Q1 2020 Earnings Call

That's right mind there are certain statements made during this conference call, including the questions and after a period are forward looking statements within the meetings.

That Securities Litigation Reform Act of 1995, and other federal security laws. These forward looking statements include but are not limited to statements about the company its revenues cost and expenses margins operations financial results acquisitions, and other topics related to Digirads business strategy in outlet.

These forward looking statements are based on current assumptions and expectations and involve risks and uncertainties that could cause actual events if financial performance.

To differ materially risks and uncertainties include but are not limited to business, an economic conditions technological change industry trends and changes in the company's markets and competition for more information about the risks and uncertainties is available in the Companys filings with the U.S. Securities. The next.

<unk> Commission.

Including annual report 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 consolidated financial statements and those included.

Those reports and speak only as of the de of this call. The company undertakes no obligation to update these forward looking statements.

In the earnings release today and in its comments manage it management makes references to both GAAP results as well as adjusted results. The adjusted result, our non-GAAP and do not include nonrecurring charges.

Oh, so adjusted EBITDA, which is a non-GAAP measure that further excludes depreciation amortization interest taxes and stock based compensation finally free for free cash flow, which is a non-GAAP measure taking operating cash flow, that's attracting paid cash for cap.

Expenditures matched <unk> believes that the presentation.

These non-GAAP measures along with GAAP financial statements and reconciliations provided more thorough analysis of ongoing financial performance investors could find the reconciliation of results on the GAAP versus non-GAAP basis in the earnings release.

If you did not receive a copy of today's press release and we'd like when the please contact did you read at 8587 Twosix 1600.

That's cool arts investor relation Rep. Lena Cati at the equity group at 212.

369611.

Also this call is being broadcast live over the Internet and may be accessed that Digirads website via www Dot Digirad dotcom shortly after the call. It a replay will also be available on the company's let's say.

And it's my pleasure to enter just Jeff Jeff.

Our wine chairmen of Digirads.

Thank you operator.

Good morning, and thank you for joining us today for first quarter 2020 results conference call on the call with me today or Matt Molchan, our CEO, David Noble, our COO and CFO.

Since September of 29 team did you read has been operating as a diversified holding company with three business divisions health care building and construction and real estate investments.

Is your ads Q1, 2020 results include financial and operational data.

Two newly created divisions building and construction and real estate investments.

There are no operational or financial data recorded in 2019, and 2019 period for these two new divisions.

During the first quarter of 2020, we continued to execute on our holdco growth strategy and value enhancement initiatives, which we believe will increase revenue cash flow earnings and ultimately stockholder value.

We expect to fund a user of cash flow going forward to fund a internal growth investments and will also start looking for bolt on acquisition.

Eventually, we'll also look to create new business divisions through a disciplined acquisition of additional operating companies that might fit well with our holding company structure.

In addition, we're exploring the potential divestiture of noncore assets.

The finance or expansion strategy and growth opportunities, especially for commercial projects and are building and construction division on April Thirtyth 2020, we filed a registration statement with the FCC relating to a public offering of the company's common stock for potential gross proceeds of up to $5 million.

Turning to our company's growth strategy for health care Division will be focusing on higher margin segments, specifically, our camera sales and mobile scanning services.

Our diagnostic services and mobile health care businesses, we continue to maintain a solid core customer base with growing prospective client pipelines.

We aim to increase the utilization of our fleet and improve the density of our route based businesses.

In diagnostic imaging, our sales pipeline is solid and growing.

We continue to focus on the sale over unique ergo, an exact cameras and our as needed when needed and where needed camera rental programs.

For a building I construction division, we're targeting the expansion of the commercial construction business. It KBS and as previously announced KBS is currently involved and multiple discussions for several large commercial projects for the construction of multifamily housing units in the greater Boston area.

It's even a few of these projects are awarded they will require a significantly higher utilization rate for KBS is manufacturing plant in South Paris, Maine, and an increased investment in working capital.

Three of these projects are in advanced stages of negotiation and are expected to start production in the coming months.

These three projects alone are expected to generate revenue of over $10 million for KBS and result in the production of nearly 250 building modules.

In 2019 by way of comparison KBS generated approximately 12 million to revenue and produced approximately 230 building modules and that was entirely for the residential market and we only used ourself Paris main plant.

We believe that this plant at full capacity can produce 500, a 600 building modules per year.

KBS as a potential sales pipeline of more than $60 million, a which is greater than a thousand building modules. So if this part sales pipeline fully materialized. We could eventually reopened are currently idle plant in Oxford, Maine, which also has production capacity of five.

I have to 600 building modules per year.

So our total manufacturing capacity is well over a thousand building modules per year and that compares to production of only 230 modules last year.

Finally, as part of our strategy or real estate investment Division currently owns the three manufacturing plants and main that are operated by KBS and this division completed the financing in Q1 via commercial mortgages for these three plants with the proceeds used for working capital requirements for the.

Building and construction division in 2020.

In addition, edge builder and Glenbrook building supply, which are part of our building and construction division based in the Minneapolis area completed or refinancing of their credit facilities in Q1.

Turning to the Cobot 19 virus like many other businesses, we did start to see an impact to our business from this virus starting in late Q1 and continuing into Q2.

Assuming our business returns to normal levels in the coming months. The way. We expect we think our second half 2020 results will be on track with our internal projections that we had at beginning of the year prior to the cobot 19 virus.

In Additionally, we've received a significant P.P.P. funds.

To help fund our payroll and other a central expenses.

Our health care business received 5.4 million and the building and construction Division received 1.2 million. So it's a total of 6.6 million.

So financially.

It helps us be in a similar position to what we would have been without the virus.

So with that introduction I'll turn it over to Matt Molchan, Our health care CEO, Matt. Please go ahead.

Thanks, Jeff.

For the first quarter of 2020 as compared to the same quarter of 20, Nike. Our total revenue increased by 20.7% to 28.9 million and gross profit increased 11.6% to 4.4 million.

Our health care Division had lower revenues from a decrease in our scanning services revenue for this division in Q1, 2020 fell 2.4% to 23.3 million over the same period in the prior year. This is due to the Kogan 19 pandemic as many doctors offices closed several hospitals don't perform.

Me not mom life threatening procedures testing scans during the second half of March However, gross profit for the Q1 2020 reporting period did increase by 2.3% over the same period last year. This is driven by an increase in health care mobile health care interim rental shoulder.

She is a favorable mix favorable mix of services provided and lower equipment maintenance costs.

In diagnostic services revenue and gross margin percentage for the first quarter was 10.8 million and 18.5% compared to 11.7 million and 22% in last year's first quarter. The decrease in diagnostic services revenue and decreased gross margin percentage in the quarter.

Compared to the prior year was primarily due to decrease in testing days in scans, resulting from the impacting the koby 19 pandemic.

Our mobile health care business produced revenue and gross margin percentage in the first quarter of 9.7 million and 12.4% compared to 9.79 and 6.4% for the same period in the prior year quarter over quarter gross profit increase in mobile healthcare business was primarily due to.

Were favorable mix it services provided.

Our utilization of our mobile rental services combined with lower equipment maintenance cost.

Our diagnostic imaging business revenue and gross margin for the first quarter 2020 was 2.9 million and 30.4% compared to 2.5 million and 31.2% and acquire your first quarter. The increase in diagnostic imaging revenue was due to an increase in a number of camera sales.

Now turning to call over to Dave Noble, our CFO and COO, who will provide additional financial highlights for the first quarter. Dave. Please go ahead.

Oh, Thank you, Matt a first quarter 2020 building and construction division revenue and gross margin were 5.5 million and 7.3% respectively. We just completed the merger with a T.R.M. on September 10th 2019. Thus there was no operational orphaned actual data recorded in the 2019 corresponding period.

From the building and construction division nor from their real estate and investment Division.

For the three months of Q1, 2020, SGN, a increased by 28.9% compared to Q1 and 2019 due to the 1.4 million and expenses from our new building and construction to visit division.

And overrun of audit expenses related to the 80 RM merger during the quarter, we reduce cost for contracted outside services, particularly in the I.T. and HR areas in an effort to streamline our internal operations overtime. We believe the holdco structure will allow us to optimize corporate overhead costs by integrating corporate functions and consolidating asked.

DNA to generate cost savings and improved profit margins, we hope to begin to realize some of these benefits during 2020.

Moving onto the bottom line results for the first quarter, we had net loss from continuing operations of $3 million, which included a point $1 million of merger related expenses. This compared to a net loss from continuing operations of 1.7 million in the same period in the prior year.

Non-GAAP adjusted net loss from continuing operations of 1.7 million or 81 cents adjusted net loss per share compared to adjusted net loss of 1 million or 51 cents adjusted net loss per share the first quarter of last year.

Non-GAAP adjusted EBITDA decreased 2.0.

0.5 million for the first quarter of 2020 compared to 0.8 million in the first quarter of last year driven by the decrease in camera rentals, resulting from the cobot 19 pandemic.

For the first quarter operating cash flow was point Sixmillion and free cash flow was also point 6 million compared to operating cash outflow of 2.2 million and free cash outflow of 2.1 million in the first quarter of last year.

As of March 30, Onest 2020, the outstanding balance on our credit facilities was $20 million and our overall net debt position, including all cash and cash equivalents was 18.4 million.

[noise] [noise] as disclosed in the company's press release issued on April seven 2020, as well as an R. S. One issued on April Thirtyth 2020, our business has begun to be adversely impacted by the recent kogut 19 outbreak and the accompanying economic downturn this downturn as well as the uncertainty regarding the during.

Question spread and intensity of the outbreak has led to an initial reduction in demand for our services.

You expected timeline for this timeline for this reduction in demand for our services remains uncertain and difficult to predict considering the rapidly evolving landscape.

The company is vigilantly monitoring the situation around cobot 19, and we'll continue to proactively address the situation as it evolves due to the flexibility of its workforce in the actions. It is taking the company is confident it can continue to efficiently manage its business and mitigate risks in this challenging environment, while retaining the ability to meet clients need.

When activity improves in fact, the PPP funds. We have received financially we will be similar place that we were before the pandemic occurred.

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

Yeah, if he would like to ask a question. Please press star one on your telephone keypad a confirmation <unk> indicate your line is in the question Q.

Press Star to if he would like to remove your question from the Q.

Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star he's.

Our first question is from Theodore O'neill with Litchfield Hills. Please proceed.

Thanks very much.

Matt its I've got two questions Matt. The first one is you mentioned lower equipment maintenance costs and the health care side of the business what makes up those costs and why were they lower in the quarter.

[noise] those those costs are made up of the on the mobile health care business, we have contracted service contracts with the OEM manufacturers are the equipment, we use in mobile healthcare, so that would be with GE Philips and Siemens.

Some of the reasons behind the lower the lower costs are we negotiated and some some rate some some discounts in the in those in those contracts and also compared to last year. We have have retired some of our equipment from our fleet.

Okay.

And are there any cope it related restrictions affecting commercial.

Construction in Massachusetts that would <unk> you have to wait on or is that there's construction going on on ongoing now there.

Oh I'm sorry.

I'm sorry can you.

With that question are there any coded related restrictions affecting commercial construction in Massachusetts, well you know we had heard a month or so back that the mayor of Boston had halted construction at construction sites.

I.

I'm not sure where that stands today, although I know, there's some gradual reopening guidelines being put into place, but importantly for us. The the three projects that are very near term for us none of those are inside the Boston city limits and we've not been made aware of any delays by <unk> by by the local government in terms of getting those.

As on in fact, where you know in active discussions and getting those projects on the line at our factory in Maine.

Okay. Thanks very much.

As a reminder to star one of your telephone keypad, if you relate to ask a question.

As for a brief moment to poll for questions.

Our next question is from David brought child private Investor. Please proceed.

Yeah. My question John Your preferred stock you wish it back in September of last year, an eight month.

We've yet to declare a dividend a I know you're not in great shape financially, but very indication. When you think you might start paying the dividend.

Yeah, that's that's a good question.

We know we Havent publicly issued guidance on on when that will start, but but it will start at some point. If you look at the <unk> the structure of the of the preferred.

In terms of the document that we filed it has all of the description of the preferred and covenants and when dividends are paid.

The company has the ability to.

Deferred dividend payments for up to six quarters and.

You know we didn't plan on doing this but we we closed the merger in September and we have cash trapped and subsidiaries at the company and that we weren't able to upstream to the to the public parent.

Due to do the dividend payment for December or March those dividends are accruing and will be paid at some point in the future. So it's really just a a deferral not a cancellation and like I said, we have up to six quarters, we hope to not.

Differ for that long.

But as soon as we're able to say something publicly about that we will.

What happens if you don't pay after the six quarters.

Then it is in a default.

It doesn't put the company in Jeopardy, there is no cross default provisions or issues with the bank or anything like that but then the preferred would start to get board representation and could.

Could push for for action, but there would be to two representatives appointed to the to the board by the preferred holders.

Okay. Thank you I'm patiently waiting [laughter] make thank you for your patient patient yeah.

As a reminder to star one I knew telephone keypad, and we will pose for a brief moment a poll for any last questions.

Okay. There are no more questions at this time I'd like to turn the conference back over to management for closing remarks.

Okay, well. Thank you operator, I'm I, just want to point out to everybody that on the Fccs Web site. We did file an 8-K today with our press release for this earnings results and we also filed a few days ago, an updated presentation on the S. One that we.

That we filed for common stock offering.

And we say in there that pricing as expected the week of May 18th which is next week and so we do expect to put out a a press release next week after completing that offering but I would refer you to to the presentation that we posted on the Fccs web site.

And I would just like to say a that David Matt and I are always available to take your coal and questions and and any discussion you'd like to have so please don't hesitate to contact us and as always we appreciate our stockholders and we appreciate your feedback and support we're looking forward to speaking with you again a in early August when we.

Announced our second quarter 2020 results. Thank you.

This does conclude today's conference you may disconnect your lines at this time and thank you for your participation.

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