Release Date: May 20, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Star Equity Holdings Inc (STRR, Financial) completed the acquisition of Timber Technologies, expanding its Building Solutions division.
- The company has a strong sales pipeline and signed backlog, indicating sustained demand.
- Star Equity Holdings Inc (STRR) maintains a strong balance sheet with $14.7 million in unrestricted cash as of March 31, 2024.
- The Timber Technologies acquisition is expected to improve the company's overall financial position due to its history of profitability and strong cash generation.
- The company is focused on creating shareholder value through targeted business development initiatives and disciplined accretive acquisitions.
Negative Points
- First quarter 2024 revenue decreased by 26.1% compared to the same period in 2023.
- Gross margin dropped significantly from 34.6% in Q1 2023 to 17.3% in Q1 2024.
- The company reported a net loss from continuing operations of $2.2 million in Q1 2024, compared to a net breakeven result in Q1 2023.
- Non-GAAP adjusted EBITDA from continuing operations was a loss of $1.1 million in Q1 2024, down from a positive $0.8 million in Q1 2023.
- Consolidated cash flow from continuing operations for Q1 2024 was an outflow of $2.4 million, compared to an inflow of $5.1 million in Q1 2023.
Q & A Highlights
Q: Rick, the quarter seems self-explanatory. Could you talk about the synergies between Timber Technologies and the other components of Building Solutions? Also, is this acquisition helpful on the East Coast, or is it limited by shipping constraints? And could you discuss the financing for it as well?
A: Shipping the product from Wisconsin to the East Coast is probably not the best approach. However, we have an expanding group of talented executives in our Building Solutions division, and we are exploring various alternatives, including expanding our glue-laminated wood business. Regarding financing, we used a combination of our cash reserves and a $7 million acquisition term loan from Bridgewater Bank, which has a five-year structure at a 7.85% rate. (Richard Coleman, CEO; David Noble, CFO)
Q: Can you clarify if the Engineered Wood Products (EWP) label applies to what you already do at KBS and Edge Builder, or is it a different consideration with Timber Technologies?
A: EWP is a different sector from what we currently do at KBS and Edge Builder. While there may be some overlap in the future, Timber Technologies represents a new and growing sector for us. (Richard Coleman, CEO)
Q: What is the manufacturing process for glue-laminated timber, and what kind of facility does Timber Technologies have?
A: Timber Technologies has a very impressive and large facility. The primary inputs are lumber and glue, but the process of combining these to build structural wood products is sophisticated. The company has built a successful business over the years with a dedicated and talented team. (Richard Coleman, CEO)
Q: Is Timber Technologies' facility one large facility, or are there multiple facilities involved?
A: It is one large facility. The subsequent real estate transaction is for the 69,000 square foot facility. (Richard Coleman, CEO)
Q: Regarding the financing environment, are you seeing any competition willing to take lower prices, or is it purely the pipeline being pushed out due to financing availability?
A: From our intelligence, everyone in the industry is experiencing similar issues with financing taking longer and costing more. This delay in financing has a significant impact on our quarterly results. (Richard Coleman, CEO)
Q: Can you provide more details on the financial impact of the Timber Technologies acquisition?
A: Timber Technologies reported unaudited revenue of $18.8 million and adjusted EBITDA of $5.5 million for fiscal year 2023. On a trailing 12-month pro forma basis, Timber Technologies would have represented roughly one-third of our Building Solutions division revenue and over half of the division's EBITDA. (Richard Coleman, CEO)
Q: How does the acquisition of Timber Technologies fit into your overall growth strategy?
A: The acquisition is a significant step in our growth strategy, exemplifying our focus on expanding and diversifying our revenue base. Timber Technologies' profitability and strong cash generation are expected to improve our overall financial position. (Richard Coleman, CEO)
Q: What are the future opportunities and market potential for Timber Technologies?
A: Timber Technologies operates in the engineered wood products industry, which is experiencing increasing adoption due to its superior strength, durability, and environmental sustainability compared to traditional building materials. We believe this market is poised for long-term growth and consolidation. (Richard Coleman, CEO)
Q: Can you discuss the impact of economic headwinds on your first quarter results and your outlook for the future?
A: Our first quarter results were weaker than expected due to economic headwinds, particularly in our Business Solutions division. However, we believe the impact is temporary, and there is strong demand for new construction in the markets we serve. Our sales pipeline and signed backlog remain roughly equivalent to historical averages. (Richard Coleman, CEO)
Q: How does the sale of your healthcare business impact your current financials and future strategy?
A: The sale of our healthcare business, Digirad Health, is now reported as part of our discontinued operations. This allows us to focus on our continuing operations, which include our Building Solutions and Investments divisions. The sale has strengthened our balance sheet and liquidity, enabling us to pursue targeted business development initiatives. (David Noble, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
