Greetings, and welcome to Digirad Corporation's Second Quarter 2019 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Matt Molchan, Chief Executive Officer. Thank you, sir. You may begin..

Thank you, Christine. Good morning. And thank you all for joining us today for our second quarter 2019 results conference call. My name is Matt Molchan and I am Digirad's President and CEO. Also on the call with me today is Digirad's Chairman of the Board Jeff Eberwein; and our COO and Chief Financial Officer, David Noble.

We will discuss the 2019 second quarter financial results, provide an update on the company's strategy and comment on the company's outlook. A question-and-answer period will then follow. 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 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'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, 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 and 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.

In the earnings release today and, in my comments, I make reference to both GAAP results as well as adjusted results. The adjusted results are non-GAAP and do not include non-recurring charges.

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'll make references to free cash flow, which is a non-GAAP measure taking operating cash flow and subtracting 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 release.

We made great strides in the second quarter towards the implementation of our previously announced HoldCo strategy. We are excited as we move closer to our eventual transformation into HoldCo, which we believe will maximize our ability to grow value per share over the long term. As we move towards HoldCo.

We're also firmly focused in the business of our current operating units. All three of our operating units, Diagnostic Services, Diagnostic Imaging, and mobile healthcare performed above expectations for revenue and adjusted EBITDA in the quarter, with Diagnostic Imaging experiencing revenue growth of 11% year-over-year.

And here's a more detailed summary of our quarter's activity. Total revenue for the second quarter of 2019 was $25.8 million, compared to $27.1 million for the same period last year. Our overall gross margin in the second quarter of 2019 was 19.4% compared to 20.6% in last year's second quarter.

Total revenue for the six months of 2019 was $49.7 million compared to $52.5 million for 2018. Our overall gross margin for the same period in 2019 was 18.1% compared to 19.4% for the same period in 2018.

In Diagnostic Services revenue and gross margin percentage for the second quarter was $12.3 million and 22.8% compared to $13.3 million and 22.4% in last year's second quarter. Revenue and gross margin percentage for the first six months of 2019 was $24 million and 22.4%, compared to $25.3 million and 20.6% last year same period.

The decrease in Diagnostic Services revenue and increase in gross margin percentage compared to the prior year was primarily due to the sale of our Telerhythmics business in October of 2018, resulting in a loss of revenues going forward. However, DIS revenue was up 2% in the quarter compared to a year ago and is up 4% year-to-date.

Our mobile healthcare business produced revenue and gross margin percentage in the second quarter of $10.4 million and 12.4% compared to $11.1 million and 12.0% for the same period in the prior year.

Revenue and gross margin percentage for the first six months of 2019 was $20.1 million and 9.5% compared to $21.7 million and 11.3% last year same period. The quarter-over-quarter gross profit increase in mobile healthcare business was primarily due to a favorable mix of services provided combined with lower equipment maintenance costs.

In our Diagnostic Imaging business, revenue and gross margin for the second quarter 2019 was $3 million and 35.4% compared to $2.8 million and 45.9% in the prior year, second quarter. Revenue and gross margin percentage for the first six months of 2019 was $5.6 million and 33.5% compared to $5.6 million and 44.9% last year's same period.

The increase in Diagnostic Imaging revenue was due to an increase in a number of camera sales partially offset by higher material costs. Moving on to the bottom line results for the second quarter.

Adjusted net loss of $0.09 million or 0.04%, adjusted net loss per share, compared to adjusted net income of $0.4 million or $0.20 adjusted net income per share in the second quarter last year. Adjusted EBITDA was $2.1 million for the second quarter of 2019, compared to $2.7 million in the second quarter of last year.

For the six -- for the first six months of 2019, adjusted net loss was $0.9 million or $0.46 adjusted net loss per share, compared to adjusted net loss of $0.9 million or $0.46 adjusted net loss per share during the same period in 2018. Adjusted EBITDA was $2.9 million for 2019, compared to $3.6 million in 2018.

For the second quarter, operating in free cash inflow was $2.6 million, compared to operating cash inflow of $2.6 million and free cash inflow of $2.2 million in the second quarter of last year.

As of June 30, 2019, the outstanding balance of our credit facility was $15.3 million, and overall net debt position including all cash and cash equivalents was $14.5 million. As announced in today's press release, the second quarter of 2019 was ahead of our expectations for revenue and adjusted EBITDA.

We also confirmed our financial guidance for 2019, which is generated revenues from continuing operations of between $95 million and $100 million, non-GAAP adjusted EBITDA between $5.5 million and $6.5 million and free cash flow between $3 million and $4 million.

Finally, significant progress was made towards proposed merger with ATRM Holdings Incorporated to form HoldCo, previously announced on September 10, 2018.

Digirad signed a merger agreement to acquire ATRM on July 3, 2019 and then on July 19, 2019, Digirad filed its registration statement on Form S-4 to register the preferred shares to be issued in the merger.

As previously stated, HoldCo once it is fully functional, expects to make high return internal investments, as well as look for attractive acquisition opportunities in addition to repurchasing shares. Share repurchases will be evaluated against organic growth investments in acquisitions.

And the company expects to continually allocate capital to its highest and best use. Now I'd like to turn the call over to the operator for questions..

Thank you. We will now be conducting a question-and-answer session [Operator Instructions]. Mr. Molchan, it appears we have no questions at this time. I'd like to turn the floor back over to you..

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Thank you, Christine. As always, we appreciate all our shareholders and your continued feedback and support. We're looking forward to our next update call. Thank you..

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. We thank you for your participation and have a wonderful day..