Star Equity Holdings, Inc. (STRR) Q2 2017 Earnings Report, Transcript and Summary

Greetings and welcome to Digirad Second Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only-mode. An interactive question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I’d now like to turn the conference over to your host, Risa Lindsay. 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'll be happy to get you one. Also this call is being broadcast live over the Internet and maybe 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, 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 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 would like to turn the call over to Matt Molchan. Good morning, Matt.

Good morning. Thank you, Risa. 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 lower capital, spend which we attribute in part to the uncertainty around the Affordable Care Act. Also during the quarter we successfully refinance our credit facility to a new revolver with Comerica that increased our financial flexibility significantly. Jeff, walk further details on this matter in a few minutes. Digging into our service business, I'll start with mobile healthcare; we 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 in adding additional resources to provisional sales efforts. We believe are starting to see the impact of these changes and we're 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 perform well in the quarter. Diagnostics 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 Services business or MDSS finished the quarter with total revenue of $3.3 million compared to $4 million in the prior year. Similar to Diagnostic Imaging business, MDSS is experiencing delays in capital spending. However, also similar to Diagnostic Imaging, we have a robust pipeline 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 three main areas for growth. Area number one, acquisitions, our goals to acquire companies that fit within our business model providing healthcare solutions on as needed, when needed and where needed basis in a very financially disciplined manner. Area number two, adding new services to a portfolio that we can provide to our current distribution channels, and area number three, organic growth within our existing portfolio of services and channels. As I would 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 mean time, we will 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 would 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 will 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 cost and purchase 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 pay for capital expenditures. We believe that presentation of these non-GAAP measures along with our GAAP financial statements in reconciliation provide a more thorough analysis of our ongoing financial performance. You can find the reconciliations 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’ll give a brief summary of the quarter's activity. Total revenues 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 revenues 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 our higher volume of service days ran in the second quarter compared to prior year from both new business and 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 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 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 camera sold. In MDSS, the change in 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’s 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, but the second and third quarters being our higher revenue quarters. Also for MDSS and Diagnostic Imaging, we can experience some seasonality related to 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 five-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 that 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 non-cash 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 overall net debt position including all cash and cash equivalents was $50.2 million. On a go forward basis, we intend to sweep all excess cash on a daily basis to minimize our overall interest expenses 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 regular quarterly cash dividend of [$0.05] per share, which is the 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.

Thank you. At this time, we’ll be conducting a question-and-answer session. [Operator Instructions] Our first question is from Andrew D'Silva from B. Riley and Company. Please go ahead.

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 maybe tied to construction?

Hi, good morning, Andy. 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 mentioned previously, utilization of that – those units are typically unstaffed. We're just moving because of a site might be changing out in MRI or PET/CT and going through construction or whatnot. We will just park our vehicle there and the hospital staff would operate our equipment. So you're unstaffed and it just based on whether they're being used or not being used. Obviously, price is also involved as well, but utilization is the main metric that we used to manage that.

Okay. Got it and then moving over just to expense lines. Looking at gross margins for products sales, pretty compressed. What's the function, there's economy to scale or just higher maintenance revenue relative to actual physical product sales. And then it's $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 see those depressed margins just really based on volume right. And because we have a core base of business that those expenses that are necessary to operate those businesses. So I’m certainly as volume is down that will depress gross margin. I would say that in the second question revolved, Jeff you want to…?

Yes. Well, sorry, just to repeat that Andy was that you're asking if that 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 six quarters or so it's been somewhat volatile and it seems to stabilize a little bit around that $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 Affordable Care Act or anything like that.

Right now, we anticipate 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 are making decisions based on which way that will turn out. I think will eventually work its way out. The deals are still there certainly they 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 we do not anticipate that will be increasing or less or decreasing that function at this point.

And just so you have full clarity on that line item Andy that 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 and conversations are the dynamic or the number of potential M&A possibilities that are out there I'm assuming that all the tumultuous landscape as maybe creating some events for people where they might look for exits or not depending on how they are valuing situations any color there would be helpful as well?

Yes, based on what we're seeing I think just like its causing people to be, do not make decisions, right and I think that's where everyone's just trying to figure out where things are going to fallout. No one anticipate that – it's not at this point driving any fire sales. Actually probably the opposite that we're seen – what we're seeing in the market for acquisitions is that we're seeing that there was a number of people that are interested in getting into the healthcare market and we’re seen deals pricing on deals go up, the deals that we 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 ACA at this point.

Okay. Just a couple more bookkeeping questions here. I'm just curious, so 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 figure? Two, is there more of that to come in anyway 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 give guidance we assume the normalized tax rate of around the 40% mark, Andy, guidance that we just add for income tax items or any quarterly fluctuations around the ability to utilize NOLs from an income tax benefits. Each quarter, we look out and not to overcomplicate the answer, but the NOLs that we have spanned over many years going into the futures, so our forecast 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 non-cash 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 the accounting purposes around 40%, but we really look at it as the 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. Right now, we expect 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 are saying. And then just final question if you could maybe give a bit more color on the $1.4 million litigation reserve. More detail on much about, should we expect any more expenses to come out there. And then also last quarter you mentioned that after the proxy contest was over with Bruner Dental that you were going to be paid if the resolution was successful, payback 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 applications of laws related to non-exempt employees in the state of California and there was a perception that we were applying the rules in correctly. 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 make 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 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 then to the Bruner Dental, did you guys get compensated for that?

Yes. Bruner Dental, we did get compensated for that part of the settlement agreement. For that activity, we were paid in Bruner Dental stock, so the value of that stock was ran through our financials and it largely offset the expenses that we incurred on that content. And the settlement agreement is final now and so we are going forward.

Okay. Great, thank you.

Our next question is from Mitra Ramgopal from Sidoti & Company. Please go ahead.

Good morning.

Hi Mitra.

Hi. I just want to follow-up a little more regarding the ACA uncertainty, based on what's coming out of Washington. It looks like healthcare might not be on the table at least on a near-term. So that uncertainty you might be quite prolonged. I just wondering if you had a sense in terms of from your costumers as it relates to your purchasing and timing et cetera. If you're thinking more of already 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's certain things that are going to have to be purchased one way or the other regardless of the uncertainty. But 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 will treat this differently. I would say that for our nuclear medicine cameras, diagnostic imagining, I would say that what we're seeing is that because of these certainties, there might not be – there's a delay in replacing their existing equipment. What I would say, a patient monitoring business, there is a need for that if you have to operate – in order to operate the hospital you need the patient monitoring equipment and so things regardless of uncertainty, you're going to have to replace. It's a mandatory. So I think all these things are working together. We’re just seeing it causing further confusion, it’s causing further delay and decision making based on which way this will fall itself. I will say though if it continues on and 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 to 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’ve past that. I think you're right. I think people are looking at 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 that capital spending free up. But 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. This variable is causing – cause delays in the second quarter.

Right, thanks for the color there. And then o 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 concerned about the insurance there?

No, we're not seeing that. We’re seeing patients continue to show up. We're seeing volume, especially in our mobile routes business was a very strong mobile routes quarter for us, 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-to-day basis. We're not seeing any impact whatsoever there.

Okay, and on the acquisition front, I know you've always said 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 sales et cetera more than enough firepower to put to work and so you can afford bumping up the dividend?

Yes, I think that’s where we look at from a capital allocation issue. I think that the increase in dividend in no way should be looked at as a – that were less in our ability to make acquisitions. It's just the – from our standpoint, I think it's just further strengthens or 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 is a great way to return value to our shareholders through an increased dividend. So that's what we made a decision to move forward with increasing our dividend by 10% this quarter.

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

None at this point, none that would effect our current wind of businesses and services.

Okay. Thanks again, if taking the questions.

Thank you.

[Operator Instructions] And our next question comes from Larry Haimovitch from HMTC. Please go ahead.

Good morning, gentlemen.

Hi, Larry.

Good morning, Larry.

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, $66 million up from $58 that's a pretty good step up and help me understand the guidance or please?

Larry, yes we’ve annualized what we think we can do for the rest of the year despite the slowness in capital spend in a 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 in the fact that we know Q3 is always been services quarter we believe that is achievable.

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

Pleased we based on our expectations of the business as we talked about in the first quarter that we restated expectations for the year on our businesses. So we're pleased with that - change that we made in the first quarter have taken hold and we replace that business is moving in the direction that we anticipated and expected.

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

Diagnostic Services was up slightly year-over-year.

Okay. So in terms of the capital equipment I hear what you're saying I'm 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 variants of the world, the equities of the world they're not setting the world on fire, but they haven't been talking about the ACA having a slowdown in their business. Do you think that the ACAs impact is unique to you or do you think it's across the board because I don't hear it from the other coming again they're not smoking hard and selling at a tremendous phase but they don't seem to be it being impacted like you so help me understand that please?

Yes, I understand. Okay first half our business is – we're in niche our nuclear camera business is a very niche market right. So it comes from a different angle but it does operate off of a huge backlog business such as some of the larger equipment manufacturer right. So they're operating a very large backlogs where current items really want effect their ability to generate revenue because U.S. might have been close six to seven months ago before they actually get executed. Also 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 our agreement we fell. So I would say that definitely not unique, I think that the indecision if you talk to anyone within industry about indecision on capital spending due to uncertainty of where the ACA will fall out. I think there will 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 and the discussed with the buying and the purchasing managers and the decision makers at the systems that we sell into. So we are not saying this is the only reason, we're just saying – we feel like this is a very contributing factor in the second quarter that we've experienced with our product line.

So Matt maybe the answers 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.

And the dividend increase, you talked earlier in the year about trying to return value to the shareholders, it could have been a buyback I suppose, 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 are trying to find ways to create more shareholder value. Was the dividend increase, your response to that earlier comment?

It certainly something that we constantly talk about, what are the different ways that we can do. There is always share buyback and dividend or two 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 in America, giving us some more flexibility. It made sense for us at this point to make that increasing go forward with the dividends.

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 healthcare. It seems to me that if we see any impact 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 and it's changed a lot than it had been two, three years ago. So I don’t know if that's a function of the ACA or it’s just a function of – obviously the market in general is been rising and there seems to be a lot more cash out there that could be distributed to people paying more. 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.

Great. Thank you, Matt.

Thank you, Larry.

Our next question is from Jon McCullough from Glacier Peak Capital. Please go ahead.

Thanks for taking my question. I don't know if this is – I got on little bit late, but I think in early July there's a couple of websites that mentioned that you guys might have been awarded $100 million fixed price contract with – I believe it’s Defense Logistics Agency. I mean is there anything – I haven't seen anything else on it. Is that true or is it a – I think a five-year deal with a five-year option period?

Yes Jon, it is true. It really was an extension of the current ad. So really what it does, it’s a license to go out and go after the VA’s, we had, it's our honey license if you will to sell our products, mainly our X-ACT and Ergo cam or nuclear cam was into the VA’s. So they put the number out there, but it's certainly still let us to find hospitals that are in need of our cameras and then they are making purchase through this arrangement, but it's really a renewal of an existing relationship.

Okay. Thank you. That’s the only question I had.

Thanks Jon.

Our next question is from Steve Matthews from Venture Capital. Please go ahead.

Hi, just I noticed your last quarter's CapEx was about $121,000 and they are basically for the six months it was about $625,000 and I thought we were projecting roughly about $5 million for a year. Are we still on board for that basically $4.5 million in CapEx for the next six months?

Okay, good morning, Steve. This is Jeff.

Good morning, 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 and Mobile Healthcare and sometimes just availability what we want to do the timing of taking assets out of the service for either repairs, upgrades or adding a new asset in taxes. But we were slower on spend in the first half. We're going to spend a little bit more in 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 on a lumpy – yes.

Of course – just an observation, okay I'm looking at the number of shares that management owns and I usually love to invest when management and a board has skin in the game along with me. You guys own very, very little outright. I mean it seems like Digirad is acquires a 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 at 350 yielding, close to 5.5%. I said – maybe these guys, why don't they do that. So here's my question, that 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 on board with us to shareholders and not just owning a typically amount of shares were I own more than you. How would you respond to me as a shareholder and investing unit company for the long-term and basically looking at somebody saying, am I investing by myself or are they in there with me? Just an observation, I haven't seen any shareholder purchases. I can go back on sec.gov and I have no idea. One, I see options. I see those coming whereby never seeing anything outright, and I love to have you guys on board with me.

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

How you guys bought in a market, just let me know within the last two years?

Well, actually I’d bought in the last two years. I would have to go back and take a look at the exact.

Okay.

But I definitely have and the other thing to keep in mind too is that the Company subject to blackouts in certain times and we're not able to buy shares any times we want.

Understood.

Yes, so some of the times that you might be referencing relative to depths and things like that, some of those times were – actually a lot of times we're not able to buy shares. So we were committed in ownership. We’re committed actually from the total equity auctions, shares et cetera. Board and management owns roughly 13% of the Company and 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 out of options, I'd like to see something from someone over the last year or so. It’s just my observation. I just want you guys basically be that the skin – same skin of the game is either and that's just my comment.

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

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

Thank you, Steve. End of Q&A

Thank you. 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 a 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.