Star Equity Holdings Inc (STRR) 2017 Q2 法說會逐字稿

Greetings, and welcome to the Digirad Second Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I'd now like to turn the conference over to your host, Rica Lindsey. Thank you. You may begin.

Thank you, Matt, and thank you all for joining us this morning. If you didn't receive a copy of our press release and would like one, please contact our office at (858) 726-1600 after the call, and we will be happy to get you one. Also, this call is being broadcast live over the Internet and may be accessed at Digirad's website via www.digirad.com. Shortly after the call, a replay will also be available on the company's website.

I would like to remind everyone that certain statements made during this conference call, including the question-and-answer period, our 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, but are not limited to, statements about the company's revenues, costs and expenses, margin, operations, financial results, acquisitions 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 today'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 2017 second quarter financial 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.

Good morning. Thank you, Rica. Good morning, everyone, and thank you all for joining us today for our Second Quarter 2017 Results Conference Call. Overall, we had a good second quarter, with better-than-expected performance by our services businesses and good free cash flow generation. The performance of our service businesses was offset somewhat by lower performance by our products businesses, which continue to experience slower capital spend, which we attribute, in part, to the uncertainty around the Affordable Care Act. Also during the quarter, we successfully refinanced our credit facility to a new revolver with Comerica, that increased our financial flexibility significantly. Jeff will have further details on this matter in a few minutes.

Digging into our Service business, I'll start with Mobile Healthcare, which generated revenue of $11 million in the second quarter compared to $12.2 million last year. As we announced last quarter, we experienced some operational challenges within this business unit, which is part of the DMS Health acquisition that we closed on January 1, 2016. To correct this situation, we previously discussed changes we made in leadership, operations and adding additional resources to our provisional sales efforts. We believe we're starting to see the impact of these changes, and we are optimistic that we'll continue to see positive incremental results as we move forward.

In the meantime, the assets are still there generating revenue and cash flow, and the team is working well together. We continue to expect to return to growth in 2018 in this business.

Our diagnostic service business, which includes our in-office mobile diagnostic imaging activities, Digirad Imaging Solutions, or DIS, and our cardiac monitoring business, Telerhythmics, performed well in the quarter. Diagnostic Services revenue was $12.6 million for the second quarter compared to $12.5 million last year, benefiting from higher volumes from existing customers as well as volume from new customers. Though the year-over-year growth was not significant, the business continues to churn along with incremental increases and continued cash generation. Our Diagnostic Imaging business finished the quarter with total revenue of $2.9 million compared to $3.4 million last year.

During the quarter, we experienced temporary delays in capital spending we believe due, in part, to uncertainty surrounding the Affordable Care Act. Despite this, we have a robust funnel of deals, and the status of the ACA is not impacting the need of units in the market, and we believe it is only a matter of time before we start seeing more sales volume in this business.

Our Medical Device Sales and Service Business, or MDSS, finished the quarter with total revenue of $3.3 million compared to $4 million in the prior year. Similar to our Diagnostic Imaging business, MDSS is experiencing delays in capital spending. However, also similar to Diagnostic Imaging, we have a robust pipeline, and it is just a matter of time before we start closing these deals.

As stated each quarter, our overall corporate strategy at Digirad is to focus on 3 main areas for growth. Area number one, acquisitions. Our goal is to acquire companies that fit within our business model of providing health care solutions on an as-needed, when-needed and where-needed basis in a very financially disciplined manner. Area number two, adding new services to our portfolio that we can provide through our current distribution channels. And area number three, organic growth within our existing portfolio of services and channels.

As I always state, Jeff and I remain committed to sourcing the right opportunities for the company. Of course, as always, we cannot predict the timing of potential acquisitions or any particular outcome. But in the meantime, we'll continue to run our cash-generating businesses.

Finally, after a careful review of capital allocation in our free cash flow generation, as well as in conjunction with our increased line of credit flexibility, we are pleased to announce that we are instituting a 10% increase to our quarterly cash dividend. Going forward, starting with the dividend that was declared today, our quarterly cash dividend will be $0.055 per share per quarter, from $0.05 per share previously paid per quarter, for a total annual dividend of $0.22 per share.

Now I'd like to turn the call over to Jeff for his comments and a more detailed financial update for the quarter and year. Jeff?

Good morning, everyone. In the earnings release today and in my comments, I make references to both GAAP results as well as adjusted results. The adjusted results are non-GAAP and do not include non-recurring charges such as those associated with acquisition integration costs and purchased intangible asset amortization. I will also make references to adjusted EBITDA, which is a non-GAAP measure that further excludes depreciation, amortization, interest, taxes and stock-based compensation. Finally, I will also make references to free cash flow, which is a non-GAAP measure taking operating cash flow and subtracting net cash paid for capital expenditures.

We believe the presentation of these non-GAAP measures, along with our GAAP financial statements and reconciliations, provide a more thorough analysis of our ongoing financial performance. You can find the reconciliation of our results on a GAAP versus non-GAAP basis in the earnings news release today.

As previously discussed, we closed on DMS Health on January 1, 2016. The results of DMS operations are included in our results for the entire quarter and for the year-to-date period since January 1, 2016. Therefore, our results for the second quarter of 2017 are comparable year-over-year for the same period of time, for the same businesses.

Next, I will give a brief summary of the quarter's activity. Total revenue for the second quarter of 2017 was $29.8 million compared to $32.1 million for the same period last year. Our overall gross profit percentage in the second quarter of 2017 was 23.6%, compared to 30.4% in last year's second quarter.

In Diagnostic Services, revenue and gross profit percentage for the second quarter was $12.6 million and 21.7%, compared to $12.5 million and 23.3% in last year's second quarter. Our Mobile Healthcare business produced revenue and gross margin in the second quarter of 2017 of $11 million with gross profit of 16.9%, compared to $12.2 million and 21.2% for the same period last year.

Overall, the revenue increase in our Diagnostic Services business was positively impacted by a higher volume of service days ran in the second quarter compared to prior year from both new business and a higher volume of business from existing customers, with some offset on lower average price per day.

For Mobile Healthcare, the year-over-year revenue change was primarily a result of lower provisional business, which we are addressing with the changes in management, operations and sales that Matt previously mentioned, and we believe we are on track for success.

In our Diagnostic Imaging business, the revenue and gross profit percentage was $2.9 million and 35.8%, compared to $3.4 million and 54.2% in the prior year. MDSS had a revenue and gross profit percentage of $3.3 million and 42.1%, compared to $4 million and 60.6% in the same period last year.

In our Diagnostic Imaging business, the lower overall revenue and gross margin was impacted by the volume and mix of cameras sold. In MDSS, the change of revenue and gross profit percentage was mainly attributable to the timing and type of capital equipment business sales with our partnership with Philips.

As Matt mentioned earlier, we are seeing slower capital spend in the market that we believe is due, in part, to uncertainty around the Affordable Care Act. However, also, as Matt stated, this does not change the overall opportunities in the market, and it is only a matter of time before these deals close.

We do experience some seasonality in our Services business and notwithstanding other factors, the fourth and the first quarters are our slower quarters for Mobile Healthcare and Diagnostic Services businesses, with the second and third quarters being our higher revenue quarters. Also, for MDSS and Diagnostic Imaging, we can experience some seasonality related to the timing of equipment sales and capital budgeting for our customers. Notwithstanding acquisition, we would generally expect these trends to continue as we move forward.

Moving on to the bottom line results for the second quarter, adjusted net income was $1.7 million or $0.08 adjusted earnings per share, compared to adjusted net income of $1.8 million or $0.09 adjusted earnings per share in the second quarter last year. Adjusted EBITDA was $2.5 million for the second quarter of 2017 compared to $4.2 million for the second quarter of last year.

As we announced in late June, we refinanced our credit facility to a more flexible arrangement with Comerica Bank. Under this new 5-year interest-only revolving credit facility, we have a $25 million capacity for which the entire capacity is available to us. The overall interest rate on the facility is at LIBOR plus 2.35%, and our resulting interest rate at June 30, 2017, was 3.6%.

As a result of refinancing our facility, we had a noncash adjustment of $7.7 million that was recorded as part of the financial results in the second quarter. At June 30, 2017, the outstanding balance of the facility was $17.5 million, and our overall net debt position, including all cash and cash equivalents, was $15.2 million. On a go forward basis, we intend to sweep all excess cash on a daily basis to minimize our overall interest expense on a revolving credit facility.

Also included in our earnings release today was disclosure of a $1.3 million preliminary settlement of a wage and hour litigation case in the State of California. This litigation is subject to both a preliminary and final court approval, and likely will take a few months to fully resolve.

And finally, today, we announced our regularly quarterly cash dividend of $0.055 per share, which is a 10% increase to our prior quarterly dividend. The dividend will be paid on August 30 to shareholders of record on August 18.

Now I'd like to turn the call over to the operator for questions.

(Operator Instructions) Our first question is from Andrew D'Silva from B. Riley & Co.

Just a few questions here. For starters, as it relates to the Mobile Healthcare unit, what metrics are you looking at to gauge progress in the provisional or spot business? And when you think about the provisional business, how lumpy or predictable is it for you guys internally? Is it more challenging than typical service segments? Is it hard to pin down timing as it's maybe tied to construction?

Yes. No, our one metric in that business is utilization, right? So that's how we measure performance on that is based on the utilization of those units. As we've mentioned previously, utilization of that -- those units are typically unstaffed, where we're just moving a -- because of a site might be changing out an MRI or a PET/CT and going through construction or whatnot, we will just park our vehicle there and the hospital staff would operate our equipment. So they're unstaffed, and it's just based on whether they're being used or not being used. Obviously, prices are also involved as well, but utilization is the main metric that we use to manage that.

Okay. Got it. And then moving over just to expense lines. Looking at gross margins for product sales, they're pretty compressed. What's the function there? Is that economies of scale or just higher maintenance revenue relative to actual physical product sales? And then is $2.3 million, or $2.4 million the new sales and marketing range we should expect going forward on a quarterly basis?

Yes. I think you see those depressed margins just really based on volume, right, Andy. Because we have a core base of business that we -- that those expenses that are necessary to operate those businesses. So certainly, if volume is down, that would depress gross margin. I would say that. And the second question, revolved -- Jeff, do you want to?

Yes. Sorry, just to repeat that, Andy, was that -- you were asking if the trend on sales and marketing is going to be at the same level that it was for the second quarter?

Yes. Just looking over the past 6 quarters or so, it's been somewhat volatile. It seems to stabilize a little bit around the $2.3 million to $2.4 million range. Is that where we should figure it being going forward? Or do you have to dial it back a little bit due to the Affordable Care Act or anything like that?

No. Right now, we anticipate it to be -- to stay relatively flat. Certainly, our thoughts on that is that the Affordable Care Act will get worked out. Some of the, I guess, pensiveness of the industry on making decisions based on which way that will turn out, I think, will eventually work its way out. The deals are still there. Certainly, the need for the equipment is still there. It's just a matter of when we expect these deals to close and to be funded. So, yes, we do not anticipate that we'll be increasing or less -- or decreasing that function at this point.

And just so you have full clarity on that line item, Andy. There is variability quarter-by-quarter, but we expect it in that general range, because you have variable compensation for commissions, et cetera, running through that line as well as marketing programs that aren't necessarily even over the course of the year. But we're in the ballpark of that number.

Okay. Great. And kind of sticking on that vein a little bit, discussing the Affordable Care Act and maybe how it's affecting the broader macro theme. Has there been any change in conversations, or the dynamic, or the number of potential M&A possibilities that are out there? I'm assuming that all the tumultuous landscape is maybe creating some events for people where they might look for exits or not, depending on how they are evaluating situations. Any color there would be helpful as well.

Yes. Based on what we're seeing, I think, just like -- it's causing people to be -- to not make decisions, right? And I think that's where everyone is just trying to figure out where things are going to fall out. No one anticipates that -- it's not at this point, driving any fire sales. Actually, probably the opposite that we're seeing. What we're seeing in the market for acquisitions is that we're seeing that there is a number of people that are interested in getting into the healthcare market, and we're seeing deals, pricing on deals go up, the deals that we've looked at in the past. So that's something that we've noticed. But I don't see anyone exiting or anyone being forced to exit just based on one outcome or the other of the ACA at this point.

Okay. Just a couple more, just bookkeeping questions here. I'm just curious, when you gave your guidance, were you assuming there would be a $1.8 million income tax benefit recognized in adjusted EPS? Obviously, that major impact over the whole year EPS, if we include that or not, was that one something that you figured to? Is there more of that to come in any way? And any help there would help us figure out how to adjust OpEx a little bit as we go into the second half of the year.

So when we gave guidance, we assumed a normalized tax rate of around the 40% mark, Andy. The items that we adjust out for income tax items are any quarterly fluctuations around the ability to utilize NOLs from an income tax benefit. Each quarter, we look out, and not to overcomplicate the answer, but the NOLs that we have span over many years going into the future. So our forecasted and actual results on utilization of those NOLs affect the carrying value in our financial statements. And so as actual results come in for the year, we have to make adjustments for the income tax impact. And those are anomalies because they're all noncash activities and it just goes with the future ability of utilization of those foreign NOLs. That's why we adjust those items out. At the end of the day, we have an effective tax rate on accounting purposes around 40%, but we do really look at it as a cash income tax rate, which is really between 6% and 10%. None of those adjustments really affect the amount of cash tax rate we have. It just affects the total utilization of NOLs that we have in the future. For right now, we're expecting to utilize nearly all of them, but not quite all of them. And therefore, we have tweaks in that as we move forward.

Okay. I see what you're saying. And then just a final question. If you could maybe give a little bit more color on the $1.4 million litigation reserve. More detail on what it's about. Should we expect any more expenses to come of there? And then also, last quarter you mentioned that after the proxy contest was over with Birner Dental that you were going to be paid -- if the resolution was successful, you'd pay back the expenses for the proxy contest. Can you give any color on any of those details?

So the litigation reserve is for a litigation in the State of California for wage and hour. I would say the high level discussion on that is that there's evolving laws and application of laws related to nonexempt employees in the State of California, and there was a perception that we were applying the rules incorrectly. We mediated this and reached this preliminary settlement. We believe we were applying the rules correctly, but nonetheless reached a settlement on it. We are going to be making some operational changes in the business going forward, but these operational changes essentially are documentation for what is already occurring, and don't expect any impact to our operations or financial results as a result of the litigation. I will point out that it is a preliminary settlement and subject to court approval. And that will take probably a few months to settle out, likely, is my estimate. But right now, this is what we believe is the appropriate reserve. And right now, I don't expect it to change.

Okay. And is the Birner Dental -- did you guys get the -- compensated for that?

Yes. So Birner Dental, we did get compensated for that as part of the settlement agreement. For that activity, we were paid in Birner Dental stock. So the value of that stock was ran through our financials, and it largely offset the expenses that we incurred on that contest. And the settlement agreement is final now, and so we're moving forward.

Our next question is from Mitra Ramgopal with Sidoti & Company.

I just wanted to follow up a little more regarding the ACA uncertainty. Based on what's come out of Washington, it looks like health care might not be on the table, at least in the near term, so that uncertainty might be quite prolonged. I was just wondering if you had a sense in terms of from your customers as it relates to their purchasing and the timing, et cetera, if you're thinking more of early 2018 or maybe even beyond in terms of when you might see some of the capital equipment bouncing back.

Yes. I think it varies, obviously, right? So there are certain things that are going to have to be purchased one way or the other, regardless of the uncertainty. What we're just saying is that we're seeing it's really impacting decisions and timing of decisions. It's hard to tell because it's so -- different markets would treat this differently. I would say that for our nuclear medicine cameras in our Diagnostic Imaging, I would say that what we're seeing is that because of these uncertainties, there might not be -- there's a delay in replacing their existing equipment. Where I would say in our patient monitoring business, there's a need for that. If you have to operate -- in order to operate the hospital, you need the patient monitoring equipment. And so if things, regardless of uncertainty, you're going to have to replace it. It's a mandatory. So I think all of these things are working together. We are just saying it's causing further confusion, and it's causing further delay in decision-making based on which way this will funnel itself out. I will say, though, if it continues, and if this is pushed out a year, I think the hospital systems, based on the people that I've spoken to, that they're just going to have to move forward. And they're going to have run their businesses, and they're going to have to continue managing their patient loads and whatnot. So I would say that this delay that -- we feel that the delay is a temporary delay. It was just based on the fact that everyone assumed that there was going to be a decision, and they were waiting to see if that decision, where it was going to turn one way or the other. I think we're past that. I think you're right. I think people are looking that this might be pushed down the road to next year and whatnot. And I think, now, we should see -- our anticipation is that we should see some of the capital spending free up. But it's still -- I still think it's a case-by-case decision. I think it's based on where the hospital system might be located, the needs of that hospital system, the other things that are happening within that hospital system or within that community. So a lot of variables are impacting decisions. We're just saying that we feel, overall, this has been a common theme, coming from our products businesses that they're hearing, that this variable is causing -- caused delays in the second quarter.

Right. And then on the Services side. It's probably a little early, but are you seeing any slowdown in terms of maybe procedures, et cetera? Again, tied into ACA uncertainty and maybe concern about insurance, et cetera.

No. We're not seeing that. We're seeing patients continue to show up. We're seeing volume, especially in our Mobile Routes business. It was a very strong Mobile Route quarter for us. We still are working through those provisional issues that we mentioned in the first quarter. Definitely have made a lot of headway in terms of building back our funnel and moving that along as planned. But in terms of our base core business of Mobile Imaging that's working different routes, servicing patients on a day in and day out basis, we're not seeing any impact whatsoever there.

Okay. And on the acquisition front, I know you always say it's certainly a big piece of the story. How should we read into the dividend being hiked, for example? Is it -- were you comfortable -- you certainly have, following the new facility, et cetera, more than enough firepower to put to work and so you can afford bumping up the dividend?

Yes. I guess the way we look it, from a capital allocation issue, I think that the increase in the dividend in no way should be looked at as a -- that we're lessening our ability to make acquisitions. It shouldn't be. Just looking at it from our standpoint, I think it just further strengthens, or it should further strengthen, be seen as a further strengthening of our confidence in the cash generation ability of our business and that we feel that that is a great way to return value to our shareholders, through an increased dividend. So that's why we made that decision and moved forward with increasing our dividend by 10% this quarter.

And then finally, just on the reimbursement environment, any changes there?

None at this point. None that would affect our current line of businesses and services.

(Operator Instructions) And our next question comes from Larry Haimovitch from HMTC.

I'm trying to understand the guidance. You've reported $58 million in revenue for the first half. You've suggested you're keeping your guidance of $125 million for the year. That suggests that second half revenue will be about $67 million, $66 million, up from $58 million. That's a pretty good step up. Help me understand the guidance there, please?

So Larry, yes, we've analyzed where we think we can do for the rest of the year despite the slowness in capital spend and the strength of our Services business. Q3 is always a very strong quarter for our Services business, and from what we're seeing, we believe that we can achieve our guidance range. I mean, I would say, it's not going to be a slam dunk that we're going to be at the high end of the guidance range by any means, but from the perspective that we have, the forecast that we have and the fact that we know that Q3 is always a big Services quarter, we believe that it's achievable.

Okay. Matt, your comments in the press release, "We are very pleased with the performance of our service business during the quarter." I presume you're referring to that service business vis-à-vis Q1? Because if I look at it versus last year's second quarter, it's down. And therefore, I wonder why you say you're very pleased?

Pleased was based on our expectations of the business. As we talked about in the first quarter that we've restated expectations for the year on our businesses. So we're pleased that the changes that we made in the first quarter have taken hold, and we're pleased that, that business is moving in the direction that we anticipated and expected.

Okay. So it's not necessarily we're pleased vis-à-vis last year's quarter, because it was down. Both businesses were down. I mean, you guys have managed the cash flow. You've done a lot of good things in the quarter, but each of your business were down.

Diagnostic Services was up slightly year-over-year.

Okay. All right. So in terms of the capital equipment, I hear what you're saying. I've been listening very carefully to your comments about delays in capital equipment deals closing. It's a little contrary to what I'm seeing from other companies in Diagnostic Imaging, the Varians of the world, the Accurays of the world, they're not setting the world on fire, but they haven't been talking about the ACA having a slowdown on their business. Do you think that the ACA's impact is unique to you? Or do you think it's across the board? Because I don't hear it from the other companies. Again, they're not smoking hot and selling at a tremendous pace, but they don't seem to be being impacted like you. So help me understand that, please.

Yes. No, I understand. All right, first off, our businesses -- we're in a niche. Our nuclear camera business is a very niche market, right? So it comes from at a different angle, but it -- and it doesn't operate off of a huge backlog business such as some of the larger equipment manufacturers, right? So where they're operating on very large backlogs, where current items really won't affect their ability to generate revenue because deals might have been closed 6, 7 months ago before they actually get executed. I'd also have to say within our MDSS business, we're dealing with a very rural hospital systems that we're working with, very small businesses. So they tend to feel the impact of indecision a lot more than your more metro area type of locations, which we don't sell equipment into through our agreement with Philips. So I would say that we're definitely not unique. I think that the indecision, if you talk to anyone within the industry about indecision on capital spending due to uncertainty of where the ACA will fall out, I think that, that would be a common theme. I think it impacted us more. We just saw that as a common theme when we went through our deals as to what was delaying closing these deals as we discussed with our sales teams, as they discussed with the buying and the purchasing managers and the decision makers at the systems that we sell into. So like I said, we're not saying this is the only reason, we're just saying that we feel like this is a very -- a contributing factor in the second quarter that we have experienced with our product line.

So Matt, maybe the answer lies in your comments about the rural hospitals and they're smaller and maybe they're more sensitive and they don't have the budgets, and they're just more cautious than maybe big metro hospitals, where they have donors buying big equipment and things like this. Maybe that's the real explanation?

It's definitely a big part of it, I would agree, Larry.

Yes. And the dividend increase, you had talked earlier in the year about trying to return value to the shareholders. It could have been a buyback, I suppose. It turned out to be a dividend increase. Is that what you guys were talking about on a couple of calls ago, I think maybe it was your fourth quarter conference call, you were talking about you were trying to find ways to create more shareholder value. Was the dividend increase your response to that earlier comment?

It's certainly something that we constantly talk about, what are different ways that we can do this. There's always -- share buyback and dividend are 2 of those ways that we can immediately impact, and we felt like this is a way that we could, especially based on the restructuring and the new credit facility we have with Comerica giving us some more flexibility, just it just made sense for us at this point to make that increase and go forward with the dividend.

Okay. Good. Is the Affordable Care Act affecting any of the service business? Not the equipment business, but the service business?

Not at this point. We're not seeing any -- the indecision around that affecting our Services business at this point.

Okay. And then one final question. Is the Affordable Care Act cloud affecting acquisitions at all? Do you think people are more prone to make a deal these days because of their concerns about ACA? Or maybe they're less concerned because they're confused and they don't know what to do.

Yes. I don't see that it's affecting that. One way, as I mentioned previously with Andy's question, if we see anything, I would say that more people are interested in getting involved in health care. It seems to me like if we're seeing any impact, I don't think it's directly related to the ACA. But I could say over the landscape of the last 3.5 years, 4 years, as we've been looking at acquisitions, I would say that the number of players getting involved, driving pricing or expectation on pricing, has changed a lot than it had been 2, 3 years ago. So I don't know if that's a function of the ACA or if it's just a function of, obviously, the market in general has been rising and there seems to be a lot more cash out there that could be attributed to people paying more. But we're still -- our strategy for acquisition is we are a value buyer. And we are still going to look for deals that we can bring in that will attribute to growth and shareholder value. So we are definitely not going to be one that will go along with the trend as much as we will stick to the basics of our strategy, and we'll continue to look for those value purchases in order to grow Digirad.

Our next question is from [John McCullough] from Glacier Peak Capital.

I don't know if this is -- I got on a little bit late. But there was, I think in early July, there was a couple of websites that mentioned that you guys might have been awarded a $100 million fixed-price contract with, I believe, it's the Defense Logistics Agency. I mean is there anything -- I haven't seen anything else on it. Is that true? Or I believe it said it's -- I think a 5-year deal with a 5-year option period.

Yes, John. It is true. It really was an extension of a current contract that we had. So really what it does, it is a renewal. It's a license to go out and go after the VAs. We had -- it's our hunting license, if you will, to sell our products, mainly our X-ACT and Ergo camera, nuclear cameras, into the VAs. So they put the number out there, but it's certainly still up to us to find the hospitals that are in need of our cameras, and then they can purchase through this arrangement. But it's really a renewal of an existing relationship.

Our next question is from Steve Master from Master Capital.

Just I noticed your last quarter's CapEx was about $121,000, and then basically for these 6 months, it was about $625,000. And I thought we were projecting roughly about $5 million for the year. Does this -- are we still on board for that, basically, $4.5 million in CapEx for the next 6 months?

This is Jeff. Yes, the CapEx spend is just a matter of timing and when we want to spend the CapEx more than anything. We're probably kind of in the ballpark of $3 million to $4 million of total spend for the year. Our bigger spend items are related to equipment, to Mobile Healthcare, and sometimes just availability of what we want to do. The timing of taking an asset out of service for either repairs, upgrades or adding a new asset impacts this. But we were slower on spend in the first half. We're going to spend a little bit more in the...

The $3 million to $4 million is the number for the year?

Yes. We're probably going to be in the $3 million to $4 million range for the year. But we never expect to spend it evenly over the course of the year. It will be a little lumpy.

Just an observation, okay? I'm looking at the number of shares that management owns. And I usually loved it when I was asked -- when management and the board has skin in the game along with me. You guys own very, very little outright. I mean, it seems like Digirad is a quasi option-generating machine. And I've never seen management or the board buy anything outright, even one share, over a considerable period of time. Even when the stock went to $3.50, yielding close to 5.5%, I said, gee, maybe these guys, why don't they do that? So here's my question. Does the board and management have so little faith in the company of their own, and you keep talking about enhancing shareholder value, I would like to have you guys onboard with us as shareholders and not just owning a tiddly amount of shares where I own more than you. How would you respond to me, as a shareholder investing in your company for the long term and basically looking at this, and you're saying, gee, am I in this thing by myself or are they in there with me? Just an observation. I haven't seen any shareholder purchases. Oh, I can go back on sec.gov, and I have no idea when. I see options, I see those coming up more, but I've never seen anything outright. And I'd love to have you guys onboard with me.

Well, so it's a fair comment, Steve, but maybe I'll make a couple of observations and then there's probably a slightly different perspective. Our Board Chairman actually owns over 6% of the company, and those were all outright market purchases. I and Matt certainly own a reasonably amount of shares, and we have been in the market buying in the past.

When was the last time you guys bought in the market? Just let me know, within the last 2 years.

Well, actually, I bought in the last 2 years. I would have to go back and take a look at the exact (inaudible), but I definitely have. And the other thing to keep in mind, too, is that the company is subject to blackouts in certain times, and we're not able to buy shares any times we want. So some of the times that you might be referencing relative to dips and things like that, some of those times, we're -- actually, a lot of times, we're not able to buy shares. So we are committed in ownership. We're committed actually from a total equity options, shares, et cetera. Board and management owns roughly 13% of the company, I'm going off memory from our last proxy. And so we are certainly committed and incentivized to do the best we can for the company.

I just think outside of options, I'd like to see something from someone over the last year or so. Just my observation. I just want you guys to basically be -- have the same skin in the game as I do. And that's just my comment.

Well, Steve, certainly appreciate the comment. Certainly appreciate the feedback. I will say that to a person on our board and our executive team and throughout Digirad, we're committed. We are committed to our shareholders and we're committed to...

I hear shareholder value all the time, I keep looking for that. Okay, but I understand.

This does conclude the question-and-answer session. I'd like to turn the floor back over to management for closing comments.

Thank you, Matt. As always, we appreciate all our shareholders and your continued feedback and support. We remain very excited about our business and Digirad's future. Jeff and I look forward to discussing our results and our business update with you next quarter. Thank you very much. Have a great afternoon.

This concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time.