Star Equity Holdings Inc (STRR) 2025 Q1 法說會逐字稿

Ladies and gentlemen, and welcome to Star Equity Holdings first quarter 2025 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 most recent 10-K, 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 for the statements as a result of new information, future events, or otherwise.

Please also note that this on this management made reference to 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 the US GAAP.

As required by SEC rules and regulations, these non-GAAP measures are reconciled to the most recent comparable GAAP financial majors in our earnings release issued this morning. If you don't 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 Lena Cati of the Equity Group at 212-836-9611.

Also, this call is being broadcast live with the internet and may be accessed via Star Equity's website at www.starequity.com. Shortly after the call, replay will also be available on the company's website.

It's now my pleasure to introduce Rick Coleman, Chief Executive Officer of Star Equity.

Thank you, operator. Good morning, everyone. We appreciate you joining us for our first quarter of 2025 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. Then Dave will provide additional details on our consolidated financial results.

Our first quarter revenue increased 41.7% over the first quarter of 2024, 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 Solution 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. 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 $27.9 million at quarter end compared to $14.8 million at the end of the first quarter of 2024. 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. 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.

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 2025, gross profit was $3.1 million, up 99.2% versus Q1 of 2024. This was driven by increased revenue at KBS as well as the addition of TT and ADT to our portfolio companies.

SG&A increased by $1.2 million or 28.5% versus Q1 of 2024. This was driven largely by the inclusion of SG&A from TT and to a lesser extent, ADT, as well as higher expenses related to M&A activity.

SG&A as a percentage of revenue decreased to 40.7% compared to 44.9% in the first quarter of last year. SG&A excluding non-recurring items, was 36% of revenue in Q1 compared to 37% in Q1 of 2024.

Moving on to bottom line results for Star Equity, we reported a net loss from continuing operations of $1.2 million in Q1 of 2025 compared to a net loss from continuing operations of $2.2 million in Q1 of 2024.

Non-GAAP adjusted net loss from continuing operations in Q1 was $1.7 million or $0.52 per share compared to an adjusted net loss of $1.4 million or $0.44 a share in Q1 of 2024. Non-GAAP adjusted EBITA from continuing operations was a loss of $0.8 million in the quarter versus an adjusted EBITDA loss of $1.1 million in the same period last year.

Consolidated cash flow from operations for the first quarter of 2025 was an inflow of $0.6 million versus an outflow of $2.4 million in the first quarter of 2024. 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 $1.9 million compared to $4.0 million at the end of 2024. The difference is primarily driven by the upfront cash used to close the acquisition of ADT in March of 2025 plus associated transaction related costs.

Turning to our investments division, our holdings in public equity securities at the end of the quarter amounted to $3.1 million versus $3.4 million 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 $1.3 million and $8.4 million, respectively.

Now I'd like to turn the call back over to Rick for some additional comments.

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&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 creative opportunities at all our divisions.

I'll now turn the call over to the operator for questions.

(Operator Instructions)

Theodore O'Neill, Litchfield Hills Research.

Oh thanks. Hey, congratulations on the 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 delays.

And so I was wondering if you could talk about sort of the dynamics and of the business between Edge Builder and Building Solutions that would cause Edge Builders to have cited for these pushouts but not the rest of your business?

Rick, you want to take that?

Theo, this is Jeff in Connecticut. So Edge Builder, it 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 recognize the revenue, finish that project, recognize the revenue in Q2.

Additionally, if you think about where our businesses are located, so Edge Builders 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. 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.

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 the pricing.

No, I'll take that one, Jeff. We really aren't. Things are actually looking fairly positive for us. I think there is 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. Our backlog is strong and we don't see any signs that that that's a temporary situation.

But yeah, we are.

We are paying, 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 in springtime. And there's been some press about, on the residential side, 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. But as Rick said, in the massive run up in interest rates, we had in the 2022, 2023 time frame, that combined with financing getting harder to come by.

There were a lot of projects that just got paused, not canceled, 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 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.

Okay, thanks very much.

Thank you. And the next question because it takes all of them with the Maxim Group.

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

The bill, do you know that? I think it's really just a function of what happened during the quarter, so I don't think it has, 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. Yeah.

And Tate, I would add. We, in general, we look for businesses that have high margins, low maintenance CapEx, and what we like about alliance drillling are those two characteristics, as well as their cost as a percentage of a total project is really small, but it's mission critical. So, that's a pretty good characteristic for a small business and that's one of the things that attracted us to it was consistently high margins that that business has.

Another thing that jumped out to me was the equipment rental revenue as a as a percent of total revenue or is are the rental terms and the businesses that Alliance have one monthly 2 to 3 months, or can they be longer or if you can't talk about that?

Yeah, no, it's more project based, and this equipment, if you think about what they do, which is a drilling oil and gas wells, but they also do geothermal mining, water wells. The equipment gets chewed up, used up pretty quickly.

So they they have a pretty high rental rate, and it usually is based on the project, 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 5 to 10 times before it's at the end of its useful life. So it's a little bit like a razor blade kind of business.

Thank you. And then, what if I mean on the on the table that you show that 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 talk about that?

Yeah, that's a similar facility. I mean we 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 million limit.

But it's based on borrowing-based 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 is headroom still remaining on that facility.

Perfect. Okay, thank you.

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

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.

Thanks for joining Star Equity Holdings first quarter conference call. So this call has been recorded and will be available on the investor section of our website www.starequty.com.