Q4 2023 Star Equity Holdings Inc Earnings Call
Speaker Change: [music].
Greetings, ladies and gentlemen, and welcome to Star Equity Holdings, Inc. Fourth quarter 2023 results conference call.
Please be advised that the discussion 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 start equity its most recent 10-K and 10-Q filings for a more complete description of risk factors that could affect these projections and assumptions.
The company assumes no obligation 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 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 star equity at 2034899.
9500, or its Investor Relations representative Lena coffee.
Of the equity group at 212 <unk>.
8369611.
Also this call is being broadcast live over the Internet and maybe accessed at Star equities website via Www Dot star equity Dotcom.
Shortly after the call a replay will also be available on the company's website.
It is now my pleasure to introduce Rick Coleman, Chief Executive Officer, let's start equity.
Thank you operator.
Morning, and thank you all for joining us today for our fourth quarter 2023 results conference call.
On the call with me today are executive Chairman, Jeff Eberwein, and Chief Financial Officer, Dave Noble.
In the fourth quarter of 2023, our construction revenue and gross profit declined compared to the fourth quarter of 2022.
However for the full year 2023, strong pricing discipline and an improved business mix resulted in year over year construction gross margin improvement from 21, 6% to 26%.
Credit tightening in the second half of 2023 was a contributing factor and caused delays in some commercial projects pushing revenue into 2024 and in some cases indefinitely.
However, single family residential activity and our overall backlog and sales pipeline indicate continued pent up demand.
Although the timing continues to be tempered by ongoing interest rate sensitivity.
We believe this is a temporary situation and are continuing our focus on the niche markets, where we've built significant expertise and a strong reputation, including affordable and workforce housing educational buildings in dormitories and environmentally sustainable housing.
In these markets, we feel our experience and reputation give us a sustainable competitive advantage.
Based on our sales pipeline, we believe demand in all of these sectors will remain strong.
We also have continued conviction in the ongoing growth of factory build construction in the United States.
Which according to modular building Institute. Most recent report now accounts for 6% of all new construction starts in North America, having tripled from 2% in 2015.
Despite lower revenue in 2023 versus 2022, we achieved and continue to maintain our mid Twenty's gross margin target for our construction division.
Sustained execution quality has contributed to the division's ability to maintain pricing levels and has contributed to the division's gross margin improvement.
We remain confident in the division's ability to maintain strong gross margins as revenues recover amid a stronger macroeconomic backdrop.
Lastly, we closed the accretive Big Lake lumber bolt on acquisition in the fourth quarter and have successfully integrated it into our glenbrook operation.
As Dave will discuss our balance sheet is strong and we have ample cash to expand our business.
During the coming quarters, we will continue to evaluate construction division acquisition opportunities to augment our focus on sustainable organic growth.
We will also examine potential acquisitions, and new industries and explore opportunities in our investments division.
Now I'll turn call over to Dave Noble, our CFO, who will provide an additional fourth quarter consolidated financial highlights.
David James Noble: Dave. Please go ahead.
David James Noble: Thank you Rick and good morning.
Let's move on to Star equities consolidated results in Q4, 2023, SG&A decreased by $1 million or 23, 8% versus Q2 in 'twenty two as.
As a percentage of revenue SG&A decreased in Q4, 22, 8% versus 23, 9% in Q4 of 2022.
In Q4, we generated net income from continuing operations of $1 8 million versus net income from continuing operations point 9 million in Q4 of 'twenty two.
non-GAAP adjusted net income from continuing operations in Q4 was a negative 44 million. This compares to adjusted net income of <unk> 5 million in Q4 of 2022.
non-GAAP adjusted EBITDA from continuing operations decreased to negative <unk> 1 million in Q4 from a positive $9 million Q4 of 'twenty two.
Segment non-GAAP adjusted EBITDA at our construction Division decreased <unk> 7 million in Q4, this year down from $2 9 million in Q4 of 'twenty two.
Despite some economic headwinds, which impacted our construction revenue all year, we continue to make progress across this operating segment in 2023 for the full year. Our construction gross margins were 26, 5% versus 22, 2% in 2022.
We also closed a bolt on acquisition in this segment in Q4, as Rick mentioned, which will bolster revenues in 2024.
Construction non-GAAP adjusted EBITDA for 2023, $4 4 million versus $6 3 million in 2022.
As of December 31, 2023, our consolidated balance sheet and liquidity were strong the outstanding balance on our interest bearing debt was $2 million, while our cash balance stood at $18 3 million now.
Speaker Change: Now I'd like to turn the call over to the operator for questions.
We will now begin our question and answer session.
To ask a question. Please press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
Is it any time your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
The first question today comes from Tate Sullivan with Maxim Group. Please go ahead.
Hi. Thank you. Good morning can you talk about the lumberyard acquisition a bit more is are you selling the products mostly to outside customers and both your legacy Glenbrook Brook operations. So what is the relative mix if you can address.
Sure Yeah, I'll take that so that acquisition was as you mentioned in the Lumberyard arena. So it's a.
Building products distribution business to mainly professional builders and it's very similar to the existing glenbrook piece of our edge builder business right. So our edge builder business already add distribution.
Business and also manufacturers' wall panels. So we're just expanding the geography of coverage.
For our building products distribution business, it's just tuck in to that.
And Thats called Glenbrook, that's the brand name. So we no longer have the big like brand name, we merge that into Glen broken just expanded that distribution business.
And then on the income other income line of one approximately one 4 million is that all mostly mark to market for your investments.
Yeah.
Theres a gain we sold a factory that we were not using a.
Mid year last year.
And we also got some one time sort of.
Rebates on some prior year insurance policies.
Okay.
That's a lot of that with Castro kashagan.
Your your niche markets Youre your niche market.
I think you mentioned affordable housing student housing.
And is it pockets of new englanders spread across mcglynn.
The strike that you mentioned.
Yeah, I mean, it's throughout new England, I mean, a lot of the activity as you can imagine.
Is it in and around the Boston area. That's been most density of population.
But we operate all across new England.
Primarily, Massachusetts, New Hampshire, Maine, but we will produce.
Projects in any of the New England States.
Speaker Change: Okay. Thank you David.
Yeah.
The next question comes from Theodore O'neill with Litchfield Hills Research. Please go ahead.
Oh, thanks, very much and congratulations on a good quarter.
Rick This question Ive been meeting to ask this for months either the workforce housing project.
Theodore O'Neill: It's a bucket are you are you building housing is shipping it to the island, how does that work.
Okay.
Go ahead Rick.
Dave you want to take that one.
Okay, Yeah, I mean, yeah, it's modular housing.
Housing so we build it in our factory in Maine, and we track it down to or put it on a barge and then move it over to the island and.
That is trucked to the site.
And the local developer will or local general contractor will lighten up and finish the project.
This is Jeff.
Jeff I would add that we're seeing.
A trend where there's a really strong focus on solving workforce housing problems.
You know Nantucket.
Cape Cod, Martha's vineyard parts of Boston.
It's gotten.
Theodore O'Neill: Very expensive for their workforce, there's no place for them that loves that they have to travel a really long way to work and so work force housing solutions has really gotten the attention of developers and policymakers and in some cases.
Groups will get together form a non-profit.
People will donate to the nonprofit by land and they'll want to use that land for workforce housing, but those.
Organizations for all their wonderful intentions don't really have experience.
Doing construction projects and that's where we come in and we've partnered with several of them.
We have designs solutions.
And several other projects that we can show them, where they can do a tour of the finished project and we've gotten some really good traction on our way with that with that.
The segment of development.
Okay.
That's really interesting is it or is it a nonprofit on Nantucket that's it.
Thinking about here that's doing the same thing.
I think so I, sometimes get the projects confused we serve most of them have been a non-profit in other cases.
There'll be some local program, where a developer will get.
Some credits expedited zoning.
Things like that if it's specifically for workforce housing.
Theodore O'Neill: Okay.
Yeah, I'm just going to say, we did a similar project on Martha's Vineyard I believe it was 22 and that was definitely a not for profit organization that had some money coming in from the state of Massachusetts.
Theodore O'Neill: Yeah.
Okay, I would just add that.
That's a nationwide trend and a lot of municipalities are actually forming committees and subcommittees did communicate with the with other parts of the country on how how they go about building those solutions. So.
We think that trend isn't entirely sustainable.
<unk>.
It's just a problem that are then we're able to solve.
Oh, Yeah, I'm I'm I am I am seeing that other places as well, which is part of the recently asked the question. The other one is just the logistics of getting built.
Built house over to the island.
Well I think that's the only I think that might be the only time, we barged.
Barge units over but I'm not I'm not 100% sure about that yeah, well if you think about it is it's much easier.
Hey, I know it sounds like it is much easier to barge.
Finished product over and install it than it is to get all the materials, they're all the workers there to.
Theodore O'Neill: To build it onsite thats much more expensive and much more difficult.
So that's what makes our solution a really great solution for those expensive hard to reach places.
Oh, Yeah, absolutely understand I was wondering if you could just give us some qualitative discussion about about the backlog and of the business that you mentioned here in the prepared remarks.
Moving from Q4 into 2024.
Is that still being pushed out.
Just give us some color on that.
Yeah. This is Jeff what I would say is.
Credit conditions have gotten tighter that's that's pretty well known in the marketplace.
And the developers that we work with a lot of times they'll want to get financing in place or need to get financing in place and by financing I'm talking about construction loan Oh, that's typically refinanced one that went up.
<unk> project is over and they Havent finished product that's making rent income.
And what we're seeing is that it's just.
Taking longer and its more difficult.
For them to get the financing in place.
So what used to take say three months.
A couple of years ago is taking six months or nine months and so theres been several instances that we saw in 2023, where everything's on track projects approved.
They give us the order but.
We don't start on it until we get those first payments and it's just taking them longer to get the financing in place and so.
Theodore O'Neill: It just shifts it just shifts production in the future. So I think the shortest way to say it is that it's kind of a one time shift to the right.
And some of the things we thought would be produced in Q4 has moved into Q1 things that we thought would be produced in Q1 has gotten shifted that Q2 and Q3.
And so it's something that we've adjusted too and we think we'll get get better over time.
But in general.
Tone in the marketplace is better than it was.
Theodore O'Neill: Six months ago projects are going forward.
And it's just a very different situation than our projects were getting canceled.
Cuz.
In a weak economy or because demand wasn't there we're not seeing that.
It's an odd thing to say, but our sales pipeline or backlog.
It hasn't declined at all it's remained really strong and.
Anything is stronger than it was six months ago. It's just at the timing of when some of the what we thought we would be starting some of these projects has gotten shifted out a quarter or two.
Theodore O'Neill: And is that because there was an expectation that the rates will come down so things are getting pushed out a bit.
No.
It's not that so much as a credit is tighter so.
It's just taking longer to.
To get the financing in place.
Okay.
My last question here.
In the non-GAAP reconciliation, there was a reference to approximately $1 $2 million.
Bargain purchase gain related to the acquisition of big like lumber.
Maybe I'm the only one who doesn't know what that is would.
Theodore O'Neill: Would you mind and Lightning me.
Yes, I mean, it took us a bit to get our head around it we purchased big like lumber for a really good price from our standpoint.
And from an accounting standpoint, we needed to do a third party valuation.
That valuation confirmed what we thought was a great deal. So essentially that's like a negative goodwill. So we had to run that through the.
The P&L as a gain because we essentially paid less and that company was worth as you well know you often pay more than the assets of our company and that gets reflected in goodwill I would look at this as a negative goodwill that runs through our balance I'm, sorry run through our P&L and how does that.
Theodore O'Neill: Noncash gain.
Accounting.
It is what it is but you know we under the accounting rules, where we're forced to put it on our balance sheet at close market value, which is determined by this third party evaluation firm.
Theodore O'Neill: And.
Given that the market value. They came up with was greater than what we paid there is a game there and under the accounting rules, we had to run that game through our P&L in the fourth quarter.
Speaker Change: Okay well.
Just one of those a quarter would be great.
Well I would emphasize it was noncash no one road is check yes.
Speaker Change: But one important thing is we feel like we got a good value for that.
We paid a good price for that acquisition. So that's the good news.
Understood. Okay. That's it for me thanks very much.
Speaker Change: The next question comes from John Obra, Jose with Who's a private investor. Please go ahead.
Yeah.
Good day, everybody my questions are about firsthand check and Java dying.
We pronounce it.
Speaker Change: Why.
What is the value in buying.
Equities.
Yeah. This is Jeff I will I will handle that so.
Jeff: We we are a multi industry holding company.
So we have our construction business, which is wholly owned and is one one division we used to have health care Division and there are a lot of public micro caps out there that are we.
We think are cheap there below an a b and.
And in many cases, we think they just shouldn't be public companies. So.
Over time, we would like more size and scale.
As a company.
The.
Not just to be bigger but.
Our cost quite a bit to be public and so if we can spread those public company costs in those corporate overhead costs over a bigger base, we think that will create a tremendous amount of shareholder value. So our strategy with with those companies is to make.
Making investment.
<unk> them to.
Sell themselves in most cases in some cases, we could be the ultimate buyer and it could be a new division of star and other cases.
Maybe it's more valuable to somebody else than it is to us and in those cases, maybe somebody that comes along and buys. It we had one recently, where we had a position in the company.
Very small company really good product, but.
But it's way too small to be a public company and we encourage them to do.
Sell themselves to somebody bigger and they did make a public announcement that they were hiring a banker and they just announced recently that.
Jeff: They were selling themselves to somebody bigger so that's the strategy with that I mean, I I think about it as a.
The seed corn for future divisions of Star.
Okay.
Jeff: Good any thought given to a buyback.
Sorry.
Shares.
Yeah, we we think our stock is very very cheap.
We're value investors, we like.
Buying things when they are cheap.
And issue we have is just lack of scale.
As a public company so in general we're big fans of buybacks, especially when.
Things are below NAV like we are today.
I would say our number one priority right now is to get more scale.
Jeff: We think that will create a tremendous amount of shareholder value.
And we're we are working on additional acquisitions prime predominantly in our construction division that we think will create.
A tremendous amount of value. So you know.
I would say be patient on that front, but we are constantly focused on what is the highest and best use.
Of our cash and.
We can do more acquisitions at what we think are really attractive prices.
And that are immediately accretive for right now, we think that will create a tremendous amount of shareholder value.
Alright, that's great I Love your construction Division I think it's amazing.
Thank you that's all I am.
Thank you.
As a reminder, if you would like to ask a question. Please press Star then one to be joined into the queue.
The next question comes from Al Hill, a private Investor. Please go ahead.
Al Hill: Hey, Good morning, guys, Hey, I got a question I'm looking at the book value your stock prices 91 cents a share and it's almost.
Your book value is almost three times that.
Al Hill: Have you looked at possibly just.
Selling the company or putting it on the open market and being acquired as opposed to trying to expand as you're as you see with scale.
Company's work.
And I'm only worried about.
2000, $14 million to $17 million, but you're so small why wouldn't you look at possibly someone buying you guys as opposed to you guys buying someone else.
Yeah. So that's a great question this is Jeff.
You know I I own a lot of stock myself.
We I promise you, we think about shareholder value each and every day and it drives everything we do and that that is an option on the table. So we.
And then the number one thing for US is we want to create shareholder value. So we're open to merging with another company selling ourselves to another company.
Last year, our health care Division.
We found somebody to merge that with and we think that transaction created a lot of shareholder value. It wasn't fully reflected in the stock price.
But we are open. The short version is we are open to anything and everything to create shareholder value.
<unk> private selling ourselves merging with somebody else and all those things are.
Our items, we we think about and and consider.
Okay, and then I saw that where NASDAQ Scott you're in the penalty box and possibly de listing is that still going to happen going forward.
Yeah, that's not something.
To worry about we were dedicated to keeping our NASDAQ listing we.
We did get shareholder approval at last year's annual meeting to do a reverse stock split.
And if we need to do that to maintain our listing we will do that.
So yeah, because that is the comment that the gentleman made before me why wouldn't you just buy back shares to raise that value of that stock price in lieu of doing a reverse stock split.
Yeah. That's that's what we will consider that that is that is another.
Speaker Change: Way to go.
Yeah, because that has a reverse stock split splits always has a negative connotation in my mind. That's just my opinion and then last question yeah.
Do you continue to declare preferred dividends, even though you're losing money.
Yeah.
Okay.
Well the.
Speaker Change: We have we have a lot of cash that we have the cash to pay to pay the dividend and I think the.
On the on the losing money I think that's just a moment in time, because we sold our health care business.
So in general.
If we're going to stay public.
Speaker Change: If we're gonna stay public we need a lot more size and scale to justify being.
Being a public company.
Speaker Change: So if.
If we execute on some acquisitions that problem goes away.
And another thing I would say is that the preferred stock could be an interesting tool to use as acquisition currency. Some of the acquisition targets, we've talked to have been interested in taking preferred stock.
There and I'll just say, it's an obvious point there are a lot more interest in taking the preferred stock if it's paying dividends and if it's not paying dividends.
Sure.
That's the only questions I got guys. Thank you.
Thank you.
Once again, you would like to ask a question. Please press Star then one to join the question queue.
That concludes today's question and answer session.
I will now turn the call back over to Rick Coleman for closing remarks.
Thank you operator, thanks, everyone for the good questions today before concluding this call I'd like to note that we're always available to take your call and discuss any additional questions. You might have so don't hesitate to contact us. We're looking forward to sharing our story with our current investors and potential investors into coming.
Weeks and months and as always we appreciate all of our shareholders and your continued feedback and support.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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