Star Equity Holdings, Inc. Q3 FY2024 earnings call

• Revenue in Q3 2024 increased 30.9% over Q3 2023, driven by acquisitions and recent project announcements. - Gross margin declined 0.5% due to fixed costs despite revenue changes at some segments. - Building Solutions shows signs of recovery with new large projects in Maine and improved backlog. - Investments division diversified via investment in Enservco, entering new sectors. - Acquisitions of Big Lake Lumber and Timber Technologies integrated successfully and are performing as expected.

The company has two operating divisions: Building Solutions and Investments. In Q3 2024, Building Solutions saw revenue increase driven by acquisitions like Timber Technologies and Big Lake Lumber. Gross margin declined by 0.5% due to fixed costs remaining constant while revenue declined at some segments. The Investments division announced diversification into energy services and transportation/logistics via investment in Enservco. Revenue contribution: Building Solutions had ~$14 million in Q3, with contributions from modular, EdgeBuilder (including Big Lake acquisition), and Timber Tech. Investments division had holdings in public equity securities totaling $3.2 million at quarter end.

• Expect improved financial results for current quarter and FY2025 due to increased activity in Q4 and positive outlook. - Confident in leveraging market reputation as a reliable partner to drive growth as construction sector regains strength. - Focus on profitable growth opportunities and identifying additional accretive acquisitions at both divisions.

• Macroeconomic uncertainties like higher interest rates and economic uncertainty impacting business activity. - Potential impact of tariffs on imported lumber, though business is structured to handle price changes through contracts and hedging. - Market volatility affecting public equity holdings in the Investments division.

Q: Thanks very much. Rick, my first question is on the improved outlook. We had a couple of quarters of things getting sort of pushed out. Is the improvement here, those older issues -- those older things getting pushed out coming back in or is this new business or some combination of the two?

A: It's both. Seeing new business coming in and older deals that were delayed now coming to fruition as conditions improve Q: And for Dave, the impairment cost of $2.8 million recorded in SG&A, should we expect more of that? And how much is left to write down, if any?

A: We don't anticipate further write-downs although it could happen. The equity investment in TTG was written down, but max write-down on equity is 1.9% and debt piece not expected to be written down further Q: Right. That's helpful. Thanks, Jeff. I know this is going to be probably hard to gauge, but if we end up with the new administration putting tariffs on everything, how much of the business is exposed to imported lumber products?

A: We don't buy much imported lumber, but market would be impacted. Business is structured to hedge bigger projects and pass price changes through contracts Q: Yes. And would you be able to have it in your contracts, so those prices change, you could pass that on?

A: Yes. We have pushed risk to client side with options like fixing price, openers for price revision, or hedging on client's behalf Q: Thanks, Rick. To start with about $14 million of revenue in the quarter in Building Solutions, can you give a little context around what was in there? Was it, I mean, how many projects or type of projects, if you can share that?

A: Revenue in Building Solutions came from modular, EdgeBuilder (including Big Lake acquisition), and Timber Tech. Wall panels were slow on Edgebuilder side, but professionally driven retail distribution and Timber Tech contributed. KBS has variability with large projects, and we expect increase in revenue, especially at KBS, in future quarters Q: And related to that, Jeff, the order announcement, the $5 million project indication that you called out receiving deposits on that, is that a normal course of business for KBS to get deposits or is it part of the negotiation?

A: It's normal for larger commercial projects; deposits are ~10% of project value and nonrefundable, used for material purchase and project initiation Q: And last for me is the sequential -- the quarter-over-quarter improvement in the margins, I mean, EBITDA and both gross profit went from 16% to 21%. Was that project -- can you call out anything specific or was it across the three businesses that you indicated earlier for the increase in revenue?

A: Full quarter of Timber Technologies in Q3 compared to partway in Q2, and Timber Technologies is a steady business with higher margins, contributing to the margin improvement across businesses