Q1 2022 Star Equity Holdings Inc Earnings Call
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Greetings, ladies and gentlemen, and welcome to the Star Equity Holdings incorporated first quarter 2022 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 equities. Most recent 10-K and 10-Q filings for a more complete description of risk factors.
That said, the fact that those projections and assumptions.
The company assumes no obligations to update forward looking statements as a result of new information future events or otherwise.
Please also note that on this call management will reference non-GAAP financial measures, including EBITDA adjusted EBITDA adjusted net income and adjusted earnings per share, which are all are all financial measures not recognized under U S. GAAP.
As required by SEC rules and regulations. These non-GAAP financial measures are reconciled to their most comparable GAAP financial measures in our earnings release issued this morning.
If you did not receive a copy of the earnings release and would like one after the call. Please contact start at.
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489, 95 zero.
Orix Investor Relations representative Lena caddie at the equity group at 212, a 369611.
Also this call is being broadcast live over the Internet and maybe accessed at Star Equities website Www Dot star equity dotcom. Shortly after the call. A replay will be also also be available on the company's website.
It's now my pleasure to introduce Jeff Eberwein Executive Chairman of Star equity.
Okay.
Thank you operator, good morning, and thank you all for joining us today for first quarter 2022 results conference call.
On the call with me today are Chief Executive Officer, Rick Coleman, and Chief Financial Officer, David novel.
In the first quarter of 2022, we reported improved financial and operating performance with a 12% increase in revenues and an improvement in our margins.
Our health care Division grew revenue by <unk>, 8% versus the prior year quarter and gross margin improved by four percentage points to 23, 7%.
Our construction division grew revenue by 28, 6% due to large commercial projects as builder and pricing increases that we implemented implemented to mitigate the impact of higher raw material costs.
Gross margin improved substantially due to increased pricing improved operations and commodity price mitigation.
We continue to make progress toward our goal of achieving and maintaining our gross margin over 20% or a construction division.
With the completion of our January 2022 equity offering for gross proceeds of $14 3 million.
We are well positioned to fund our high return internal growth investments.
And to pursue acquisitions, which could be either bolt ons or health care or construction divisions or entry into a new business sectors.
With that I'll turn it over to our CEO Rick Calder Rick. Please go ahead.
Thanks, Jeff.
In the first quarter, our health care Division revenue increased by 8% over the same period last year to $13 4 million the.
The increase was driven primarily by the mix of products sold in the quarter, including higher Radiopharmaceuticals contract revenue and a more favorable mix of higher profit cameras.
Customer patient and employee availability were also positive contributing factors as our business continues to recover from the COVID-19 pandemic.
These positive drivers were partially offset by a decrease in total cameras sold as well as fewer total scanning days.
Gross profit for the quarter increased by 22, 2% and gross profit margin increased by four two percentage points over the same period last year also due to increased percentage of higher margin products. So now I will turn the call over to Dave Noble our CFO , who will review the results of our construct.
<unk> Division and provide additional first quarter financial highlights Dave. Please go ahead.
Thanks, Rick Let me first touch upon the construction division first quarter 2022, construction revenue and gross margin percentage were $11 6 million and 13, 6% respectively. This.
This compares to 9.0 million at 6.0% in the prior year first quarter.
The increase in revenues for the construction division was driven by large commercial projects at our edge builder business, which more than offset a small point $6 million decrease in revenues for our KBS business really based on revenue timing.
The KBS Mezz as I mentioned was due to revenue timing, but we're in the midst of executing a very large contract for $9 million to build dormitories during the second.
Second quarter.
Together construction revenue accounted for 46, 4% of Star equities consolidated revenues in the first quarter.
The increase in gross margin percentage was due to an increase in revenue during the period as well as better mitigation of materials risk price risk.
We have also significantly increased pricing levels on our projects to offset higher input costs in both the residential and commercial projects, our backlog and sales pipeline remains at record levels.
Now, let's turn on to Star equity Holdings on a consolidated basis SG&A increased by 34, 3% in Q1 2002 versus Q1 last year. While this was due in part to increased head count and outside services, one time litigation costs on the health care side was also a big factor.
SG&A as a percentage of revenue increased in Q1 to 27, 1% versus 22, 6% in Q1 2021.
Moving on to bottom line results can start firstar equity from the first quarter of 2022, we had a net loss from continuing operations of $3 7 million compared to a net loss from continuing operations of <unk> 6 million in the first quarter of 2021 non-GAAP adjusted net loss from continuing operations in the first quarter of 2000.
22 was <unk> 7 million. This compares to an adjusted net loss of $1 7 million in the first quarter 2021.
non-GAAP adjusted EBITDA increased to a positive <unk> 1 million for the first quarter of 2022 compared to a negative <unk> 9 million in the first quarter 2021. This improvement was due to improvements across the company's operations, leading to increased gross profit at both the companys healthcare and construction divisions.
For the first quarter of 2022, we registered an operating cash outflow of $6 million compared to an operating cash outflow of $2 2 million in the first quarter of 2021.
As of March 31, 2022, our balance sheet and liquidity were strong the outstanding balance on our credit facilities was $13 3 million.
With $15 million in cash and cash equivalents. Our overall net debt position was at negative $1 7 million at the end of the first quarter.
Now I'd like to turn the call over to the operator for questions.
Thank you well now be conducting a question and answer session.
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 he would like to remove your question from the queue for 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 your questions.
Our first questions come from the line of Theodore O'neill with Litchfield Hills Research. Please proceed with your questions.
Thanks, very much I'm on the KBS business being down in the quarter, you're saying. This is just it's just a timing issue that should rebound in Q2 is that what you were saying.
Yeah, we recognized.
Some revenues on a project late last year that continued into this year.
But as I mentioned the second quarter.
We're executing a $9 million projects so.
There is lumpiness in revenues, but it's not due to any slowdown of business. Our pipeline is strong and our production schedule. This fall.
Okay and on the SG&A.
Since there was almost nine it looks like if I got this right $900000 of almost $900000 litigation costs in the quarter.
If I pull that out are we going to see Q2, SG&A dropped by that amount.
Yeah.
Yeah sure I'll take that yeah that that will not repeat itself in the second quarter. I mean, there are some other increases in costs around some audit cost et cetera, but yes that that's a fair statement.
Thanks very much.
Thank you. Our next question is coming from the line of Tate Sullivan with Maxim Group. Please proceed with your questions.
Alright. Thank you al Good morning, Rick you were you've been C. L O since the beginning of the year I C E O starting last month.
But can you can you talk about your near term strategic goal for star versus long term and and and what you've seen so far.
That you can pinpoint.
Sure.
Happy to do that so from the I guess since the time that I got it on board. The first our first month is as usual diving in and catching up with what the rest of the team has already been doing.
We're making great progress at KBS I would say that are you know.
Dave and the rest of the team during the last half of 2021 really began positioning that business for success going forward.
Our health care business of course has been strong and continues to be that way, we're making some minor changes now to try to position ourselves for even stronger growth.
And.
The edge builder portion of our construction business as well as strong and again looking at opportunities for growth there.
Great. Thank you Rick and then KBS side, the 9 million University project and David I think if it's for you Dave mentioned record backlog and sales pipeline do you hope to duplicate that kind of size of project is that still going to be an above average size project for you is it better to have multiple.
Projects that are much smaller can you talk about going forward the types of project concentration.
Yeah.
Sure David I'll take that.
You want to go Rick do you want me to go.
Oh go ahead.
Okay, Yes, so yeah. That's clearly that's the largest single project that we've done in that business ever and.
And I would say, we evaluate projects based on you know the fundamentals in the E. S. P. So it's not that we're shy away from doing anything that size, but.
You know realistically that's that's a large project and we've got a number of other commercial scale multifamily projects in the two and three and $4 million range, which is probably more typical.
But if it makes sense for us we will do projects of that size as well I would state that in the last 18 months, we have really focused on trying to win some of these multifamily projects. They do bring a little bit more standardization and hopefully higher margins.
And secure.
More production slots in our factory, so I would say that's a big one, but we would not shy away from doing others of that size, but typically theyre going to be more in the half that size sort of range.
Hey, Jay This is Jeff I really really good question. One one other thing about that is a $9 million of the total.
Project size, but it's four dorms and so it.
A way it's kind of four.
Subsets.
Of that are of that of that project I think an important thing with that is it gets us into a new vertical.
It's a prestigious well known university that we're working with and.
It's Jim.
It's a great case study for working with other colleges universities on their student housing needs.
And we all know that construction can be cyclical.
We're a very small player in a big market.
And our.
So it is to have a lot of different end markets a lot of different things. We can do there's a lot of different things that can be modular and so the more diversity we have of projects.
Clients and markets are the better.
Yeah.
Thank you Justin and one more for me I mean with everything going on in the just general market and interest rates and we always hear about higher costs than you addressed higher lumber costs, but with your customer conversations on the KBS side have any projects being delayed or is funding come through slower than you expected and any fundamental cause.
And in that end market or not at this point.
You know, we haven't seen that yet I mean, it's.
One might expect that as an extreme condition, but our pipeline is still very full it's as high as it's as strong as it's ever been.
The project for the University that we're doing I mean, that's funded by their endowment, which is very large so theres no real financing element to that we just finished a workforce housing project on Martha's vineyard that was about $2 million in size and that was funded by a five O C. Three five O N C. Three with some help from the <unk>.
<unk> government so I.
I really don't see we have not seen that yet even in the private projects, we haven't seen any slowdown.
Financing seems to be in place and the demand is still there I mean at some point you might see that but we just haven't seen that yet.
I would say to take good good question.
Over a long period of time, we've trans transformed this business they used to do a lot more lower end residential.
And we've gone higher and higher price point more complicated projects.
And like what Dave was saying you know, it's a less price sensitive.
Client much more focused on quality.
And our time to deliver.
Yeah.
So I think that that business transition we've done over a period of years as is.
That's helpful.
Yeah.
Thank you and one more for me if I may on health care, sorry at 24% gross profit margins I I can you talk about I mean up from 21%. The prior quarter is it still should we look at that as still being as a 20% gross profit margin business as well were there one time benefits to that margin in the quarter can you expand on that margin.
Yeah. This is Jeff another there were no one time.
Benefits I would say that the highest.
Gross margin thing, we do is selling cameras the services business.
Is doesn't have quite the same margins that selling cameras does.
And we.
Usually camera sales are highest in the fourth quarter.
And.
And very low in Q1.
But we had a pretty good Q1.
And in that department and so that was helpful. So I.
I would be disappointed if the gross margin business is only 20%, where where we'd like it to be higher than that.
So call it low twenties.
Okay. Thank you all.
Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Thank you there are no further questions at this time I would like to turn the call back over to Jeff Eberwein for any closing comments.
Thank you operator before concluding the call I'd like to note, we're always available to take your call and discuss any additional questions. You might have so please don't hesitate to contact US we will continue to share our story with existing and potential investors in the coming weeks and months as always we appreciate all our shareholders and your continued feedback.
And support thank you.
Yeah.
Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect your lines at this time.
Enjoy the rest of your day.