管理層發言
Greetings, ladies and gentlemen, and welcome to Star Equity Holdings Second Quarter 2025 Results Conference Call. Please be advised that the 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's most recent 10-K, 10-Q and other filings for a more complete description of risk factors that affect these projections and assumptions. The company assumes no obligations to update forward-looking statements as a result of new information, future events or otherwise. Please note that on this call, management will refer 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 month. If you did not receive a copy of the earnings release and would like one after the call, please contact Star Equity at (203) 489-9500, or its Investor Relations representative, Lena Cati of the Equity Group at (212) 836-9611. Also, this call is being broadcast live over the internet and may be accessed at the Star Equity's website via www.starequity.com. 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 of Star Equity. Please go ahead.
Thank you, operator. Good morning, everyone. We appreciate you joining us for our second quarter 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. Before we open the floor to questions, Jeff will also discuss recent corporate milestones. Our second quarter revenue increased 76% over the second quarter of 2024, driven primarily by organic growth from our KBS business and the inclusion of Alliance Drilling Tools acquired in March this year. The inclusion of a full quarter of Timber Technologies revenue, which we acquired in May 2024, also contributed to the increase. Gross margin improved to 26% versus 16% in the same quarter last year, mainly due to higher revenues as well as the inclusion of Alliance Drilling Tools and Timber Technologies which are two of our higher-margin businesses. Building Solutions division revenues increased by 51% to $20.4 million compared to $13.5 million in the same quarter last year, primarily driven by increased KBS revenues and the inclusion of a full quarter of Timber Technologies revenues. Overall, we've seen a significant uptick in customer interest in construction activity over the past few quarters. Our Building Solutions backlog representing orders under contract remained strong at $25.7 million at quarter end compared to $14 million at the end of the second quarter of 2024. This gives us high confidence in division's full year 2025 outlook and positions us well for a strong start to 2026. In our Energy Services division, the integration of Alliance Drilling Tools, or ADT, is continuing smoothly. Despite macroeconomic headwinds, including rig count declines, ADT generated $3.3 million in revenue and $0.5 million in non-GAAP adjusted EBITDA. We're pursuing ADT's organic growth opportunities and also studying potential high-quality acquisitions to strengthen the division. Now I'll turn the call over to Dave Noble, our CFO to provide additional second 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 Q2 2025, gross profit was $6.3 million, up 182% versus Q2 of '24, driven by increased revenue at KBS as well as the addition of TT and ADT to our portfolio of companies. SG&A increased by $1.1 million or 20% versus Q2 of '24, driven largely by the inclusion of SG&A from ADT and to a lesser extent, the inclusion of a full quarter of TT as well as increased expenses related to M&A activity. SG&A as a percentage of revenue decreased to 27% compared to 40% in the second quarter of last year. Moving on to bottom line results for Star Equity. We reported a positive net income from operations of $3.5 million in Q2 of '25 compared to a net loss from operations of $3.8 million in Q2 '24. Non-GAAP adjusted net income from operations in Q2 was $6 million or $1.87 per share compared to an adjusted net loss of $0.9 million or $0.29 a share in Q2 of '24. Non-GAAP adjusted EBITDA from operations was a positive $7 million in Q2 versus an adjusted EBITDA loss of $0.5 million in the same period last year, primarily driven by realized gains on securities in our Investments division. Consolidated cash flow from operations for the second quarter of '25 was an outflow of $1.7 million versus an outflow of $1.9 million in the second quarter of '24. Six-month 2025 cash flow from operations was an outflow of $1.1 million compared to an outflow of $4.3 million for the six months of 2024. The operating cash flow improvement is attributable to more favorable results from operations, particularly in our Building Solutions division and also strong accounts receivable collections. It is also worth noting that subsequent to the quarter end, in early July, our large $6.7 million Receivable for Brokers was converted to cash and will, therefore, be cash flow in the third quarter of 2025. At the end of the second quarter, our consolidated unrestricted cash balance stood at $1.9 million compared to $4.0 million at the end of 2024. This 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 and public equity securities at the end of the quarter amounted to $1.8 million versus $3.4 million at the end of 2024. Our rollover equity investment and seller note receivable from the sale of Digirad to Catalyst Medtech in May of 2023 were valued at $1 million and $8.6 million, respectively. Now I'd like to turn the call back over to Jeff for some additional remarks.
Thank you, Dave. I'd like to expand on two major milestones that occurred during the quarter. First, in our Investments division, Star Equity's $5.8 million in adjusted EBITDA was driven by a $5.5 million realized gain from Star Equity Funds investment in Servotronics which was acquired by TransDigm at the close of Q2. The 300% premium to where the stock was trading pre-announcement. This marks a significant milestone and watershed win for Star Equity Fund, the public investments arm of our Investments division. This outcome underscores our ability to identify and execute on high-value opportunities that generate meaningful returns to our stockholders. Second, in May 2025, Star Equity entered into a definitive merger agreement with Hudson Global. While the transaction remains subject to shareholder approval, with shareholder meeting scheduled for August 21, the combined entity is expected to generate considerable value for stockholders due to increased scale, further diversification of revenue streams and elimination of redundant public company costs. We urge our shareholders to vote for the merger on August 21. Our existing businesses are also performing well. We're encouraged by the recent momentum we're experiencing at our Building Solutions division, new growth opportunities at our Energy Services division and the value we're creating in the Investments division as well as the progress we're 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'll continue to identify additional accretive acquisition opportunities at all our divisions. Now I'd like to turn the call over to the operator for questions.
分析師問答
The first question comes from Tate Sullivan with Maxim Group.
Can you talk about which division on the Star side has the best pricing power, if you can compare in that way. I know Alliance Drilling Tools, maybe it's a market share gain versus Building Solutions. Can you single out a single business that has very good pricing power currently, please?
Rick, why don't you take that?
Yes, I'll address that, Tate. Thank you for the question. What we found is that when there's volatility in the lumber market, our Building Solutions division has the opportunity to either maintain prices when lumber prices are declining, or, to some extent, raise prices to keep up with lumber price increases. As you know, we've talked about this in the past. We also have a number of different methodologies in place to ensure that we manage the price of a particular job with input from our customers as to how they want to control the purchase of materials and whether they want them purchased before the job is done at a predetermined price or at an earlier point in time. So that's the general story for the Building Solutions division. What we've seen so far is very little restriction on our ability to gently raise prices in the Energy Services division, and we've been doing that as we determine the relationship that we have with our customers and also increase our supply of more, I'll call them, more in-demand tools that they need for their drilling operations. So in general, as long as we don't get too carried away, I think we've got the opportunity to raise prices as the market for raw materials increases as well.
And regarding the planned merger, depending on the outcome and if, provided the positive shareholder vote outcome, will you plan to close the merger as soon after the vote or there are some contingencies after the vote?
Yes. That's the plan, Tate. It would be as quickly as we possibly can. The last hurdle at this point is getting the shareholder vote, which is, both companies are meeting on the 21st.
Next question comes from the line of Michael Mathison with Sidoti & Co.
A couple of questions from me. Let's go back to Energy Services. It kind of caught my attention that you feel you're able to put through price increases in that division. Many energy servicing companies have been reporting declining revenue, pressure on pricing, do you think you're standing out in that way?
Yes, Michael. To start, ADT maintains a very high level of service, and many of the tools they rent are essential and represent a small portion of the overall cost of drilling a well. There are various tools required for their operations. We have been selectively restocking some of their most sought-after tools, which has helped us enhance utilization and increase market share. We have experienced some pricing pressure in the market for more common tools, where demand has dropped, leading to an oversupply. However, there are still several tools with very high demand, which Rick mentioned earlier.
That's exactly what I was going to say, Jeff. We've got two scenarios, one is when the only tools we have available for a particular customer are more commodity-based tools, then yes, there's a lot pricing pressure. So part of our strategy is to increase the number of tools that we have that are more in demand and, to some extent, harder to come by so that when we get the call from a customer, we can meet their needs regardless of what they are.
Great. Makes sense. Let's turn to Building products. To start with, let me just clarify. In your release, you mentioned that you had won several large commercial contracts. Are those commercial in the sense that they were multifamily? Or is this actually away from the residential space?
There's a mix of a little bit of everything in the backlog at this point. And it's encouraging to see that some of the pent-up demand that we expected to be close has been over the last few quarters. And that's what's got us excited about the backlog and the number of opportunities that we see. And by the way, those are really solid opportunities where we have signed contracts and pretty substantial positives.
And Michael, this is Jeff. I want to add that at KBS, we have a policy of issuing a press release for any large projects, which we define as $2 million or greater. If you look back at all the press releases from the past year, you'll notice that we have started to get some of those delayed projects moving, which Rick mentioned. There were several press releases last fall and earlier this year about projects we secured. The first step is winning the project and getting the signed contract, which then goes into our backlog. After that, we begin production, and it eventually reflects in our revenue. The final step is recognizing profit, which can sometimes be back-end loaded.
I'll look up those releases. However, from a broader perspective, it seems to me that you are somewhat defying the trend, especially with all the reports about challenges faced by home builders. What makes you think you are distinguishing yourself?
Go ahead, Jeff.
You go ahead, Rick.
To some extent, it's influenced by the territory we serve. In the Northeast, particularly around Maine and the surrounding area where we usually deliver, there remains a significant shortage of affordable residential housing. We have been able to capitalize on that. Additionally, we believe we are capturing a substantial share of the market from traditional stick-built construction. We are collaborating with partners with whom we have had great success, and both they and their customers are becoming more comfortable with what KBS can offer, which is helping us create opportunities and fill the backlog.
Well, excellent news again. So looking forward, we have the shareholder vote coming up next week. Of course, we'll have to see how the shareholders vote. But assuming the merger goes forward, as an analyst, I want to be modeling the combined companies. Anything you can say in the way of guidance on Q3 in Q4 that will help you get off the ground there?
Michael, this is Jeff. We stopped providing formal guidance before COVID. While we don't give formal guidance, looking at each division, we're confident in the Building Solutions outlook for the next few quarters and expect it to at least match what we achieved in Q2. The same goes for Energy Services. Regarding the new Hudson business, which we're calling Business Services, we believe it has moved past its lowest point. We have seen three consecutive quarters of increased year-over-year revenue and EBITDA, and we anticipate that trend will continue. As for the combined corporate costs of the two companies, we believe we can eliminate $2 million in redundant public company expenses and corporate overhead. This won't happen immediately but should be fully realized within a few quarters, certainly by the end of the year. I hope that helps.
Next question comes from Theodore O'Neill with Litchfield Hills Research.
I would like to know about the $4.9 million of Other income in the quarter. Does that include the $5.5 million, Jeff, you talked about the realized gains?
Yes, it does.
Okay. I'm curious about the dynamics related to the popularity of prefab versus stick-built construction. Based on my experiences in New England, the prices for stick-built buildings are quite high. I'm wondering if there are specific factors affecting prefab construction that contribute to its success, beyond just tariffs.
Rick, why don't you take that one?
Yes, absolutely. It's important to note that when we construct a modular home or a larger building in a factory, the quality is generally improved due to the controlled environment. Materials are less prone to damage from weather and other influences, and we have a dedicated team that typically experiences lower turnover compared to on-site construction crews. This results in quality benefits, timing efficiencies, and the ability to work during adverse weather conditions, all of which have played to our advantage. Our growth is also influenced by the increasing demand for housing and overall construction in the area. Currently, we represent a small fraction of the total construction in the Northeast. As more of our partners and builders become accustomed to modular construction, it will create additional opportunities for us.
And does it necessarily mean that you've got lower waste because instead of throwing stuff through the dumpster at the job site, you might save it to use it for some other job?
Absolutely. I don't know how much of it gets used for other jobs exactly. But yes, you're right. There is much lower waste and a higher quality construction process.
One small example that I would give you on that is our factory in Maine doing the prefab, of course, there's going to be small pieces of wood that are left over after we've finished constructing a module. We use those small pieces of wood to heat the factory.
This concludes our question-and-answer session. I would like to turn the conference back over to Rick Coleman for closing remarks.
Thank you, operator. Thanks for your time today. We appreciate your interest, and I always appreciate your feedback and support. So don't hesitate to contact us at any time. We're excited about the business, and we're excited about the steps we're taking on your behalf, and we look forward to updating you as our story develops.
Thank you for joining the Star Equity Holdings Second Quarter Conference Call. Today's call has been recorded and will be available on the Investors section of our website, www.starequity.com.