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spk00: Greetings, ladies and gentlemen, and welcome to the Star Equity Holdings, Inc. fourth quarter and year-end 2020 results conference call. As a reminder, certain statements made during this conference call, including the question and answer period, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal security laws. These forward-looking statements include but are not limited to statements about the company's revenues, costs and expenses, margin, operations, financial results, acquisitions, and other topics related to STAR's business strategy and outlook. These forward-looking statements are based on current assumptions and expectations and involve risks and uncertainties that could cause actual events and financial performance to differ materially. Risks and uncertainties include, but are not limited to, business and economic conditions, technological change, industry trends, and changes in the company's market and competition. More information about the risks and uncertainties is available in the company's filings with the U.S. Securities and Exchange Commission, including annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, as well as today's press release. The information discussed on this morning's conference call should be used in conjunction with the consolidated financial statements and notes included in those reports and speak only as of the date of this call. The company undertakes no obligation to update these forward-looking statements. In the earnings released today and in the comments, management remarks references to both GAAP results as well as adjusted results. The adjusted results are non-GAAP and do not include depreciation, amortization, I'm sorry, non-recurring charges. Also adjusted EBITDA which is non-GAAP measure that further excludes depreciation, amortization, interest, taxes, and stock-based compensation. Finally, free cash flow which is a non-GAAP measure taking operating cash flow and subtracting cash paid for capital expenditures. Management believes the presentation of the non-GAAP measures, along with GAAP financial statements and reconciliations, provide a more thorough analysis of ongoing financial performance. Investors can find the reconciliation results on a GAAP versus non-GAAP basis in the earnings release. If you do not receive a copy of the press report and would like one, please contact STAR at 203-489-7000. 9500 after the call or its investor relations representative, Lena Caddy, of the Equity Group at 212-836-9611. Also, this call is being broadcast live over the internet and may be accessed at STAR'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 Jeff Eberwine, Chairman of Star Equity Holdings, Inc.
spk01: Thank you, Operator. Good morning and thank you all for joining us today for our fourth quarter and year-end 2020 Financial Results Conference Call. On the call with me today are Matt Mulchin, CEO of DigiRad Health, and David Noble, our CFO and Chief Operating Officer. 2020 was a challenging but exciting year for our company. While our business experienced reduced revenue due to the COVID-19 pandemic, we made significant progress on our growth and value maximization strategy by improving operating and financial results at our building and construction division, and by announcing the sale of two assets in our DigiRad Health division for over $20 million, which are expected to close in Q1. Also, we rebranded the public company to better reflect our business strategy and structure. In the fourth quarter, our DigiRad Health division continued to be impacted by lower sales of new cameras and reduced camera rental activity levels due to the pandemic. Heading into 2021, however, our backlog of rental contracts has improved and is respected to return to normal levels as the year progresses. In 2020, sales of new cameras declined 59% versus 2019. Although sales of new cameras is expected to improve somewhat in 2021, it remains very dependent on capital decisions, capital spending decisions by healthcare providers. At our building and construction division, fourth quarter revenue improved 15% versus the fourth quarter of 2019 and also improved 15% versus the third quarter. Gross margins for this division were adversely impacted by an extreme increase in raw material prices. We increased our prices in January to offset these higher input costs, and our backlog remains very strong. We continue to expect margins in our building and construction division to improve over time, and we have made progress on our goal of substantially increasing our output capacity at KBS. Our plan there is to eventually increase our production to 15 to 20 modules per week versus the current run rate of approximately 7.5 per week, and we expect to make progress on this goal in 2021. In the first quarter of 2021, we have been focused on closing the sales of two pieces of our DigiRAD Health Division for over $20 million. The smaller deal for $1.3 million already closed, and we expect to to close the sale of DMS for $18.75 million by the end of March. With an estimated $18 million in immediate cash proceeds, we'll pay down some of our higher cost debt and fund high return internal growth investments. We'll also continue to explore acquisitions, which could be either bolt-ons for existing businesses or new platform companies, which would create new business segments for our holding company structure. With that, I'll turn it over to our healthcare CEO, Matt Mulchin. Matt, please go ahead.
spk07: Thanks, Jeff. Revenue from our healthcare division in Q4 2020 fell by 21.4% to $13.3 million over the same period in the prior year. This is due to a slowdown due to the COVID-19 pandemic. Although many doctor offices have reopened and hospitals are performing non-emergency procedures, Overall activity levels remain below pre-COVID levels. Gross profit for the Q4 2020 reporting period decreased by 45.4% and gross profit margin decreased by 8.6% over the same period last year due to lower revenue generated from high margin mobile scanning services and less camera sales. In diagnostic services, revenue and gross margin percentage for the fourth quarter of 2020 was 10.6 million and 16.3% compared to 12 million and 22.4% in last year's fourth quarter. The decrease in diagnostic services revenue and gross margin percentage compared to the prior year was primarily due to a decrease in testing days and scans resulting from the impact of the COVID-19 pandemic. In addition, non-GAAP adjusted EBITDA for diagnostic services decreased to 1.3 million from 2.1 million in the fourth quarter compared to last year's fourth quarter. This is mainly attributed to a decrease in revenue. In our diagnostic imaging business, revenue and gross margin percentage for the fourth quarter of 2020 was 2.7 million and 32.7% respectively, compared to 4.9 million and 42.4% respectively in the prior year fourth quarter. The decrease in diagnostic imaging revenue and gross margin was due to the slowdown of camera sales associated with capital funding delays and uncertainty due to the COVID-19 pandemic. Now I'm turning the call to Dave Noble, our CFO, who will provide additional financial highlights for the fourth quarter. Dave, please go ahead.
spk05: Thanks, Matt, and good morning. Now for a bit of more positive news. Fourth quarter 2020 Building and Construction Division revenue was $9.8 million versus $8.5 million in the fourth quarter of last year. Gross margins did dip a little bit to 13.6% versus 18.0% in the prior year. The increase in revenue is attributable to higher levels of business activity at KBS, our modular subsidiary, as we successfully reentered the commercial multifamily segment of the market. The decrease in gross margin percentage is attributable largely to Edge Builder, our structural wall panel business, as the sharp rise in lumber weighed on our profitability there in the fourth quarter. For Q4 2020, company-wide SG&A decreased slightly by about 0.6% compared to the fourth quarter of 2019, as we held the line on headcount and experienced slightly lower healthcare expenses. During 2020, we also experienced reduced costs from contracted services, as we realized the benefits of prior streamlining in the IT and HR areas in our DigiRAD Health Division. We did incur a non-cash charge to Goodwill of 0.4 million in Q4 2020 related to our edge builder reporting unit. Moving on to company-wide bottom line results for the fourth quarter of 2020, we had a net loss from continuing operations of 0.5 million compared to a net loss from continuing operations of 0.3 million in the same period in 2019. Non-GAAP adjusted net loss from continuing operations in the fourth quarter of 2020 was $1.6 million, or $0.34 per share, compared to an adjusted net income of $0.4 million, or $0.22 per share in the fourth quarter of last year. As a reminder, in Q2, we completed a public equity offering through the issuance of 2.5 million shares of common stock, including exercise of the over-allotment, which raised $5.5 million before fees and expenses. Concurrently, We issued warrants to purchase up to an additional 1.1 million shares, and some of those warrants were exercised during 2020. Therefore, per share amounts for the Q4 2020 period reflect the new common share count of 4.8 million shares. Non-GAAP adjusted EBITDA decreased to negative 0.7 million for the fourth quarter of 2020, compared to positive 1.2 million in the fourth quarter of last year, attributable mainly to the decrease in revenue resulting from the COVID-19 pandemic. For the fourth quarter of 2020, we had an operating cash outflow of 3.1 million and a free cash outflow of 1.4 million, compared to an operating cash inflow of 1.2 million and a free cash inflow of 1.4 million in the fourth quarter of 2019. As of December 31st, 2020, the outstanding balance in our credit facilities was 24.4 million, including 4.2 million in PPP funds which we fully anticipate will be completely forgiven in the coming months, and we've made further progress on that so far this year. Our overall net debt position, including $3.4 million in cash and cash equivalents, was $21 million. With that, I'll turn it back to the operator for questions.
spk00: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Tate Sullivan with Maxim. Please proceed with your question.
spk02: Hi. Thank you. Good morning. Just starting with your balance sheet, and adjusting going forward for the sale to close at the end of the quarter. It looks like your PP&E property and equipment balance declined meaningfully from 3Q to 4Q. Was the asset-intensive side of the mobile healthcare assets that you sold one of the main considerations of selling those, and does that hint at what you may look at going forward in terms of more asset-light businesses?
spk05: Yeah, I think it's a great question, Tate. Thanks. Yeah, so that change is almost solely due to the recharacterization of the mobile healthcare business into discontinued ops. Much of the rolling stock, in fact, most of the rolling stock that we have as a company is in that division. And as you point out, that's a much more capital-intensive business, given the nature of the equipment and the cost of that equipment to replace it. So, you know, we do prefer less capital-intensive businesses. You know, if you think about KBS, it requires a fair bit of working capital, but in terms of true capital intensity, it's much less than that mobile healthcare division that we're selling.
spk01: Same thing for our remaining healthcare business. The traditional Digirad health business is a low capital-intensity business.
spk02: And then once you finalize the larger sale at the end of this quarter and pay down, are you paying down mostly some of your more expensive longer-term debt, did you say? And can you just give us some indication on what that might do to your annual interest expense, or what will your balance sheet look like after that, or how much cash might you retain? And I know it's still subject to the timing of that close to.
spk01: Yeah, and so... The idea is to focus on the higher cost debt to lower our cost of capital. But the credit line we have on our healthcare division is tied to the collateral and we will be paying down a meaningful amount on that line as well just because the collateral is going to be a lot lower going forward. And we expect to retain some cash So we have some dry powder for our organic growth plans and also for acquisition opportunities.
spk05: Yeah, and it will significantly reduce overall interest costs. There is some higher interest debt that will be paid as part of that. But as Jeff points out, we need to pay some of the revolver, even though that's cheap debt, because it's linked to those assets.
spk02: Understood. Thank you. And you talked about the timing of hospitals to start to purchase cameras again. And maybe this is for you, Matt, too. How historic, I know it's tough with this current situation, but when might hospitals start to spend to install new cameras or how does the capital expenditure cycle usually work for hospital clients?
spk07: Yeah, yeah, absolutely. We, you know, traditionally, you know, we have, the majority of our cameras are sold in the third and fourth quarter. That's why we had such a big pullback as you compare the fourth quarter of 2019 compared to the fourth quarter of 2020. It kind of sits out there. We would tend to see that. We're starting to see things open up a little bit as the vaccine gets out there. We see a little bit more some pent-up demand for some of our cameras as we continue to work through this year. So we should see a more normal flow where we still are anticipating based on our discussions with our hospital customers that the third and fourth quarter, especially the fourth quarter, should open up a little bit more for us as COVID-19 hopefully and really you know, the uncertainties around it, you know, as things become more certain, um, you know, I think the budgets and, and, uh, the normal way of life is getting back, coming back to us. So, so we anticipate that, um, you know, we'll, we'll see some, some sales, uh, more normal like sales here in the first couple of quarters of 2021. And then, you know, really back to full normal by the end of the year.
spk01: Matt, maybe you could talk about the, um, the sales pipeline we have, and I know it's something we've talked about internally, sales of new cameras, are they canceled or are they just getting deferred because hospitals have so many other things going on?
spk07: Yeah, I mean, it's surprising we have not any cancellations. It's mostly deferments. And as, you know, as, you know, hospitals are directing people uh, their capital expenditures, um, more COVID related and, um, have put, have put, um, you know, the purchase of nuclear cameras on hold. Uh, but we haven't had, uh, many at all cancellations, um, and, uh, very few, um, but mostly, um, you know, more, you know, more, you know, those orders continue to be available and viable. And, uh, we, that's what we anticipate to have a stronger 2021 than 2020. you know, based on the conversations that we're having with our customers. So we anticipate that those orders that have not been canceled will go through the cycle again, the budgeting cycle, and cash will be allotted to pay for those cameras here as we enter into the second two quarters of the year. Okay. Thank you all for your comments.
spk00: Our next question comes from the line of Theodore O'Neill with Litchfield Hills Research. Please proceed with your question.
spk06: Thank you very much. I have two questions about the building and construction side of the business. In your prepared remarks, you talked about having adverse pricing in lumber, which impacted the edge builder, but you didn't say anything about KBS. Wouldn't they have the same issue?
spk05: They do, but if you think about COGS, The structural wall panel business at Edge Builder is really just two-by-fours, sheathing, and some labor. Really, the commodities are the majority of that COGS. At KBS, it's a more complex process, so there's more that goes into it. For one, there's a lot more labor. Also, the structural commodity lumber is only part of the materials cost. There's bathtubs and doors and windows and other value-added products, which are not as volatile. A couple of other things, I mean, when you think about single family homes, for example, which is half of what we do at KBS, we can win a project and price it and produce it within a month or two. So the exposure to commodity price risk is lower in that case. On the commercial side, we have some ability to push price increases, and we have proven that with the Tachi project that we did last year. When the third phase came, we were able to get a price increase to offset the increase in lumber. The structural wall panel business is a little different. Sometimes we sign larger contracts a few months before they actually get produced, and it's a little bit more challenging, although we're working on it, a little bit more challenging to pass along some of those price increases.
spk06: Okay, that's a great explanation. Thank you. And so now that it's warming up here in the Northeast, can you give us some outlook for construction business?
spk05: Yeah, I mean, I would say that You know, let's take KBS to start. Our plant, you know, a year ago was operating at sort of three or four units a week. We're somewhere between seven to eight, and I think as we overcome some operational challenges, we should be up in the sort of eight, nine, ten-ish area. You know, a year and a half ago, it was kind of a demand issue. We solved that. We restructured the sales force and hired a fantastic VP of business development. So we have really as much work as we want at this point. So it's not really an issue of demand. It's an issue of how fast we can get things through the plant. So our outlook is pretty good. I mean, I would say that we're operating right where we were the second half of last year. And again, I think we're going to actually increase the number of units per week slowly as we head into the mid-year. And as we've mentioned many times, we've contemplated and continue to contemplate opening a second factory to really shorten our lead times. I mean, our challenge right now is our lead times have expanded from a couple of months to more like four or five or six months. So we think the outlook on the KBS side is terrific. Also on the wall panels, like I say, that we're plagued a little bit with these commodity price increases, although we're selling projects now at this price, so that'll be helpful if prices come down. We have about a nine, I think it's about a $9 million commercial backlog at Edge Builder, which is the highest backlog we've had in the last couple of years since I've been involved. So I think the outlook's very good for construction. There's, you know, if anything, the COVID challenge is not demand. It's more supply. In other words, you know, we think there's a bit of a, you know, COVID-related chokehold on capacity to produce some of the materials that we need to produce the product, right? So not only are prices high, but there's a few things that are a little bit hard to get, and there's longer lead times on materials. But in terms of the demand side, people are nesting, right? So they're doing a lot of, you know, on the edge builder side, doing a lot of renovations of their homes, you know, decks, kitchens, et cetera, roofs, they're spending more time at home, they have more money that they're not spending traveling, etc. So the outlook, I think, for construction for the near to medium term is quite strong. The issue would be, you know, materials. But I think with vaccines rolling out the way they are, we expect that that supply chain is going to free up a bit as we enter the middle of the year. And on the housing side, you've seen, I mean, housing is strong, new housing. There's a lot of demand still for affordable housing. It's an area that we're very keen on getting involved in, and we've been doing some affordable housing projects. So we think it's very good. I mean, you know, it is a cyclical industry, but the outlook for us for 2021 for building and construction is very strong.
spk06: Great. One last question. Will the SG&A expense level change in any meaningful way once the sale of DMS goes through?
spk01: We think so. We know that there's a lot of noise in the numbers right now because since we had signed the sales contract to sell that business, it's in discontinued operations, but yet we haven't sold it yet, don't have the cash yet, and we're still running that business and we still own that business right up until the minute we don't. And so we do have some costs. associated with that business. And once it's sold, we do think there'll be some ability to be more efficient across our whole cost structure. But at the same time, we are looking at internal growth projects and we're looking at acquisitions. And so the idea is to have more scale more upside in what we're doing, and so this is just a moment in time when we're actually descaling, but I think the trend over time is going to be greater scale, greater cost efficiencies.
spk06: Okay, thanks very much.
spk00: Our next question comes from the line of Adam Waldo with Lismore Partners. Please proceed with your question.
spk03: Good day, and thanks very much for taking my questions. With regard to the pending mobile healthcare sale, I was encouraged by the fact that you classified it as a discontinued operation. Obviously, your commentary is pretty encouraging in terms of closing here by the end of the month. What milestones remain prior to closing that you can discuss at this point?
spk01: Yeah, it's really, and Matt can chime in here, too. You know, it's a complicated business and heavily regulated business. So when we announced the transaction at the first of November, we needed to get regulatory approvals. So that was one hurdle. And then the buyer who's in the business has been working on – really a new company that he's creating. He's already in the business, so he's combining his business with the business we're buying from us and then refinancing that whole entity. Some of that is bank financing and some of it involves some programs with some government entities and you can imagine that they've been pretty backed up. We've made a tremendous amount of progress. It's getting very close but there have been a lot of hurdles to get from announcement to close, and it's taken longer than we originally anticipated, but we believe we're getting very close.
spk03: And are you able to comment on the status of the buyer's financing? Is that all pretty much in place at this point?
spk01: We believe it is, yes.
spk03: Terrific. Okay. And then turning to the building and construction segment for my final line of questions, can you give us a quantification of the total businesses backlog now on a dollar value basis and maybe on a total projects basis if you have that handy versus at this time last year, just so we can kind of see how those compare given the constraints to production as the main factor here that's limiting the ability to complete projects faster?
spk05: Yeah, and that's a complicated question, especially the comparison, just because we're doing a much better job of quantifying that pipeline today than we were a year ago. But if we look at KBS, for example, we use a CRM program within NetSuite. And in terms of, I would say, identifiable sort of probability-weighted projects, we're in touch with over $50 million of business. Depending on how you weight it, and each salesperson has their own kind of way to weight that, that number's probably 15, 16 million. But it really doesn't speak to the whole level of activity that we're experiencing because we've got another, probably another 50 million of sort of what I would call prospects on top of that. And again, this is all New England. The other complexity there is our single family business, which is about half of what we do. Some of that never hits the pipeline because it comes in and gets produced and it goes out much shorter lead time. So that pipeline that I just cited is really our commercial side, and that's kind of half of our business. But versus a year ago, it's definitely significantly higher. Our challenge right now is, you know, we're in touch with a number of very large projects, and I would consider a large project anything from, you know, 30, 40, 50 boxes up to 200. Those, you kind of have to demonstrate that you've got the capacity to do those. So those kind of fall one way or another and can be, you know, really significant impacts to the top line. So I guess all of that is to say we have a significant pipeline. It's more than more than we can do with one factory, and again, we're contemplating whether we need to get that second one up and running to try to bring our lead times down.
spk01: Just to paint that picture a little bit, historically, KBS's backlog has been typically 15 to 20 million. That's not probability weighted, and we've talked about it being more like 50 million now, and so that's huge growth versus last year at this time. We don't have an exact number for exactly where it was at this time last year. But we needed capital to fund the working capital needs for some of the big projects that we were on the cusp of winning, which is why we did the offering in the spring of last year. And then right when that offering was done, we announced a string of several big projects projects, and one thing that I think is helpful is that we have executed on those projects, produced those projects, and so now they're out of our pipeline, but yet our pipeline is still the same, so that tells you that we've replaced those projects with new ones, which we find really encouraging.
spk05: You know, on the edge builder side, I mentioned on the commercial side, we have about a $9 million pipeline. Or backlog. That's a backlog number. The pipeline's larger than that considerably, but we know that the pipeline of executable projects today is about 9 million. And also, a good portion of that business, about a third of that business, is retail sort of professional builders coming into our lumberyard and ordering materials. A little bit of a slow start maybe to the beginning of this year, but we expect that's going to that's going to be a pretty robust business given the outlook for construction. So, you know, all in all, I think we're, we're pretty happy with the, the pipelines.
spk03: And finally, just on that same segment, how sensitive do you all feel based on your analysis that segment is overall to volatility of sort of longer term interest rates that we've been seeing in the capital markets in recent weeks?
spk01: I'll try to take a stab at that. There's, There's the cyclical and the secular. So on the cyclical side, housing starts, I think everybody knows, were incredibly high before the global financial crisis in 08, 09, and then went really, really low. And we've spent 10 years below normal levels, and we've just gotten back to right around normal. So my point is it's a very different situation than the situation in 2004, 2005, and 2006, which were really peak bubble type situations. So there's a zone where volatility in interest rates doesn't really matter that much. You know, interest rates, if they go from 1% to 2%, I really don't think that matters at all. If they go to 5%, that is a really big change. It can be a cyclical business, but just putting that on the shelf for a second, we strongly believe in modular. We think modular is going to gain share over time. In both of our businesses, we're a very small fish in a very big pond. If modular is going to grow at share and if we're able to grow our share, we'll have plenty of projects to do to ride out those cycles. said a different way, like KBS, there's a lot of different things we can produce. It's not just single family houses or multi-family houses. We historically have also done dorm rooms. There's a lot of retail applications that could be relevant in terms of chains and hotels and things like that. So, Modular has a lot of applications. And the goal is to grow that business and diversify that business over time so that even though it's in a cyclical industry, we won't be as impacted as we would otherwise be.
spk03: That's extremely helpful perspective. Thanks. Have a great coming out of COVID period. Thank you. Thank you.
spk00: Our next question is a follow-up from Tate Sullivan with Maxim. Please proceed with your question.
spk02: Thank you. I think you just answered it, but earlier you mentioned 50 New England prospects for KBS zeroing in. I think, remind me, currently in your book of business, is it mostly the large orders or military bases or VA hospitals? Can that continue to be a large portion? Say again?
spk01: $50 million, just to be clear, what we've talked about in terms of In our presentations, we've talked about having 50 million of a sales pipeline.
spk05: Yeah, and I wouldn't say that we're targeting government projects, although we have done them, as you suggest. But if you consider the two commercial projects we did last year, one of them was for veterans housing, but it was actually a privately funded project, and the owner of the facility was targeting veterans because he'd get some rent contribution from the state, et cetera. But that was a private project even though it was targeting veterans. The other project for the Tachi building did or is doing that we're almost finished with, that's a much larger project. It happened to be a military base and it was housing for officers primarily. But we, you know, most of these projects actually are going to be more privately funded. I mean, we are doing some affordable housing in Vermont where we're doing some single box structures. We've already shipped three or four of those over to replace what was HUD housing in really kind of trailer parks. But we were able to develop a zero energy modular that is a better replacement than putting another HUD type product there. So, you know, we're really looking at all the kinds of different opportunities that meet our sort of gross margin objectives but I would say most of our projects are going to be private projects and the only the only other one other thing I wanted to mention as a follow-up to the last gentleman's question I mean when it comes to commercial modular and again we do both single-family and multifamily but when it comes to the multifamily side our competitors in New England are really too small to service that market because when you're doing 50 to 100 boxes I mean if you can only produce six or eight a week it just ties up your factory for a significant amount of time. So we have some competition from Pennsylvania, and there was some competition from Canada, specifically RCM in Canada. And they've had some issues because of the distance to travel from Canada into the Boston-based market. So I think we actually have a really great strategic location. And the fact that we have a second factory that we can bring online really puts us, I think, as the only bona fide you know, multifamily producer in New England. And, again, that's not to say you can't produce outside New England and ship into the Boston area, but we have quite an advantage being 100 miles from Boston as opposed to some of our competitors that are 300, 400 miles. These things are, you know, 30,000 pounds apiece, and they're not cheap to transport.
spk02: Okay, thank you. Yeah, it was mainly just you gave the context to that pipeline of opportunities. Thank you. Thank you.
spk00: As a reminder, if you would like to ask a question, press star 1 on your telephone keypad. Our next question comes from a line of Jeff Kobielars with Diamond Bridge Capital. Please proceed with your question.
spk04: Hi, good morning, guys. I'm just curious if you could help us out with the breakdown in building and construction, the $29 million of revenue last year. Can you say how much was KBS, how much was Edge Builder, and Glenbrook?
spk05: It was almost exactly 50-50. And, you know, historically, Edge Builder, in recent history, Edge Builder was kind of two-thirds and KBS one-third. But KBS is growing faster. There's more growth opportunity there. So I think you're going to see that, you know, flip over time. KBS will be larger than Edge Builder. I mean, we hope to grow them both, but the growth rate is much higher at KBS.
spk04: Okay. All right. So then KBS was down last year.
spk05: Nope. KBS did about $12 million in revenue in 2019. And, again, it's about half of last year. But keep in mind that in terms of weeks worked, we only worked 46 weeks last year. So if you adjust for weeks worked, we grew about 35%. Okay. On an absolute level, I think more like 20%, but 35% if you take out the six weeks that the factory was shuttered.
spk04: Right. Okay. And so with your pipeline backlog, the $50 million, just given the run rate, if you're at 7.5 per week, that's $50,000 each box. That's $19 million or so. So that's why, obviously, you want to double your output to get to... you know, near $40 million of annual revenue. Yeah. Be able to fulfill your backlog within a year.
spk05: Yeah, I mean, that backlog, though, yeah, no, you're right. I mean, we would love to double our production levels, but you're right on the numbers. If we're between seven and eight a week, we'd love to get closer to eight to ten a week on that factory. ASPs are around 50,000. We're actually experiencing a bit higher than that. And I think, depending on the projects we choose, that that may actually go up a little bit. I don't think it'll be 60, but it'll be somewhere in the mid-50s. But then we have a second factory. So we're evaluating, do we do single family maybe in one and multifamily in the other? These boxes are, our product is much more diverse today than it was three, four years ago. When you're doing single family ranches, those are kind of carbon copies of each other. We're now doing passive homes and multifamily and single family. So we're trying to figure out and making some good progress with some consultants, et cetera, to how to optimize things so that we can, you know, maximize or optimize our throughput.
spk04: Right.
spk05: But your numbers are right. I mean, if you figure eight to 10 a week, 50,000 a piece, you're right on the revenue. There's a little bit of ancillary revenue that we do charge some gross margins. So there's some shipping and stamps and other things, revenue. So you can add about, I don't know, 7% or 8%, I think, to the box revenue for other revenues. But those numbers are roughly accurate.
spk04: Okay. And the gross margin, 14% for building and construction in both the third quarter and fourth quarter. Any comments you can make about how we could see that going forward?
spk05: It's... It's a blended average. I mean, that's both businesses. As I mentioned, the commodity price rise hurt the gross margin line at Edge Builder more. At KBS, our pricing discipline is good. There's a lot of demand for our product. We're pricing things anywhere from, say, 20% to 30% gross margin. So the average is probably low to mid-20s on the gross margin basis. So that's obviously being diluted a little bit by some of the projects at Edge Builder. But our goal is to push that gross margin as close to mid-20s at KBS as we can, and I'm not promising we can do that, but we're seeing a lot of projects in that range, and that's kind of our goal.
spk01: And on the business model, and this is somewhat what I was referring to when I was talking about scale earlier in the call, If we can double our output and get that gross margin up to at least 20%, we don't think the SG&A for that business would increase very much at all. And so the benefits of economies of scale there would be very significant.
spk04: Right. All right. Thanks very much for your help.
spk01: Thanks for your questions.
spk00: Thank you. We have no further questions at this time. I would now like to turn the floor back over to management for closing comments.
spk01: I'd like to thank David and Matt for joining on the call and also thank our team. We have across all of our businesses, we have a very dedicated team of employees, everything from frontline workers in our healthcare business who went to work every day and serve patients even in the face of COVID, and also workers who came to the factory to produce product to serve people, despite the difficulties of doing so during COVID and social distancing and all that. So I want to thank all of our teammates. And Dave, Matt, and I are always available to take your call and discuss any additional questions you have. So please feel free to reach out. and we're going to continue to talk about our company with existing and potential investors in the coming weeks and months. We're scheduled to present at the Maxim Conference on March 18th and the Sedoti Conference in mid-May, and we appreciate your questions and your feedback and your support. Thank you very much.
spk00: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
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