Q1 2021 Star Equity Holdings Inc Earnings Call
[music].
Greetings, ladies and gentlemen, and welcome to the Star Equity Holdings, Inc. First quarter 2021 results conference call.
As a reminder, 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 companys revenues costs and expenses margin operations financial results acquisitions, and other topics related to Starz 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 change trends and changes in the Companys market and competition.
More information about risks and uncertainties is available in the company's filings with the United States Securities and Exchange Commission, including annual for 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 mornings conference call.
As well as today's press is should be used in conjunction with consolidated financial statements and notes included in those reports and speak only as of the day of this call.
The company undertakes no obligation to update these forward looking statements.
Yeah.
In the earnings release today and its comments.
<unk> makes reference to both GAAP results as well as well as adjusted results.
The adjusted results are non-GAAP and do not include nonrecurring charges.
Also adjusted EBITDA, which is a non-GAAP measure that further excludes depreciation amortization interest taxes and stock based compensation.
Management believes the presentation of these non-GAAP measures along with GAAP financial statements and reconciliations provide a more thorough analysis of ongoing financial performance.
Investors can find the reconciliation of results have not on a non-GAAP versus.
GAAP basis in the earnings release.
If you did not receive a copy of the press release and would like one please contact star at 203 for 899500 after the call.
Or it's Investor Relations representative Lena Caddy of the equity group at 2128369611.
Also this call is being broadcast live over the Internet and maybe accessed at Staar's website via Www Dot star equity dotcom.
Shortly after the call a replay will be available on the company's website.
It is now my pleasure to introduce Jeff Eberwein Executive Chairman of Star.
Thank you operator and good.
And thank you all for joining us today for our first quarter 2021 results conference call.
On the call with me today.
Our Matt Molchan, CEO of Digirad health, and our CFO and Chief operating Officer, David No.
The first quarter of 2021 our health care Division continued to be impacted by the COVID-19 pandemic with revenue declining slightly versus the prior year quarter. However, we continue to see activity levels rebounding steadily towards normal levels.
Our construction division grew revenue 65 per cent with much of the growth attributable to significantly increase the output and KBS.
Gross margin percentage in our construction division declined as a consequence of rising raw material prices, but is expected to return to more normal levels in the coming quarters.
During the first quarter of 2021 the company.
<unk> completed the sale of Dms Health technologies business unit for $18 75 million and we completed another small sale for $1 4 million.
The asset sales in Q1 substantially improved our balance sheet and liquidity position with net debt decreasing from $20 4 million a year ago to $13 5 million at the end of Q1.
We are now better positioned to fund high return internal growth investments and pursue acquisitions, which could be bolt ons in health care or construction or entry into a new business sector.
We continue to execute on our holdco growth strategy and value enhancement initiatives to maximize shareholder value.
Our holdco structure allows division Ceos to focus on operations and organic growth, while Holdco management focuses on corporate strategy and capital allocation.
In addition to looking for attractive bolt on acquisitions for existing operating businesses. We're also looking to create new business divisions in the future.
For the disciplined acquisition of business is complementary to our holdco structure.
With that I'll turn it over to a health care CEO, Matt Molchan, Matt. Please go ahead.
Thanks, Jeff.
Revenue from our health care Division in Q1, 2021 fell by 2.7% to $13 3 million over the same period in the prior year.
Although Q1 2021 revenues for the health care Division decreased slightly from Q1 2020. This division has largely recovered from the COVID-19 pandemic related downturn and is now performing at near pre pandemic levels. However, even though doctor offices have reopened they are not.
Operating at full capacity it is state by state Baskin nation levels increase we expect to see our operations fully return to normal levels later this year.
Gross profit for Q1, 2021 reporting period decreased by nine 6% and gross profit margin decreased by 1.5% over the same period last year.
Although revenue was only decreased by two 7% gross profit declined by a higher percentage due to certain fixed costs related to employees insurance rent utilities, and repairs and maintenance expenses and.
In diagnostic services revenue and gross margin percentage for the first quarter of 2021 were $10 2 million and 15.7% compared to $10 8 million and 18, 5% in last year's first quarter. The decrease in diagnostic services revenue and gross margin percentage.
Compared to the prior year was primarily due to a decrease in testing days and scans, resulting from the continuing impact of the COVID-19 pandemic.
In our diagnostic imaging business, we did see early signs of improvement revenue and gross margin percentage for the first quarter of 2021 was $3 million and 32, 3%, respectively compared to $2 9 million and 34% respectively in the prior year first quarter.
The increase in diagnostic imaging revenue and gross margin is a good indication that the slowdown of camera sales associated with capital funding delays and uncertainty due to the COVID-19 pandemic is easing up now I will turn the call over to David Noble, our CFO, who will provide additional financial highlights.
For the first quarter day. Please go ahead.
Thank you, Matt and good morning, I'll first mentioned results for our construction business, which now accounts for 40% of our consolidated revenues for the first quarter of 2021, the construction division revenue and gross margin were $9 million and 6%, respectively compared to $5 5 million and seven 3% in the prior year first quarter.
Much of this increase in revenue was due to the increased utilization at our primary production facility at KBS in Maine.
That was due to our reentry into the commercial scale residential modular market during 2020.
The slight decrease in gross margin percentage was due to the adverse effects of higher raw materials prices, which offset the benefit of higher output levels.
For for Q1, 2021 on a companywide basis SG&A increased by three 9% compared to Q1 2020. This was due to a point $3 million increase at the construction business as a result of increased commissions in head count offset by $1 million and reduced travel expense in the health care Division.
Moving onto a consolidated bottom line results for the first quarter of 2021, we had a net loss from continuing operations of <unk> 6 million compared to a net loss from continuing operations of $2 4 million in the same period in 2020 non.
Non-GAAP adjusted net loss from continuing operations in the first quarter of 2021 was $1 7 million or <unk> 35, a share compared to adjusted net income of $1 3 million or <unk> 65 per share in the first quarter last year non.
Non-GAAP adjusted EBITDA decreased slightly to negative <unk> 9 million for the first quarter of 2021 compared to negative <unk> 5 million in the first quarter of last year and this was driven by the continued COVID-19 impact, particularly on our health care operations as well as some increased raw materials prices that affected the construction side.
For the first quarter of 2021, reregistered, an operating cash outflow of $2 2 million compared to an operating cash inflow of <unk> 6 million in the first quarter of last year.
As of March 31, 2021, the outstanding balance on our credit facilities was $16 8 million, which includes $3 million in PPP funds and we fully anticipate that they will be completely forgiven.
In coming months.
Therefore, our overall net debt position, including $13 $3 million in cash and cash equivalents was $3 5 million.
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. If you would like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the queue.
All participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Thank you. Our first question comes from the line of Tate Sullivan with Maxim. Please proceed with your question.
Thanks to you I think you commented that the raw material price pressure will moderate in terms of passing along and prices. Later later this year, but can you just give me give another update I think is most of the pressure in the structural wall panel business or is it modular for larger projects and modular construction or can you just give whatever additional.
Detail you can with the raw material prices. Please sure yeah, I mean, it affects both of the construction businesses on the edge builder side in the Midwest, where we do the wall panels that you'd mentioned it.
It has a.
More serious impact in a way because the most of the value of those panels is in the wood commodity that goes into it.
The labor value add is relatively small so you know we've seen quite an increase there and it really affects margins, but what I would say is we're working through are those projects that we had agreed to at lower commodity prices and we're still continuing to win large projects at current prices. So we're locking in normalized margins with the activity that we're.
We're pitching for now on the modular side. It also has an impact but theres a lot more that goes into a modular unit than just the commodity Ah theres. Other building materials, you know bathtubs in windows and doors and you know, although there's been some price increase there it's not so dramatic as what we've seen on the commodity side, but at the same thing goes for that business the business that way.
You are signing today takes into account the current commodities.
Commodity prices, so we've pretty well worked through anything.
Where the prices that we agreed to where were far lower at the time in fact that large project that we did in.
In Natick, Massachusetts last year.
We bought those materials almost a year ago at much lower prices than today. So we were pretty well shielded on that project.
This is Jeff I would just add debt, we have like the whole industry, we've been significantly increasing our pricing. So we can and do pass those higher input costs on to our.
Our client base and like I said, everyone in the industry is doing that.
It just takes a few quarters to roll through our financials and in periods like this with a lot of volatility.
The accounting.
Accounting method ER companies use has a impact on short term results and we use average cost other companies might use a LIFO or FIFO over the long term all of those things even out but in the short term you can get some differences based on the accounting method.
They're not just looking at the gross profit and building and construction returning to more normalized levels I mean, it's a more normalized level for the rest of the year I mean, what it was at 19, I mean above 15 per center or how do you look at a normalized level of margins for that day.
I think we'd say I mean were.
There's there's a still a lot of uncertainty.
And our health care business, and construction business and recovering from COVID-19 and in input prices. So we haven't.
Given guidance for the year, but.
We I guess the short version to answer your question is.
We have a goal of significantly increasing our margins in the second half of the year and the price increases that we have put through have been significant and it just takes a few quarters for those to filter through and then long term when we think about the plan for this business is to have a construct.
<unk> business that can generate 20% gross margins and an EBITDA margin of.
At least 10 per cent a that's the long term plan and that's a very achievable and Thats what were working working hard to deliver and we've talked previously about or our growth plan for for this division and at least from a topline basis debt.
That's definitely coming through we've been ramping.
Ramping up output and our sales pipeline.
Stronger than I've ever seen it so the end customer demand is.
Is is very very strong I mean, the higher prices gives them some pause but.
The outlook is really a strong for this division.
It just takes a few quarters to pass through these higher.
Higher input prices.
Great. Thanks, and just last one for me before I turn it over I think last call you mentioned.
Efforts to get more into affordable housing and building and construction is that underway or have you secured orders in that segment of your construction business.
Yeah, I mean that is a very interesting space as you can imagine some of the themes that go along with modular construction, such as reduced waste and more sustainability and.
You know cheaper prices et cetera, it's quicker.
Deliberate than doing it on site that all makes sense for the affordable housing market. So yeah that is one of the segments, we're pursuing but there's other segments. There's you know student housing there's a passive homes.
Apartment buildings et cetera, but definitely affordable housing is one area that we are pitching a lot I can't speak to things that may or may not be signed but that is an area, we expect to be doing more and more in a.
You know in the in the medium term for sure.
Okay. Thank you all for the love it. Thank you.
Our next question comes from the line of Theodore O'neill with Litchfield Hills Research. Please proceed with your question. Thank.
Thank you.
Jeff here in the prepared statements you talked about pursuing acquisitions that could be in the construction business and it seems to be there must be a plenty of under capitalized construction companies that would be would be targets, but could you talk about how you might think about that compared to expanding in the existing square footage that you've got already.
Yeah, that's a really great question D O and we're at we're guided by wanting to increase.
<unk> per share that's our that's our guiding metric everything else is a is a means to that and.
And many businesses and I think this is an example.
Scale is.
Really helpful. The more scale you have the higher margins that you make and higher return on investment and just a more durable sustainable business model.
And so where we're open minded to both and they're not mutually exclusive.
We do think there are some under capitalized.
Construction businesses that we could add on to our existing business and we're looking for one.
One plus one equals three type of opportunities and we are also looking to increase output.
At both businesses, but particularly KBS, where we have.
A very significant factory just a few miles away from our existing factory and I think it's just a matter of time before we do open that factory.
And in the meantime, we're continuing to Debottleneck and reengineer, our existing factory to improve improve output.
And I don't I don't keep track of.
Lumber prices are very well, but in terms for the wall panels.
The wall panels and the impact on margins is there is it pricing, particularly or is it pricing, particularly a higher or rising faster in that segment because its special treated lumber or is it. Just every every piece of lumber is seeing the same kind of.
Yeah, that's the second one like if you just look at.
What people refer to when they say lumber or the futures market you know that's a specific grade with the specific.
Location and.
And that price a year ago at the low last year was.
I'm going off memory $250 and.
For normal price over the long term is three to 400 anyway at the end of last year. It closed at 1000, so at Quad.
Quadrupled off the bottom.
And year to date and we're only in May the price of lumber is up 70 per cent.
And our debt is a proxy for all sorts of different lumber products as well as OSB are which is a big input theres not a futures market for OSB.
It was harder to track the price on the day to day basis and in some cases, it's hard to even procure materials.
Because of the supply shortages, which are causing the price spike, but you know these things.
Do tend to normal normalize out over time and come back to Earth.
But where we're not running our business on an hope.
For pricing projects based on.
Today's commodity prices and having a lot of discussions with our clients.
Clients about.
Uh huh.
To them buying the materials and.
And <unk>.
Taking on that risk or compensating us for.
The volatility that we're seeing in the input prices okay.
Okay. Thanks very much.
Yeah.
Our next question comes from the line of Adam Waldow with Lytham Partners. Please proceed with your question.
Yes, Good day could you hear me okay, yes.
Thank you very much for taking my questions.
I know there are a lot of different moving parts on the commodity side of construction, but as you think about the enterprise overall it seems as if the Lady can coincident indicators are all.
Pretty much heading in the right direction recovering from COVID-19, which is great to see so as you put it all together at the enterprise level, What's your best sense now for when we will return to being sustainably operating cash flow positive.
Yeah. It was a very very good question. So I would say our EBITDA isn't the same as cash flow, but it is a.
Late leading indicator and strongly think will be EBITDA positive in the second half of this year and see very substantial growth in our.
EBITDA over time as things recover to normal and as we are.
Get back to more normal margins in the construction business and continue to grow the topline and construction.
And.
Converting that into positive cash flow generation we.
We have interest expense, which is now going to be much much lower because we have paid off.
The vast majority of our of our debt.
And working capital investments and we've made a tremendous investment in working capital, particularly in the construction business over the last year to fund that growth.
But we think if we continue to grow revenue our margins improve to more normal levels.
EBITDA will have a significant increase over time and our cash flow generation will have a significant increase overtime and.
Even though our business is a different one common theme throughout all of our businesses is very low maintenance Capex and you can see that on our on our cash flow statement and the business that we sold them was a much heavier capex business and that's one.
One characteristic that we do like.
And in looking at acquisitions and looking at different growth prospects is businesses that are.
Have low.
Maintenance Capex, and we want to find businesses that generate earnings and cash flow.
Right and I know, it's a little hard but.
Are we feeling pretty confident that by the end of this calendar year or early next year.
<unk> to be in a more normal post COVID-19 operating environment, given our current scale in that business as per post the divestiture dive.
Divestitures completed it.
The first and early second quarters here.
Net debt, where we're in good shape to be sustainably free cash flow positive.
We think so.
We should be.
Oh I'm sorry.
Saying there you know, there's a lot of unknowns out there and.
You know at the beginning of last year I don't think anyone would it was predicting that we'd have a global pandemic.
Shut down the global economy for for a period of time, so there's a lot of.
Oh unknowns out there in the world but.
Yeah, there's no structural reason why.
Preventing us from returning to more normal levels in all of our businesses.
Excellent net one more if I may and this is related to the preferred stock. So prospectively I presume that preferred stock is probably going to be a component of compensation for future acquisitions in terms of what's given to the sellers of the acquired come.
And obviously we have.
Our preferred out there debt is now more than six quarters in arrears on its preferred dividends.
Payments are accrued and unpaid.
Technically default of a couple of the provisions related to that six quarters in arrears. So.
With the balance sheet substantially cleaned up post the divestitures completed earlier. This year are we now at a point, where we expect to be able to to clean up the accrued and unpaid dividends and resumed dividend payments on the preferred.
That's it that's a good question and we suspected that this question might come up and I would just say it's a <unk>.
Board level.
Decision not a not a management decision and we got these businesses sold just a little over a month ago.
And.
The first priority was to pay.
Pay down debt and the.
Close of the the big sale of Dms closed.
At the end of the day on the 31st so we got the cash and we did pay down.
M D.
The credit line associated with the health care business and then since the.
At the end of the quarter, we've paid down substantially.
Substantially more.
More debt and so that was kind of the first priority.
And.
The board is certainly studying.
All of the different options and pros and.
And cons of all capital allocation decisions and but we are.
Don So where so we're studying it and we'll we'll have something to announce them at some point in the future.
Fair enough. Thank you very much and good luck are continuing to recover from COVID-19.
Okay.
Our next question comes from the line of Jeff Kobe lawyers with Diamond Big Bridge Capital. Please proceed with your question.
Hi, Good morning, Jeff I heard you say earlier that the sales pipeline of KBS was stronger than you've ever seen it and can you give any.
Kind of put any numbers around that at all.
Sure, we actually have our our head of business development and sales with US today, So I'm going to turn this over to our Dave Our CLO and Matt Sullivan, our head of business development for for KBS, but we we've publicly talked about a sales pipes.
<unk> of over $50 million and I'm. Just a reminder, that's just for the KBS business.
So that doesn't even include the business that we have in the in the in the Midwest. If you include that our sales pipeline is higher and so just a couple quick things I would say is.
We maintain that pipeline, even after winning a.
Several large projects last year, and if you're thinking about L. A mechanically.
Mechanically that works if you win a project to your pipeline actually goes down because youre, putting that large project and a production. So the fact that our pipeline stay at around the $50 million level. After winning those large projects is an indicator that we have other large projects that got put into our sales pipeline.
Enabling it to stay around that $50 million level. So that was kind of accomplishment number one and accomplishment number two is I think our sales pipeline today is at least 20% higher than that.
At that level.
But I'll turn it over to Dave and Mats all of them just talk about what they're seeing in the market and potential projects that are coming down the AR coming down the road.
And they can talk about those at a high level.
Yeah, Thanks, Jeff It's Dave here at all.
Or are you summarized it pretty well actually so I'll, probably end up turn it over to Matt pretty quickly, but yeah. I would say we are seeing strong demand both on the single family houses, which is this is really the season that that gets busy.
Busy so we're seeing a lot of good demand in northern New England for single family homes.
And also the initiative that we launched over a year ago now to get into more commercial scale business. That's a longer lead time business. So it takes a lot of time and effort.
To get those projects online from the time, you start pitching them, but we have just numerous.
Countless number of opportunities being shown to us that even six or eight nine months ago Werent being shown to us. So we're very optimistic.
Hmm.
Commodity prices have caused some pauses of some projects, but it's not it hasn't been a wholesale effect. There was a lot of a lot of projects moving ahead, just as quickly as they were before these commodity prices are ramped up but I'll, let Matt Sullivan, who happens to be sitting with us today, just give a little bit of color on some of the types of projects, we can't talk about too much detail.
We haven't announced this kind of stuff, but he can give you a little bit of color as to what he's seeing in the marketplace.
Good morning, everyone, Matt Sullivan here.
Vice President of business development for KBS.
So demand continues to grow in all sectors that we're focused on.
As Dave mentioned seasonal business is picking up in the residential markets.
But we're seeing greater opportunities in the in the multifamily space both on the affordable housing workforce housing.
And just multifamily opportunities throughout new England, so demand continues to grow and opportunities.
Our significant so.
Our space that we focus on is kind of that.
Under $5 million in terms of project revenue and.
There seems to be a tremendous amount of growth in that area specifically so.
We're also getting more traction in the passive home and net zero space KBS is sort of differentiate itself from other manufacturers by being able to provide that type of construction.
So it's a it's something that has gained momentum and interest not only in the affordable housing space, but also in the kind.
Kind of for profit opportunity so.
And as Jeff mentioned, we're in that $50 million.
Pipeline.
Early stage opportunities kind of mirrors that as well. So we've got some things that are projected out to 2022 that would be in that same.
Level, another $50 million of business that we project further out so.
Pandemic aside.
The opportunities.
A significant and interest continues to grow for us.
Thanks, Matt.
Okay and can I just for clarification can I just ask about when you mentioned pipeline.
It sounds like it.
Blair's over a little bit into backlog type of firm.
Term it sounds it sounds like some of your of your pipeline is a backlog in <unk>.
Can you comment about that what how much of that $50 million as they contracted in.
Agreed to yes, that's the total sales pipeline and we talk about it internally as sort of like our lead times are assigned backlog, Matt maybe comment what is our.
Lead time, yes. Currently we're running at about 10 weeks 10 to 12 weeks for backlog opportunities less contracted work currently the $50 million that we're forecasting for business that is not officially been contracted so early different stage of the sales cycle, but.
Okay.
So this is Jeff so we do a variety of different things and.
The sales pipeline are projects that were in active discussions on and those numbers are all the gross numbers that we gave you. We also put a probability next to each one of those and so we have a probability weighted.
Pipeline and that's a pretty good number and.
There's probably more closely.
Mirrors, our future sales and that number has also been growing and then what Matt was talking about was a pre pipeline. Some people would call. It a funnel or pre pipeline, that's probably another $50 million of opportunities. So all those are really great.
Leading indicators.
And the point is there's a lot of projects out there for us to do.
So as we Debottleneck the plant increased plant at the existing plant and then eventually open a second plant.
Our production has a tremendous amount of upside I think we have a slide in our investor deck.
It's about having a goal of getting to 750 to 1000 boxes a year and.
When we bought the business it was doing less than 300 and.
We've already significantly increased that number I think last year was around 400 isn't it.
Yeah, No we had the last two years 80 last year last year for Hunter. This yeah. The hoped for this year. The goal for this year is to get for.
400, but then on a long term vision is to be able to produce <unk>.
752, 1000 boxes a year.
Yeah, the only thing I would add the other piece of our pipeline. That's hard to measure is the single family business a lot of that comes in through a dealer network that we've established over many years and you have very little sort of knowledge of what's coming in we just know that that is busy but we might get a house.
And that's on the line two weeks later and it never hits our pipeline.
Because they're bidding it out to two or three different manufacturers.
We went in and produce it pretty quickly. So there's a there's sort of a shadow pipeline that were not even aware of and you know you can really price yourself to get as much of that business as you want but obviously, we want a price.
<unk> gross margins debt.
That are attractive to us so.
But that's kind of a spigot that can turn on and off in addition to the longer lead time commercial business.
Okay.
Got it thanks very much for all that color and that is good and so the dealer network do you know what percentage of your volume it was last year.
Oh, let's see I'd say it was in 2019, it was pretty much all of it.
A large percentage of it let's say, 80% last year, probably about half or less of the lesson that little less than a half last year.
And just to put into context. What this is these are local homebuilding companies.
Net build anywhere from 10% to 50 homes a year a lot of them have been around for a really long time. So they'll have a retail center that people can go to sometimes with some model homes on it and a client can design their own home customize it and then that dealer gives the order to us.
And were by far the biggest manufacturer in new England, and we've improved our quality we have improved our.
Our product and.
It's a we think a very high quality.
Product and.
The other.
Other than Theres, just not many other factories in the new England market and a bigger.
Manufacturing centers or in Canada, or Pennsylvania, which are a long way away to ship, which gives us a.
Natural shipping advantage for the for the New England market. So we really like our our position, but your question was on dealer network and pipeline and I guess the point is that we.
No.
For the dealer network is going to give us orders of X y Z.
But we don't know specifically.
What what month or what exact client, but it's just kind of year end you're out some of these dealers will give us 2030, 40 boxes to build and it is business. We can we can kind of count on year on your own.
Terrific. Thanks for everyones helpful to hear that background.
Good question. Thank you.
Our next question comes from the line of Zach Liggett with Desmond Leggett wealth Advisors. Please proceed with your question.
Oh, Yeah. Good morning, Thanks for taking my question for.
First question I had was on the preferred but it sounds like that's to be decided here a little bit later.
As far as the.
The M&A front goes could you give us a little more color on.
How advanced.
Your pipeline is.
What the funding strategy is going to be given the ideas for youre looking at or at least some of the ideas there.
And outside of the current segments.
Could you share what areas of the book.
Focus your Youre looking at thank you yes.
Yes sure.
It's hard to paint.
The debt with a broad brush, but a few comments I'd make are that we've been internally focused for.
For quite some time.
We bought the construction business in late 2019, and we've been improving operations.
Revamping the sales force under a mass ovens leadership and developing the market getting back into the to the commercial market and then now.
Body knows that we've been working on the sale of assets.
About 40% of our health care business that debt that we sold we announced that in the fall, but and got it closed.
Our March 31 so.
We've been working on those things.
And that's been the focus of a lot of our time.
And.
Now that we've got that done we are starting to have more of an external focus and we have.
I always had a kind of a target list and had some discussions and.
Probably more likely that we would do a bolt on acquisition for.
For the construction business or the health care business.
But longer term, we will look for other legs to the stool.
It's got to be something that fits with our structure, where we can look at it and honestly say.
This company this target inside our structure is going to be a lot more profitable and a lot more valuable and we think the construction acquisition that we did.
Gonna be a really good case study for that as an OTC pink.
Pinksheets listed company at the time, we bought it we bought it using preferred stock. So there were no cash.
For parent company stock common stock that was issued in that transaction and our vision was to take a business doing $25 million to $30 million in revenue and doubling that and significantly increasing the profitability and the value. So that's that's the kind of opportunity we're going to look for.
So.
And then at a high level sectors that could be interesting and could fit with that.
Industrials materials financial services business services.
Anything that's a debt that we can.
Understand and add value to is something we would at least consider and look at and.
I don't think you're going to see us do venture capital like investments.
And pre revenue companies, where it's.
It's just not our bailey with where our strategy.
Oh, great. Yes, that's helpful and then on the funding strategy I guess.
Do you see them.
Adding leverage back from the balance sheet or are you going to try to run the business real light on debt for.
At least near term.
Yes, I think it I think it all depends on the opportunity and.
And the sellers.
Theres private companies out there there are.
Other micro caps out there that are already publicly traded so a lot of it is just going to depend on.
The preferences of the seller what it takes to get a deal done.
What we like about the company, we've created and the structure. We've created is that we have a lot of tools in the toolkit. So.
Bank debt is very very cheap.
That's a tool in the toolkit.
Non bank debt is more expensive but is available.
We also have our preferred stock, which could be an acquisition currency and then the bar is high too.
Issue common stock, but it is possible sometimes to do acquisitions and increase in NAV per share even if the common stock as a component of the acquisition consideration.
Alright, great thanks for that.
Yeah.
Our next question comes from the line of Robert struggle with RIS investments. Please proceed with your question.
Yeah concerning concerning our preferred stock I my understanding is that if he was six quarters behind.
We are shareholders of both your comment in your in your preferred.
We understand we could put people on the board.
If you have six quarters behind why why don't we just cleanup is preferred.
I think it is accruing at over 10% a year.
We could sell another preferred and or have an exchange offer for those preferred and pay some of it off and clean up our balance sheet now that we have the cash.
Can we do something like that two two to make it more attractive stock went up to for $5 a share it's back down to $2 and change.
So we'd like to see that start to go back up because it should be a lot higher.
Even though you're still stuck at around the same price yeah. Thank you. Thank you.
So I I own a car.
Common and preferred stock as well so I I.
Sure sure your sentiment and I'm in the same situation.
I would just say we're studying.
All of those options and all of those options are on the table.
And I would just I would just tell you to stay tuned, but all your comments thoughts and observations or not.
Not not lost on the board and and.
It's top of mind.
Alright, Thank you very much.
We have no further questions at this time I would like to turn the floor back over to management for closing comments.
Well. Thank you very much for your interest in our in our company and really good questions today.
And just like to note debt.
David Our CFO COO is is always available to.
Answer your questions.
And.
Matt Molchan on the healthcare side.
Happy to take your call and discuss any questions you have so.
Feel free to reach out to us if you have questions and want to do a call and we're going to continue to meet with investors and share our story.
In the coming weeks and months, we're scheduled to present at the Sidoti Conference next week on May 20th for example, and just want to say, we appreciate all of our shareholders and thanks for your feedback and your support have a great day.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
Yeah.