

The strategic committee and the Board have been engaged in spirited discussions as to what are the best steps going forward, including the possibility of sale of assets and various paths of accelerating the commercial success in both sides of the business. It is clear that our technologies, expertise and intellectual property and our physician customer channels have value both clinically and as business lines. We are assessing the right combination of internal commercial strategies and potential partnerships that will then lock that potential value.

Because we have managed our business prudently during the last few years during a very difficult economy, we have the financial strength to move decisively. I realize that we have been promising these plans for some time, but candidly the Board restructuring process took longer than we had anticipated and it is important that we have consensus before striking out in a definitive direction.

Our shareholders have asked for changes at the Board level. Now it is important we bring these new members up to speed and take advantage of their expertise and fresh perspectives. Thank you for your patience and please stay tuned.

Now for a summary of the second-quarter results. Overall revenues for the quarter remained largely stable compared to the first quarter. An increase in our Digirad Imaging Solutions or DIS business was offset by a slight decrease in our product or camera business. DIS productivity continued to be positive in the quarter as revenues trended up over the first quarter to $9.4 million, which is also about $400,000 higher than the fourth quarter of last year. We believe this is a good sign of progress in this business as reimbursement has been stable thus far in 2012, which we believe has contributed to [aiding] new physicians to signing up for DIS days and to make greater use of those days under contract.

As further evidence of progress in the DIS business, customer starts were again up in the quarter, account retention was higher than planned and margins have again expanded. We are ahead of our internal DIS plan for the year.

Revenues on the product side of the business were down modestly for the second quarter to $3.3 million. We sold a total of six cameras during the quarter, including two ergo cameras. This is obviously short of the ramp level we want, but we continue to receive good feedback on our ergo cameras. Hospitals are still making budget allocation decisions and they are often stretching the life of their current nuclear assets. Flexibility and portability is adding value to those sites who own this great device. Expanding the adoption rate at a higher level is what we are currently focused on.

Our overall gross margins have grown from 27.5% at the end of last year to 29% in the second quarter of 2012 and 28.6% year-to-date 2012. As most of you know, expanding our margins has been a consistent goal for us and we continue to work diligently to keep our product and supply sourcing costs down to maintain our margins at these higher percentage levels.

As we noted in today's release, we did have charges of about $218,000 in the quarter with total costs estimated around $430,000 associated with legal and other costs related to shareholder and Board negotiations during this period.

Our cash flow was marginally negative. We wound up with about $20.5 million in cash and investments as of June 30, down about $600,000 from the end of the first quarter. I highlight we used $479,000 of cash to repurchase our stock as part of our stock buyback program during the quarter and we have used about $597,000 year to date.

We repurchased our stock because we believe it is good value. While the buyback program remains in place and will be active, we have less than $400,000 in the remaining approved program and we would not expect to be buying as aggressively in the coming quarter.

In addition to the cash used in the stock buyback, we also continue to make progress in bringing down the days sales outstanding in our DIS business from the high level we saw in the first quarter of this year. As we make progress, we also expect there to be improved cash flow.

With that, I would like to go ahead and open up the call for questions.

(Operator Instructions) Marc Silk, Silk Investment Advisors.

I came late on the call, but can you kind of explain to the -- whether the headwinds, tailwinds of all this whole Obama Care now that the Supreme Court supported it? And then obviously if somebody else wins the election, they are going to try to appeal it. I know that probably is very hard for you to manage your business, but I think if you can give us an overview, that way we know what to expect going forward.

Yes, Sure.

More so on the sales side, but if it affects DIS, that is fine too. Go ahead, sorry.

Yes, it certainly has an impact on both sides of the business. And I can kind of describe some of the general dynamics. If you look at the Affordable Care Act and the implementation of that Act, there are required modifications in terms of reimbursement. There are standards of quality care that drive different perspectives in terms of how imaging is utilized going forward. That is a trend that has been going on for quite some time.

But when we look at it from a high level, we would expect there to be continued downward pressures both on kind of steady volumes, as well as reimbursement. And the reason that happens is just because overall as the baby booming population ages out and you have more people hitting these modalities, there has got to be a way to drive the kind of per-unit costs down. That doesn't mean that you shouldn't see some offset based on their being higher volumes. So that kind of happens in one scenario.

Many physician practices have made decisions to kind of sell out and align with hospitals. So there is many, many ownership modifications that are going on either formally or some that are a little less formal. That can be in terms of true ownership or it can also be accountable care organizations. That is a classic example of something that is inside of the Accountable Care Act where you have hospitals and physicians kind of combining and grouping and then based on the population of patients that they serve, they then have kind of economic benefit and discounts that come back from essentially Medicare.

So when you have all these relationship changes like with large -- let's say a large cardiology practice, during those negotiating periods, they are not buying assets and swapping in and out and ultimately then the hospitals have ownership structures where they own not only imaging equipment in their own facilities, but they now own facilities that are usually within about a 35-mile drive radius of that main campus. And so they have now a larger group of assets that they are trying to manage.

So when you think about a normal replacement cycle, it gets depressed and it also ends up getting stretched because of these economic changes and general concerns in the healthcare market. And I think that's why you have seen a dramatic reduction over the last five years in the number of nuclear cameras that are sold into the general market where some folks are actually purchasing, like in a hospital setting, they buy a multipurpose SPECT/CT camera versus necessarily a dedicated device. And that is because when they think about uncertainty, they kind of say I'm going to buy a more general-purpose device whereas my cardiac volumes have come down a little bit or perhaps they are flat.

I believe that over time that will kind of settle out and you'll get back to a replacement cycle that is a little bit normal that should be a higher level of purchasing than you see today. But that is going to take certainly a few years.

I also remind you, Mark, that when a hospital purchases a facility or a hospital -- or a physician practice that is within a certain drive radius, they are able to now shift to going from the physician fee schedule in the outpatient setting to a hospital [hops] billings, which actually is a higher reimbursement rate. So that is another economic driver of why some of those combinations happened.

And ultimately hospitals, if you think about their economics, by 2014, 2015, kind of in that range, they start to get hit much harder in terms of reimbursement with the implementation of the Affordable Care Act, and therefore, today, many hospitals are doing a lot of things to try to improve utilization, which is why they are buying practices, as well as kind of manage and reduce their cost infrastructure and that ends up linking back their CapEx budgets.

And so you have -- like in the case of our ergo, we have very little problem creating excitement and demand for the product, but when it goes into the budgeting cycle and dollars get compressed down, sometimes those dedicated unique devices end up getting trumped for that more general-purpose device. So there's lots of dynamics there and you kind of feel how it impacts the product side of the business.

On the DIS side of the business, it is kind of interesting. We have had an increase in new business this year compared to the last couple of years. We have been able to help drive production activity on a per-day basis so that the economics are a little more favorable for the physician. Sure, ASPs are absolutely down based on that severe cutback in 2010, but as a large practice gets bought out, if it's a 20-man practice, sometimes two to three physicians splinter out the back and form another small practice. And those end of being kind of natural consumers of a DIS services model. That won't last forever, but recurrently we're able to take advantage of that, so that is actually -- that is actually a positive.

In the DIS business, the sustainable growth rate of the [doc fix] is still looming. That is for all physician fee schedules. Today, it would be about a 27% cut on all Medicare codes. That is scheduled to go back into effect on 1-1-2013. So of course, it has been delayed for multiple years, but it spills out there, it is looming. Could you see -- when you talk about like a new administration coming in and either trying to repeal Obama Care, there has to be something to replace that. Will there be trade-offs? Don't know, but what we do see in that business is the ASPs are lower than they were certainly a handful of years ago.

We work really hard to kind of drive and maintain the margin dollars. We've seen definitely some positive improvement this year and we see modest growth in new accounts. We've been able to hold onto some accounts. But that business always has lots of business activities too. We know of a fairly large customer that will take some of the imaging in-house. This is actually a hospital in one of our areas, like in the fourth quarter. So those things happen.

So you work hard and you kind of replace and you wonder why when you talk positively, why don't you always have just massive growth? Well, sometimes there is changes where different groups decide to pull the imaging in-house or stop.

So those are kind of the general overviews as I think about not only kind of the Obama Care implementation, but there is also impacts of just kind of the economy in general, how patients interact and how they go and get healthcare today.

Okay. So now to switch gears a little bit. So on the DIS business, you have a -- you say that hospitals -- you are seeing they are buying practices. So do you see something -- let's say there is a practice of 20 doctors and maybe they are buying -- they are using DIS. Now that they are associated with a hospital, are they just going to be using the hospital's let's say facilities or will they still be a DIS customer?

A lot of the DIS customers are smaller in nature. Those aren't usually the practices that hospitals are buying. They are usually buying either large cardiology practices or large multi-specialty practices. A DIS customer is -- kind of the average profile would be more in the one to three or four main cardiology group or in internal medicine practice, it might be in the 5 to 10 practice -- physician practice range. So those aren't usually the groups that are being bought out. But they make leak into the ACO. So far, we haven't seen that change the way that they are subscribing to different services. But it could, Mark, it could.

One thing that we kind of try to think about is is hospitals -- even if they buy certain practices -- they are only going to buy so many and it only reaches them into certain parts of the community. So could DIS also then link with them in other parts of the community where you are providing services to physicians and then helping kind of bring the [reads] and the downflow traffic back into the hospital. We do that with success in some areas. Other hospitals kind of don't see the whole vision of how that would work, so you have to kind of find that right partner to have success in that type of a model.

I know the DIS, like you said, most of it is the smaller practices. Have you seen any of these small practices decide to step up and buy a device or it is really just they are just going to be a DIS customer continuously?

Yes, a lot less in recent years. If you kind of look at the spectrum of time, when volumes were going up really, really fast, physicians would start to garner enough volume to justify the purchase of an asset. Smaller groups would subscribe to a DIS service as reimbursement, and let's just use this as an example. Reimbursements comped from like $1200 seven or eight years ago down to about $600. You see small groups kind of not have the volumes and the justifications, so they don't actually subscribe to the service any longer and some of the groups that might have been in that crossover point of buying an asset would now fit back into just a regular DIS model.

Where you see some buying activity in cardiology is maybe if the splintering group or a little bit of a smaller practice, which is used to controlling and dominating the activity by owning the asset, they are sometimes going out and pick up a refurbed unit. There is kind of a glut of refurb cameras in the market and they can pick up a refurbed unit at times below $100,000. So they can limit their CapEx requirement in doing that.

Thanks, Todd.

Ross Taylor, Somerset Capital.

Most of my questions were asked and answered with the previous caller. But I wanted to ask on the ergo, what is the offshore potential and what is our strategy for penetrating in markets where we might actually be seeing new hospitals, new clinics and the like being installed as opposed to here in the US and perhaps Western Europe where things are much more competitive and much slower growth?

Let me kind of bifurcate that into maybe a couple of different answers. If I missed part of it, ask me again. But if you think about the ergo specifically in the international market, we did a couple of studies over the last, I guess, couple years and the healthcare dynamics and I guess I would say the imaging delivery is a little bit different in Western Europe. They don't do the same procedures that we seem to do here. Some of that may be driven a little bit on obesity rates.

So as an example would be like a gastric emptying study, a lot of kind of gall bladder-type procedures that are done where the ergo is just really, really clean and good at doing that type of stuff. So the marketing studies have kind of shown that there is not a huge demand for that. They tend to do a lot of thyroid imaging. Our camera works very well for that, but they can also pick up a thyroid-specific device, a smaller footprint, for a lot less money than what the ergo provides because the ergo brings a much broader level of flexibility.

So we have sold units internationally, one unit in the UK in particular and they are using it for portability. They are using it actually for organ transplants, kind of profusion assessment-type studies. But our market research would say there is not huge demand there. A little bit more on the cardiac side actually because you are seeing an increase in obesity, an increase in cardiovascular disease, but then some of this -- like these studies were done kind before the debt crisis hit Europe quite as hard and because you have national healthcare in a lot of those countries, there is a strong link to how well the economics are working at the governmental level to how much they are going to invest back in their own healthcare system. And so you see a little bit of compression essentially in their purchasing demand. So that's kind of one comment there.

If you think about the ergo camera specifically outside of Western Europe, we have had some success. Like we've sold a unit in Australia. We have some units that are in a coding process up in Canada, so that is a national healthcare platform. It's a little bit different. What we see even in the domestic market is there's either people that really like portability or people that really don't want to do portability. But as they are recognizing they need to broaden how they deliver nuclear medicine to the hospital, we are starting to have more formidable discussions with some of those groups.

So we are fighting budgetary elements and kind of getting the marketing positioning correct. But what I'm most pleased by is I have never sat down with a single customer that has purchased a camera that hasn't just absolutely loved it and where the camera absolutely superseded their expectations from what they thought it would do.

And the third world market?

Yes, so the third world markets are interesting. Brazil, I guess you can decide if you want to call it third world or not, but Brazil has -- they have some dynamics where they have some very large imaging centers that are run by a couple of really formidable groups. And those could be some groups where you could sell some dedicated cardiac devices.

If you look at other countries like India, China, so on and so forth, they have either very little nuclear medicine-specific physicians in the countries, like there's very few really in the entire country of India, which is just shocking and even in China. So what they are doing is there's either really high-end premier units that are purchased and they are buying multipurpose devices, very high-end devices or usually they are looking for very economical devices, especially as you kind of shift outside of the main metropolitan areas into the urban setting.

So our market research has kind of been mixed there in terms of do the dedicated devices that Digirad offers really fit that marketplace. And then also balancing that with the significant investment to gain the credibility and the positioning in the country. So it has been really hard to justify for us that way. If you can find the right distribution partner, it might have some potential, but it looks like it's maybe not quite ready.

Okay. And I know that the new directors came on and all have basically stated that they intend to buy substantial amounts of common stock in the open market. And while there was a flurry of buying early on by a number of directors, it really has paused for an extended period of time, which tends to make me believe that they are aware of information that is probably non-public and are therefore frozen out of the market. So I can't believe that they satiated their need with the buying that they have done.

And the new director -- the newest directors haven't bought any at this point, at least that I've seen as filings. And I would strongly encourage whatever is going on that is keeping these guys out of the market, I think it is a very strong message to investors and you noticed how well the stock was performing when the new directors were in the market buying. And I think that whatever can be done to get them to be back in the market buying, I think both as a vote of confidence and honestly to soak up liquidity because we know that Digirad is a little bit of an orphan stock. I would encourage that, you, the Board, your outside counsel all take whatever steps and get that so they are back in on as soon as possible basis.

Yes, yes, and I think you did a nice job, Ross, of highlighting all of the elements and dynamics. So when they were able to be in the market, they were absolutely in the market. I know that Chuck and Jeff are -- I'm not trying to speak for them -- but I know they are very committed to continue to find a way to be buying. And so there are certain mechanisms that can be put in place. And so I can't obviously speak for them. I mean they have to decide how they go down that path. But, yes, that is certainly understandable.

And then our window opens back up kind of three days after our earnings call today and then it is a fairly short window ultimately, but that doesn't mean that 10b5-1 plans or things of the like couldn't be put in place as long as they don't have this kind of nonpublic material information even at that time. So yes, they are trying to figure out an effective structure. So I got the message from you. I appreciate that.

Okay, great. I appreciate it and congratulations on the nature of kind of stabilizing the business. Obviously at this point going forward, it would be nice to see if we could get cash flows moving positive and cash balances stabilizing and moving higher. It looks like actually ex the buyback and ex the legal expenses, cash flows would have been -- or cash would have been slightly up for the quarter over the prior quarter.

Yes, and all of that is true, and there is a lot of work and we are trying to balance -- we think there are a number of options in terms of increasing the shareholder value and we're trying to balance all of those options with the risk and the profile of how the communication from the shareholder base is coming in and we obviously listen to the shareholders. I mean swapping four new directors on a Board is a significant change, a lot of personalities, a lot of new ideas and suggestions. And it's great, but it takes a little bit of time and I'm not as patient because I've been working at this for a long time and I want to get some value out of this stock.

But I am sensitive that if you go up and ask your shareholders for recommendations and you bring on these directors, you've got to give them time to learn, to come up to speed and make a proper decision. So that doesn't mean there isn't a dramatic sense of urgency around this. There is, but that is the process we are in right now.

Thank you and you took away my speech I was going to give. So (inaudible) Board (inaudible) and we'll move forward. Thank you very much.

Yes, critically so. Thanks, Ross, I appreciate it.

Take care. Take care.

Steve Rudd, USIP.

It has been a while since I [listed] the Company and that we spoke, so forgive me if I am not fully up to speed. But I seem to recall that you spent a fair amount on a strategic review over the last 12 months. Can you just refresh my memory as to how much was spent and what it was spent on in general?

We had spent a little under $1.5 million in total really analyzing kind of, in the end, four key questions that I won't to go into, but it was analyzing elements of how to really advance the business from a strategic perspective, how to utilize the technology and move that into another vertical. It was also even had question as broad as looking at specific whitespace areas that could -- that we could really, really take advantage of.

We had some discussion earlier with one of the questions around from Ross around kind of international expansion some of those things that are very, very specific. And then we have been going down a process of understanding that, pulling it all together, building implementation plans and then we also simultaneously kind of really at the beginning of this year went into these strong negotiations on swapping out Board members, bringing on new directors. And now the process is -- and we have done most of this now where we have educated them on that entire alternative and those outcomes. And also are analyzing and assessing any other strategic alternatives for the business with kind of the fresh eyes and fresh perspective.

$1.5 million, I mean you characterize it as a little bit of money but to me that seems like quite a lot of money for that type of review for a Company of our size. And I don't think you went into detail on the public documents as to where that went. Can you give us a little flavor as to where it went? Was $500,000 to a law firm -- where did this money go? It's a lot of dough.

Yes, so I didn't mean to leave any impression of referring to the amount as a small amount, that was not my intention, so I apologize for that, however it came out. What I can tell you is that part of the process was hiring a premier healthcare consultant to drive a significant assessment.

And what did that premier person cost?

I'm sorry, what did you say?

What did that premier person cost? Was it $1 million out of the $1.5 million? I mean that is a staggering (multiple speakers)

We haven't broken out to any of those specific details, Steve. The ultimate view is we spent a sizable amount of money trying to really uncover the most effective strategic direction to untap the most shareholder value that we can possibly get out of the business. And really analyze some key strategic alternatives in that process.

Okay. I mean I get the general term but I would just encourage the Board to take a look at some of that spending because it is a little troubling. I mean I remember being on a call about -- I don't know when the $1 million or so was spent and saying, gosh, that's a lot of money and somehow this doesn't -- this doesn't provide any further comfort. It provides a little bit of discomfort, quite frankly.

All right, let me -- I was about to complement you to your ability to hold onto the cash ex $1.3 million of the $1.5 million spent or ex $1 million of the $1.5 million spent. But isn't it about -- given that this analysis took place and it took place at long time ago, seems to me part of the analysis was whether the camera business could be brought to another arena. Obviously on its own, the DIS business is not sufficiently profitable given our corporate structure.

Without sitting on your Board, I think the conclusion becomes fairly obvious that the result would be selling off both the businesses and distributing the proceeds with our cash that we have managed to hold onto to shareholders. Isn't that about where we wind up at this point?

Well, I think that is certainly one of the strategic alternatives that could be deployed. And like I said, the Board is looking at any and all potentials -- ultimately you are trying to weigh the way you describe it, right, that is always an option and you are trying to weigh what that economic value would represent versus any of the other alternatives. And really trying to make the best decision to increase the value. You are not trying to necessarily hold onto an asset or hold onto the company for the sake of holding onto it. You are trying to figure out the most effective way to increase the value to the shareholder.

That's right and I mean reading between the lines, it seems to me that you fairly well have concluded that it is not seeking to bring the camera business into this whole brand-new area because it's brutal to create a brand-new market for ourselves and not cost effective. And then the DIS business speaks for itself, it just can't be supported on our shoulders on a profitable basis.

So would than -- don't we lean towards the result that I just described, which is selling off both businesses and distributing the cash?

I mean no decision has been made on that front. Like I said, we have brand-new directors who are -- we are spending a lot of time bringing them up the curve, they are spending a lot of time analyzing everything from having multiple discussions with existing shareholders to analyzing the elements of the business, to thinking about valuations on every component of the business and how you can kind of maximize that return, what are the strategic alternatives. I would not necessarily conclude because we haven't rolled out the results if you were talking about there's an opportunity on the product side. Just because we haven't ruled that out that that isn't a very viable opportunity. We've got to understand the pieces first. But that doesn't mean you couldn't come to the conclusion that you are purporting either.

I mean as a shareholder or maybe a soon-to-be shareholder again, I have been in the past and then sold lots a few times. But I would be troubled if I heard of a strategic plan to roll into this new area of the camera business and that would just be like -- this would not be a good use of our cash. We have a product that is probably desirable for somebody else with a bigger reach to take up and then the DIS will go to somebody else as well and we can maximize value pretty well like that.

So I would hope -- listen, the comment on the $1.5 million, if you can put out some detail in one of your releases as to where that was spent, it's not small amounts of money and given that our biggest call here or is the biggest asset or best asset that we have is the cash to see that go out the door such a long time ago without any particular result from it, I understand you have a new Board and maybe that's a result. But that is a lot of money to be put out for hiring a premier consultant and maybe something else.

So if you could put out what the -- that detail is, that might give us a little more comfort that that cash is going to be safely guarded going forward and was properly spent in the past. Not suggesting it's not but it disconcerting.

Appreciate the feedback, Steve, and always great to chat with you.

Okay, thank you.

Ross Taylor, Somerset Capital.

Can you give us a picture real quick of the public company costs or the rough public company costs that Digirad incurs on an annual basis?

Yes, I mean my rough number would be kind of around that $2 million range. I mean I obviously included Board fees and all of the elements associated with being public to higher audit fees and so on and so forth.

I mean we recently went out and bid our audit fees pretty hard, you can see there's a little paragraph on that maybe in the proxy statement, as an example of costs that we are always trying to manage those effectively down as much as we can. So I'm not going to tell you that those numbers are dramatically high. But NASDAQ fees, stock fees and all those things like the Delaware comps are always higher when you are public and you have more outstanding. So I would say it is kind of in that range give or take a bit.

I think that our views at Somerset I think are well known from prior calls and the like. I think that our belief is as well as you have managed the business and as well as you generally have spent the cash on an operating basis, unfortunately Digirad is of a size that it just -- it's difficult to be a public company. And it's going to be hard to get value realized as a public company. And we've had conversations about this with a number of directors, primarily new directors but also at least one previous -- one incumbent director from the prior group.

And we look forward to the process being completed and I think that also real quick -- do you guys load a lot of your costs from the corporation as a whole into the DIS business, do you not?

Yes, we spread all of those costs between the product and DIS. And DIS takes -- I don't know the exact percentage but it is somewhere in the -- around the 60% range of those costs.

Okay. So basically the DIS business is probably more profitable than it appears at first glance when one looks at the financials?

I think you could argue that certainly if it was in a private setting, right.

Yes.

Absolutely, yes. I mean you could argue it for both sides of the business for sure but you could -- if you want to think about like an EBITDA production off of the DIS business, it is a higher number in the private setting.

And it would seem the camera business would benefit from having an alliance either direct through ownership or marketing agreement with a larger player who has a much broader reach particularly perhaps in markets geographically where you guys are not currently there?

Yes.

Okay, thank you very much.

Thank you. And we have no further questions at this time.

All right, great. Thanks everyone. Really appreciate the great questions today as well as opinions on how to advance the Company. I mean obviously, we are continued -- we continue to be very dedicated to increasing the shareholder value. We work every day aggressively on this business. We wish there was a higher ratio of result to the effort, right, because I think there's tremendous effort that gets put in but we don't get paid for effort. We understand that and we've got to drive that process.

We are grateful for the feedback we received from our large shareholders. As we have gone out and made enhancements and modifications to the Board, I believe that the Board is absolutely and acutely listening to the shareholder base and we will continue to do so.

Thanks again for your patience as we are analyzing these strategic alternatives and allowing that group to come up to speed and we look forward to chatting with you in the near future. Have a great day.

Ladies and gentlemen, this concludes the Digirad Corporation 2012 second-quarter and six-month results conference call. Thank you for your participation. You may now disconnect.