Star Equity Q1 2025 Earnings Call Transcript

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May 14, 2025

There are 6 speakers on the call.

Operator

Greetings, ladies and gentlemen, and welcome to Star Equity Holdings First Quarter twenty twenty five Results Conference Call. Please be advised that discussions on today's call may include forward looking statements. Such forward looking statements involve certain risks and uncertainties that may cause actual results to differ materially from those contained in the forward looking statements. Please refer to Star Equity's most recent 10 ks, 10 Q and other filings for a more complete description of risk factors that could affect these projections and assumptions. The company assumes no obligations to update forward looking statements as a result of new information, future events or otherwise.

Operator

Please also note that this call this call management may reference certain non GAAP financial measures, including EBITDA, adjusted EBITDA, adjusted net income and adjusted earnings per share, which are all financial measures not recognized under U. S. GAAP. As required by SEC rules and regulations, these non GAAP measures are reconciled to their most recent comparable GAAP financial measures in our earnings release issued this morning. If you do not receive a copy of the earnings release and would like to receive one after the call, please contact Star Equity at (203) 489-9500 or the Investor Relations representative, Lina Katte, of The Equity Group at (212) 836-9611.

Operator

Also, this call is being broadcast live over the Internet and may be accessed via STAR Equity's website at www.starequity.com. Shortly after the call, a replay will also be available on the company's website. It is now my pleasure to introduce Mick Coleman, Chief Executive Officer of Star Equity.

Speaker 1

Thank you, operator. Good morning, everyone. We appreciate you joining us for our first quarter twenty twenty five results conference call. On the call with me today are Jeff Eberwein, our Executive Chairman and Dave Noble, our Chief Financial Officer. I'll start today by providing an overview of our recent business developments and financial highlights.

Speaker 1

Then Dave will provide additional details on our consolidated financial results. Our first quarter revenue increased 41.7% over the first quarter of twenty twenty four, driven primarily by the inclusion of revenues from Timber Technologies acquired in May 2024, and partially from Alliance Drilling Tools acquired in March 2025. Gross margin improved to 24.3% versus 17.3% in the same quarter of last year, mainly due to higher revenues and the addition of Timber Technologies. Building Solutions segment revenues increased by 32.9% compared to the same quarter of 2024, or still somewhat below our internal expectations, mainly due to commercial projects pushing into the second quarter. Also, residential demand at our Glenbrook business picked up later in the quarter than we anticipated.

Speaker 1

The progress made at KBS was somewhat offset by slower business activity at EBGL, which we believe is temporary. Overall, we've seen a significant uptick in customer interest and activity over the past couple of quarters. We're excited to note that our Building Solutions division backlog representing orders under contract stood at a record $27,900,000 at quarter end, compared to $14,800,000 at the end of the first quarter of twenty twenty four. This gives us high confidence in the division's full year 2025 outlook. Another highlight of the quarter was the establishment of our Energy Services division, marked by our March acquisition of Alliance Drilling Tools, or ADT.

Speaker 1

The audit of this business is complete, and the integration into our holding company structure is proceeding smoothly. We're now focused on ADT's organic growth opportunities, and on exploring opportunities to augment the division with additional acquisitions. Now, I'll turn the call over to Dave Noble, our CFO, to provide additional first quarter consolidated financial highlights. Dave, please go ahead.

Speaker 2

Thank you, Rick, and good morning. Let's now turn to Star Equity's consolidated financial results, which are represented by our three operating divisions, Building Solutions, Energy Services, and Investments. In Q1 twenty twenty five, gross profit was $3,100,000 up 99.2% versus Q1 of twenty twenty four. This was driven by increased revenue at KBS, as well as the addition of TT and ADT to our portfolio of companies. SG and A increased by $1,200,000 or 28.5 percent versus Q1 of twenty twenty four.

Speaker 2

This was driven largely by the inclusion of SG and A from TT, and to a lesser extent ADT, as well as higher expenses related to M and A activity. SG and A as a percentage of revenue decreased to 40.7 compared to 44.9% in the first quarter of last year. SG and A excluding non recurring items was 36% of revenue in Q1 compared to 37% in Q1 of twenty twenty four. Moving on to bottom line results for STAR Equity, we reported a net loss from continuing operations of $1,200,000 in Q1 of twenty twenty five, compared to a net loss from continuing operations of $2,200,000 in Q1 of twenty twenty four. Non GAAP adjusted net loss from continuing operations in Q1 was $1,700,000 or $0.52 per share, compared to an adjusted net loss of $1,400,000 or $0.44 a share in Q1 of twenty twenty four.

Speaker 2

Non GAAP adjusted EBITDA from continuing operations was a loss of $800,000 in the quarter versus an adjusted EBITDA loss of $1,100,000 in the same period last year. Consolidated cash flow from operations for the first quarter of twenty twenty five was an inflow of $600,000 versus an outflow of 2,400,000.0 quarter of 20 20 4. The positive cash flow from operating activities is attributable to favorable results in our Building Solutions division, combined with strong accounts receivable collections. At the end of the third quarter, our consolidated unrestricted cash balance stood at 1,900,000 compared to $4,000,000 at the end of twenty twenty four. The difference is primarily driven by the upfront cash used to close the acquisition of ADT in March of twenty twenty five, plus associated transaction related costs.

Speaker 2

Turning to our investments division, our holdings in public equity securities at the end of the quarter amounted to $3,100,000 versus $3,400,000 at year end 2024. Our rollover equity investment and seller note receivable from the 2023 sale of Digirad to TTG, now called Catalyst, were valued at $1,300,000 and $8,400,000 respectively. Now I'd like to turn the call back over to Rick for some additional comments.

Speaker 1

Thank you, Dave. Thank you. As I previously mentioned, we're encouraged by the recent momentum we're experiencing at our Building Solutions division, and by new growth opportunities at our Energy Services division, as well as the progress we've been making on the M and A front. The Star Equity Board and management team are fully focused on creating shareholder value through our targeted business development initiatives, and we will continue to identify additional accretive opportunities at all our divisions. I'll now turn the call over to the operator for questions.

Operator

Yes. Thank you. We will now begin the question and answer session. And the first question comes from Theodore O'Neill with Brookfield Hills Research.

Speaker 3

Thanks. Hey, congratulations on backlog. Question for you. I would have expected with the tariff situation that we've got that a whole host of the business would have experiencing be experiencing delays. And so I was wondering if you could talk about sort of the dynamics of the business between Edge Builder and, building solutions that would cause Edge Builder to have cited for these, push outs but not the rest of your business.

Speaker 2

Rick, you wanna take that?

Speaker 4

Theo, this is Jeff in Connecticut. So, EdgeBuilder was really more company specific. There was a really large project that had started and then just for project specific reasons, it had a two month pause right in the middle of Q1, but then it got back on track and we'll recognize the revenue, finish that project, recognize the revenue in Q2. Additionally, if you think about where our businesses are located, so EdgeBuilder is in the Minneapolis area and KBS is in Maine. We did have a pretty severe winter or at least compared to the previous years, and we hate to talk about weather as an excuse, but there were weather related delays.

Speaker 4

And the nature of those two businesses is that they're very project oriented and nothing got canceled, but we just had some things that shifted from Q1 to Q2 and so it's just a shift in one quarter.

Speaker 3

Okay. And I understand because we talked about this in the last quarter that there are ways that you can mitigate tariff impact. But I'm just curious if you are seeing any other sort of early signs of any of the projects being sort of like put on hold while we wait and see what happens with pricing?

Speaker 1

No, I'll take that one, Jeff. We really aren't. Things are actually looking fairly positive for us. I think there was such a backlog of construction demand built up over time while people were reacting to the interest rate environment and other economic factors that things have to get built. And so those projects are now moving forward.

Speaker 1

Our backlog is strong and we don't see any signs that that's a temporary situation.

Speaker 5

Okay.

Speaker 4

Yeah, we are paying close attention to that. We're monitoring inputs like lumber and OSB, and lumber hasn't it's gone up some, but not as much as it has in the past in springtime. And there's been some press about on the residential side, you know, construction of new homes has slowed down a bit. We're not really that exposed to construction of new homes. We have a modest amount of exposure there, but we are watching those things.

Speaker 4

But as Rick said, in the massive run up in interest rates we had in the 2022, '20 '20 '3 timeframe, that combined with financing getting harder to come by, there were a lot of projects that just got paused, not canceled. You know, in a severe recession, you see projects get outright canceled and we didn't really see any of that. But we had, I'd say, about six quarters there where projects just kept getting shifted to the right, paused, not started, and then it was like someone flicked a switch. In Q4 of last year, a lot of those projects that had been on hold for a long time started to go into production, and you can see it in our backlog numbers, which we think, I mean, that's what gives us confidence in the coming quarters is all those projects that have been turned into signed contracts that are on our production schedule.

Speaker 3

Okay, thanks very much.

Operator

Thank you. And the next question comes from Tate Sullivan with Maxim Group.

Speaker 5

Thank you. I saw your Alliance Drilling financials in the eight ks yesterday and just noticed the gross profit margin in 2024 around 56% versus, I mean, the first quarter of closing a little above third or about 35%. Is that just based on intra quarter? Or is it lower gross profit business or changes since 2024 in Alliance? Please start there.

Speaker 4

Bill, do you know that?

Speaker 1

Think it's really just

Speaker 5

a function of what happened during the quarter. So I don't think it has you know, I think that Alliance is a high gross margin business, and it's just sort of a function of the activity coming and ramping up into our results.

Speaker 4

Yeah. Tate, I would add, in general, we look for businesses that have high margins, low maintenance CapEx, and what we like about Alliance Drilling are those two characteristics,

Speaker 1

as well

Speaker 4

as their cost as a percentage of a total project is really, really small, but it's mission critical. So that's a pretty good characteristic for a small business. And that's of the things that attracted us to it was consistently high margins that that business has.

Speaker 5

Another thing that jumped out to me was the equipment rental revenue as a percent of total revenue. Or the are the rental terms in the businesses that Alliance have one to monthly, two to three months? Or can they be longer? Or if you can talk about that.

Speaker 4

Yeah. No. It's more it's more project based. And this equipment, if you think about what they do, is drilling oil and gas wells, but they also do geothermal, mining, water wells, the equipment gets chewed up, used up pretty quickly. So they have a pretty high rental rate and it usually is based on the project.

Speaker 4

It can be a set amount per day or it can be an amount per foot drilled or even a set amount per hour. And the equipment, after a project is done, comes back to the shop and gets refurbished. And it can only be used, it depends on the piece of equipment, maybe five to 10 times before it's at the end of

Speaker 3

its useful

Speaker 4

life. So it's a little bit like razor blade kind of business.

Speaker 5

Thank you, John. And then, Dave, if I may, on the table that you show there, your revolving credit facilities, including one Austin ADT Assume Alliance, is it a similar type of facility to the Edge Builder facility or can you just talk about that?

Speaker 4

Dave, to take that?

Speaker 2

Yes, yes, that's a similar facility. I mean, did two facilities to support the acquisition of ADT. One is a small term loan on the fixed assets, and that was just $600,000 The second piece is a revolver that has a $3,000,000 limit, but it's based on borrowing base certificates that are filed periodically, very similar to, like you said, Edge Builder. And we drew about half of that to finance the initial acquisition, but there's headroom still remaining on that facility.

Speaker 5

Perfect. Okay. Thank you.

Operator

Thank you. This concludes our question and answer session. I would like to turn the conference back over to Rick Coleman for any closing comments.

Speaker 1

Thank you, operator. Thanks everyone for your time today. We do appreciate your interest and your continued feedback and support. So please don't hesitate to contact us. We're excited about the steps that we're taking on your behalf and look forward to updating you as our story develops.

Operator

Thank you for joining Star Equity Holdings first quarter conference call. Today's call has been recorded and will be available on the Investors section of our website, www.starequity.com.

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