Star Equity Holdings, Inc.

Q1 2021 Earnings Conference Call

5/14/2021

spk00: Greetings, ladies and gentlemen, and welcome to the Star Equity Holdings, Inc. First Quarter 2021 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 securities 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 change, trends, and changes in the company's market and competition. More information about risks and uncertainties is available in the company's filings with the United States 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 as well as today's press should be used in conjunction with 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 release today and its comments, management makes reference to both GAAP results as well as adjusted results. The adjusted results are non-GAAP and do not include non-recurring charges. Also, adjusted EBITDA, which is a non-GAAP measure that further excludes depreciation, amortization, interest, taxes, and stock-based compensation. Management believes the presentation of these non-GAAP measures along with GAAP financial statements and reconciliations provide a more thorough analysis of ongoing financial performance. Investors can find the reconciliation of results on a non-GAAP versus GAAP basis in the earnings release. If you did not receive a copy of the press release and would like one, please contact STAR at 203-489-9500 after the call, or its Investor Relations Representative, Lena Caddy, of the Equity Group at 212-836-9500. 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 be available on the company's website. It is now my pleasure to introduce Jeff Everwine, Executive Chairman of STAR.
spk04: Thank you, Operator. Good morning and thank you all for joining us today for our first quarter 2021 results conference call. On the call with me today are Matt Mulchin, CEO of DigiRad Health, and our CFO and Chief Operating Officer, David Noble. In the first quarter of 2021, our healthcare division continued to be impacted by the COVID-19 pandemic, with revenue declining slightly versus the prior year quarter. However, we continue to see activity levels rebounding steadily towards normal levels. Our construction division grew revenue 65% with much of the growth attributable to significantly increased output at KBS. Gross margin percentage at our construction division declined as a consequence of rising raw material prices, but is expected to return to more normal levels in the coming quarters. During the first quarter of 2021, The company completed the sale of DMS Health Technologies business unit for $18.75 million, and we completed another small sale for $1.4 million. The asset sales in Q1 substantially improved our balance sheet and liquidity position, with net debt decreasing from $20.4 million a year ago to $13.5 million at the end of Q1. We are now better positioned to fund high-return internal growth investments and pursue acquisitions, which could be bolt-ons in healthcare or construction or entry into a new business sector. We continue to execute on our Holdco growth strategy and value enhancement initiatives to maximize shareholder value. Our Holdco structure allows division CEOs to focus on operations and organic growth while Holdco Management focuses on corporate strategy and capital allocation. In addition to looking for attractive bolt-on acquisitions for existing operating businesses, we're also looking to create new business divisions in the future through the disciplined acquisition of businesses complementary to our Holdco structure. With that, I'll turn it over to our healthcare CEO, Matt Mulchin. Matt, please go ahead.
spk05: Thanks, Jeff. Revenue from our healthcare division in Q1 2021 fell by 2.7% to $13.3 million over the same period in the prior year. Although Q1 2021 revenues for the healthcare division decreased slightly from Q1 2020, this division has largely recovered from the COVID-19 pandemic-related downturn and is now performing at near pre-pandemic levels. However, Even though doctor offices have reopened, they are not yet operating at full capacity. But as state-by-state vaccination levels increase, we expect to see our operations fully return to normal levels later this year. Gross profit for Q1 2021 reporting period decreased by 9.6%, and gross profit margin decreased by 1.5% over the same period last year. Although revenues only decreased by 2.7%, gross profit declined by a higher percentage due to certain fixed costs related to employees, insurance, rent, utilities, and repairs and maintenance expenses. In diagnostic services, revenue and gross margin percentage for the first quarter of 2021 were 10.2 million and 15.7% compared to 10.8 million and 18.5% in last year's first 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 continuing impact of the COVID-19 pandemic. In our diagnostic imaging business, we did see early signs of improvement. Revenue and gross margin percentage for the first quarter of 2021 was 3 million and 32.3% respectively, compared to 2.9 million and 30.4% respectively in the prior year first quarter. The increase in diagnostic imaging revenue and gross margin is a good indication that the slowdown of camera sales associated with capital funding delays and uncertainty due to the COVID-19 pandemic is easing up. Now I'll turn the call over to David Noble, our CFO, who will provide additional financial highlights for the first quarter. Dave, please go ahead.
spk09: Thank you, Matt, and good morning. I'll first mention results for our construction business, which now accounts for 40% of our consolidated revenues. For the first quarter of 2021, the construction division revenue and gross margin were $9 million and 6% respectively, compared to 5.5 million and 7.3% in the prior year first quarter. Much of this increase in revenue was due to the increased utilization at our primary production facility at KBS in Maine, and that was due to our reentry into the commercial scale residential modular market during 2020. The slight decrease in gross margin percentage was due to the adverse effects of higher raw materials prices, which offset the benefit of higher output levels. For Q1 2021, on a company-wide basis, SG&A increased by 3.9% compared to Q1 2020, This was due to a $0.3 million increase at the construction business as a result of increased commissions and headcount offset by $0.1 million in reduced travel expense in the healthcare division. Moving on to consolidated bottom line results for the first quarter of 2021, we had a net loss from continuing operations of $0.6 million compared to a net loss from continuing operations of $2.4 million in the same period in 2020. Non-GAAP adjusted net loss from continuing operations in the first quarter of 2021 was $1.7 million, or $0.35 a share, compared to adjusted net income of $1.3 million, or $0.65 per share, in the first quarter last year. Non-GAAP adjusted EBITDA decreased slightly to negative $0.9 million for the first quarter of 2021 compared to negative $0.5 million in the first quarter of last year, and this was driven by the continued COVID-19 impact particularly on our healthcare operations, as well as some increased raw materials prices that affected the construction side. For the first quarter of 2021, we registered an operating cash outflow of $2.2 million compared to an operating cash inflow of $0.6 million in the first quarter of last year. As of March 31, 2021, the outstanding balance on our credit facilities was $16.8 million, which includes $3 million in PPP funds, and we fully anticipate that they will be completely forgiven. in coming months. Therefore, our overall net debt position, including $13.3 million in cash and cash equivalents, was $3.5 million. Now I'd like to turn the call over 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 2 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 the star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Kate Sullivan with Maxim. Please proceed with your question.
spk08: Thank you. I think you commented that the broad material price pressures will moderate in terms of passing on in prices. later later this year but can you just give give another update i think is most of the pressure in the structural wall panel business or is it modular the larger projects and modular construction or can you just give whatever additional detail you can with the raw material prices please sure yeah i mean it affects both of the construction businesses on the edge builder side in the midwest where we do the wall panels that you mentioned uh it has a a
spk09: more serious impact in a way because most of the value of those panels is in the wood commodity that goes into it. The labor value-add is relatively small, so we've seen quite an increase there, and it really affects margins. But what I would say is we're working through those projects that we had agreed to at lower commodity prices, and we're still continuing to win large projects at current prices. So we're locking in normalized margins with the activity that we're pitching for now. On the modular side, it also has an impact, but there's a lot more that goes into a modular unit than just the commodity. There's other building materials, you know, bathtubs and windows and doors. And, you know, although there's been some price increase there, it's not so dramatic as what we've seen on the commodity side. But the same thing goes for that business. The business that we are signing today takes into account the current commodities prices. So we've pretty well worked through anything where the prices that we agreed to were far lower at the time. In fact, the large project that we did in Natick, Massachusetts last year, we bought those materials almost a year ago at much lower prices than today. So we were pretty well shielded on that project.
spk04: And this is Jeff. I would just add that we have, like the whole industry, we've been significantly increasing our pricing. So we... can and do pass those higher input costs on to our client base. And like I said, everyone in the industry is doing that. But it just takes a few quarters to roll through our financials and periods like this with a lot of volatility. The accounting method companies use has an impact on short-term results, and we use average costs. Other companies might use LIFO or FIFO. Over the long term, all those things even out, but in the short term, you can get some differences based on the accounting method.
spk08: Just looking at the gross profit in building and construction, returning to more normalized levels, I mean, it's a more normalized level for the rest of the year. I mean, what it was in 19, I mean, above 15%, or how do you look at a normalized level of margins for that business?
spk04: I think we'd say there's still a lot of uncertainty in our healthcare business and construction business and recovering from COVID and input prices, so we haven't given guidance for the year. But I guess the short version to answer your question is we have a goal of – significantly increasing our margins in the second half of the year, and the price increases that we have put through have been significant, and it just takes a few quarters for those to filter through. And then long-term, when we think about the plan for this business, it's to have a construction business that can generate 20% gross margins and an EBITDA margin of at least 10%. That's the long-term plan, and that's very achievable, and it's what we're working hard to deliver. And we've talked previously about our growth plan for this division, and at least on a pipeline basis, that's definitely coming through. We've been ramping up output, and our sales pipeline is stronger than I've ever seen it. So the end customer demand is very, very strong. I mean, the higher prices gives them some pause, but the outlook is really strong for this division. It just takes a few quarters to pass through these higher input prices.
spk08: Great, thanks. And just last one for me before turning it over, I think the last call you mentioned efforts to get more into affordable housing and building and construction. Is that underway or have you secured orders in that segment of your construction business?
spk09: Yeah, I mean, that is a very interesting space. As you can imagine, some of the themes that go along with modular construction, such as, you know, reduced waste and more sustainability and, you know, cheaper prices, et cetera, quicker delivery than doing it on site. that all makes sense for the affordable housing market. So yeah, that is one of the segments we're pursuing, but there's other segments. There's student housing, there's passive homes, apartment buildings, et cetera, but definitely affordable housing is one area that we are pitching a lot. I can't speak to things that may or may not be signed, but that is an area we expect to be doing more and more in the medium term for sure. Thank you all for those updates.
spk00: Our next question comes from the line of Theodore O'Neill with Litchfield Hills Research. Please proceed with your question.
spk07: Thank you. Jeff, here in the prepared statements, you talk about pursuing acquisitions that could be in the construction business. And it seems to me there must be plenty of undercapitalized construction companies that would be targets. But could you talk about how you might think about that compared to expanding in the existing square footage that you've got already?
spk04: Yeah, that's a really great question, Theo. And we're guided by wanting to increase value per share. That's our guiding metric. Everything else is a means to that end. In many businesses, and I think this is an example, scale is really helpful. The more scale you have, the higher margins that you make. and higher return on investment, and just a more durable, sustainable business model. And so we're open-minded to both, and they're not mutually exclusive. So we do think there are some undercapitalized construction businesses that we could add on to our existing business, and we're looking for one plus one equals three type of opportunities And we are also looking to increase output at both businesses, but particularly KBS, where we have a very significant factory just a few miles away from our existing factory. And I think it's just a matter of time before we do open that factory. And in the meantime, we're continuing to de-bottleneck and re-engineer our existing factory to improve output.
spk07: I don't keep track of lumber prices very well, but in terms of the wall panels and the impact on margins, is the pricing particularly higher or rising faster in that segment because it's special treated lumber, or is it just every piece of lumber is seeing the same kind of inflation?
spk04: Yeah, it's the second one. Like if you just look at what people refer to when they say lumber or the futures market, you know, that's a specific grade with a specific location. And that price a year ago, at the low last year was, if I'm going off memory, $250 and a more normal price over the long term is $300 to $400. Anyway, at the end of last year, it closed at $1,000, so it quadrupled off the bottom. And year-to-date, and we're only in May, the price of lumber is up 70%. And that is a proxy for all sorts of different lumber products as well as OSB, which is a big input. There's not a futures market for OSB, so it's harder to track the price on a day-to-day basis. And in some cases, it's hard to even procure the materials because of the supply shortages which are causing the price spike. But these things do tend to normalize out over time and come back to earth. But we're not running our business on hope. We're pricing projects based on today's commodity prices and having a lot of discussions with clients about them buying the materials and taking on that risk or compensating us for the volatility that we're seeing in the input prices.
spk07: Okay, thanks very much.
spk00: Our next question comes from the line of Adam Waldo with Lismore Partners. Please proceed with your questions.
spk06: Yes, good day. Can you hear me okay? Yes. Thank you very much for taking my questions. I know there are a lot of different moving parts on the client-sided construction, but as you think about the enterprise overall, it seems as if the leading and coincident indicators are all pretty much heading in the right direction, recovering from COVID, which is great to see. So as you put it all together at the enterprise level, what's your best sense now for when we'll return to being sustainably operating cash flow positive?
spk04: Yeah, very good question. So I would say EBITDA isn't the same as cash flow, but it is a leading indicator and strongly think we'll be EBITDA positive in the second half of this year and see very substantial growth in EBITDA over time as things recover to normal and as we get back to more normal margins in the construction business and continue to grow the top line in construction. And converting that into positive cash flow generation, we have interest expense, which is now going to be much, much lower because we have paid off the vast majority of our debt. And working capital investments and we've made a tremendous investment in working capital particularly in the construction business over the last year to fund that growth but we think if we continue to grow revenue our margins improve to more normal levels EBITDA will have a significant increase over time and our cash flow generation will have a significant increase over time and even though our businesses are different, one common theme throughout all of our businesses is very low maintenance capex. And you can see that on our cash flow statement. And the business that we sold was a much heavier capex business. And that's one characteristic that we do like in looking at acquisitions and looking at different growth prospects is businesses that have low maintenance capex and we want to find businesses that generate earnings and cash flow right and I know it's a little hard but are we feeling pretty confident that by the end of this calendar year early next year
spk06: but continue to be in a more normal post-COVID operating environment, given the current scale of the businesses post the divestiture is completed in the first and early second quarters here, that we're in good shape to be sustainably pre-cash flow positive?
spk04: We think so. We should be.
spk06: Oh, I'm sorry.
spk04: No, I was saying there's a lot of unknowns out there, and At the beginning of last year, I don't think anyone was predicting that we'd have a global pandemic that would shut down the global economy for a period of time. So there's a lot of unknowns out there in the world. But there's no structural reason why preventing us from returning to more normal levels in all of our businesses.
spk06: Excellent. And one more, if I may, and this is related to the preferred stock. So, prospectively, I presume that preferred stock is probably going to be a component of compensation for future acquisitions in terms of what's given to the sellers of acquired companies. And obviously, we have a preferred out there that is now more than six quarters in arrears on its preferred dividends. payments that are accrued and unpaid. And I think technically in default of a couple of the provisions related to that six quarters in arrears. So with the balance sheet substantially cleaned up post the divestitures complete earlier this year, are we now at a point where we expect to be able to clean up the accrued and unpaid dividends and resume dividend payments on the preferred
spk04: That's a good question and we suspected that this question might come up and I would just say it's a board level decision not a management decision and we got these businesses sold just a little over a month ago and the first priority was to pay down debt and the close of the big sale of DMS closed at the end of the day on the 31st. So we got the cash and we did pay down the credit line associated with the healthcare business. And then since the end of the quarter, we've paid down substantially more debt. And so that was kind of the first priority. And The board is certainly studying all the different options and pros and cons of all capital allocation decisions. So we're studying it, and we'll have something to announce at some point in the future.
spk06: Fair enough. Thank you very much, and good luck continuing to recover from COVID. Thank you.
spk00: Our next question comes from the line of Jeff Covey-Lars with Diamond Bridge Capital. Please proceed with your question.
spk11: Hi, good morning. Jeff, I heard you say earlier that the sales pipeline at KBS was stronger than you've ever seen it, and can you give any, kind of put any numbers around that at all?
spk04: Sure. We actually have our head of business development and sales with us today, so I'm going to turn this over to Jeff. Dave, our COO, and Matt Sullivan, our head of business development for KBS. But we've publicly talked about a sales pipeline of over 50 million. And just a reminder, that's just for the KBS business. And so that doesn't even include the business that we have in the Midwest. If you include that, our sales pipeline is higher. And so just a couple quick things I would say is we maintain that pipeline even after winning several large projects last year. And if you think about how mechanically that works, if you win a project, your pipeline actually goes down because you're putting that large project into production. So the fact that our pipeline stayed around the $50 million level after winning those large projects is an indicator that we have other large projects that got put into our sales pipeline, uh, enabling it to, um, stay around that 50 million levels. That was kind of accomplishment number one and, uh, accomplishment number two is I think our sales pipeline today is at least 20% higher than that, that level. Um, but I'll, I'll turn it over to Dave and Matt Sullivan just to talk about what they're seeing in the market and, um, potential projects that are coming down the road, and they can talk about those at a high level. Yeah, thanks, Jeff.
spk09: Dave here. You summarized it pretty well, actually, so I'll probably end up turning it over to Matt pretty quickly. But, yeah, I would say we are seeing strong demand both on the single-family houses, which this is really the season that that gets busy. So we're seeing a lot of good demand in northern New England for single-family homes. and also the initiative that we launched over a year ago now to get into more commercial-scale business. That's a longer lead time business, so it takes a lot of time and effort to get those projects online from the time you start pitching them, but we have just numerous, a countless number of opportunities being shown to us that even six or eight, nine months ago weren't being shown to us. So we're very optimistic about Commodity prices have caused some pauses of some projects, but it hasn't been a wholesale effect. There's a lot of projects moving ahead just as quickly as they were before these commodity prices ramped up. But I'll let Matt Sullivan, who happens to be sitting with us today, just give a little bit of color on some of the types of projects. We can't talk about too much detail because we haven't announced this kind of stuff, but he can give you a little bit of color as to what he's seeing in the marketplace.
spk01: Yes, good morning, everyone. Matt Sullivan here. Vice President of Business Development for KBS. Demand continues to grow in all sectors that we're focused on. As Dave mentioned, seasonal business is picking up in the residential markets, but we're seeing greater opportunities in the multifamily space, both on the affordable housing, workforce housing, and just multifamily opportunities throughout New England. Demand continues to grow, and opportunities are significant. So our space that we focus on is kind of that under $5 million in terms of project revenue, and there seems to be a tremendous amount of growth in that area specifically. So we're also getting more traction in the passive home and net zero space. KBS is sort of differentiated itself from other manufacturers by being able to provide that type of construction. So it's something that has gained momentum and interest, not only in the affordable housing space, but also in the kind of for-profit opportunities. So as Jeff mentioned, we're in that $50 million pipeline. Early stage opportunities kind of mirrors that as well. So we've got some things that are projected out to 2022 that would be in that same level, another 50 million business that we project further out. So pandemic aside, the opportunities are significant and interest continues to grow for KBS. Thanks, Matt.
spk11: Okay. And can I, just for clarification, can I just ask about when you mentioned pipeline, it sounds like it, It blurs over a little bit into a backlog type of term. It sounds like some of your pipeline is a backlog. Can you comment about that? How much of the $50 million is, say, contracted and agreed to?
spk09: Yeah, that's the total sales pipeline. We talk about it internally as sort of like our lead time, so our assigned backlog. Matt, maybe comment. What is our lead time?
spk01: Yeah, currently we're running at about 10 weeks, 10 to 12 weeks for backlogged opportunities. That's contracted work currently. The $50 million that we're forecasted is for business that has not officially been contracted. So early, you know, different stage of the sales cycle.
spk04: But one of this is Jeff. So we do a variety of different things, and the sales pipeline are – projects that were in active discussions on, and those numbers are all the gross numbers that we gave you. We also put a probability next to each one of those, and so we have a probability weighted pipeline, and that's a pretty good number and probably more closely mirrors future sales, and that number has also been growing. And then what Matt was talking about was pre-pipeline. Some people would call it a funnel or pre-pipeline. That's probably another 50 million of opportunities. So all those are really great leading indicators. And the point is there's a lot of projects out there for us to do. So, as we de-bottleneck the plant, increase plant at the existing plant, and then eventually open a second plant, our production has a tremendous amount of upside. I think we have a slide in our investor deck that talks about having a goal of getting to 750 to 1,000 boxes a year. When we bought the business, it was doing less than 300, and we've already significantly increased that number. I think last year it was around 400, is that? Boxes? Yeah. No, we did 280 last year. 280 last year. We'll be around 400 this year. Yeah, the hope for this year, the goal for this year is to get 400, but then the long-term vision is to be able to produce 750 to 1,000 boxes a year.
spk09: And the only thing I'd add, the other piece of our pipeline that's hard to measure is the single family business. A lot of that comes in through a dealer network that we've established over many years. And you have very little sort of knowledge of what's coming in. We just know that that's busy, but we might get a house and that's on the line two weeks later and it never hits our pipeline because, you know, they're bidding it out to two or three different manufacturers and, you know, we win it and produce it pretty quickly. So there's a there's sort of a shadow pipeline that we're not even aware of. And, you know, you can really price yourself to get as much of that business as you want, but obviously we want to price projects at gross margins that, um, that are attractive to us. So, um, but that's kind of a spigot that can turn on and off in addition to the longer lead time commercial business.
spk03: Got it.
spk11: Thanks very much for all that color. That's good. And so the dealer network, do you know what percentage of your volume it was last year?
spk09: Well, let's see. I'd say it was in 19, it was pretty much all of it, a large percentage of it, let's say 80%. Last year, probably about half, Matt, or less? A little less than half. A little less than half last year.
spk04: And just to put into context what this is, these are local home building companies that build anywhere from 10 to 50 homes a year. A lot of them have been around for a really long time. So they'll have a retail... center that people can go to, sometimes with some model homes on it, and a client can design their own home, customize it, and then that dealer gives the order to us. And we're by far the biggest manufacturer in New England, and we've improved our quality, we've improved our product, and it's, we think, a very high quality product, and there's just not many other factories in the New England market, and bigger manufacturing centers are in Canada or Pennsylvania, which are a long way away to ship, which gives us a natural shipping advantage for the New England market. So we really like our position, but your question was on dealer network and pipeline, and I guess the point is that... We know the dealer network is going to give us orders of XYZ, but we don't know specifically what month or what exact client, but it's just kind of year in, year out. Some of these dealers will give us 20, 30, 40 boxes to build. And it is business we can kind of count on year in, year out.
spk11: Terrific. Thanks, everyone. It's helpful to hear that background.
spk04: Good questions. Thank you.
spk00: Our next question comes from the line of Zach Liggett with Desmond Liggett Wealth Advisors. Please proceed with your question.
spk10: Yeah, good morning. Thanks for taking the question. The first question I had was on the preferred, but it sounds like that's to be decided here a little bit later. As far as the M&A front goes, could you give us a little more color on how advanced your pipeline is what the funding strategy is going to be, given the ideas you're looking at, or at least some of the ideas there. And outside of the current segments, could you share what areas of focus you're looking at? Thank you.
spk04: Yeah, sure. You know, it's hard to paint that with a broad picture. brush, but a few comments I would make are that we've been internally focused for quite some time. We bought the construction business in late 2019, and we've been improving operations, revamping the sales force under Matt Sullivan's leadership, and developing the market, getting back into the commercial markets. And then now everybody knows that we've been working on the sale of, it's about 40% of our healthcare business that we sold. We announced that in the fall and got it closed March 31st. So we've been working on those things and that's been the focus of a lot of our time. And now that we've got that done, We are starting to have more of an external focus and we have always had kind of a target list and had some discussions and probably more likely that we would do a bolt-on acquisition for the construction business or the healthcare business. But longer term, we will look for other legs to the stool But it's got to be something that fits with our structure where we can look at it and honestly say, you know, this company, this target inside our structure is going to be a lot more profitable and a lot more valuable. And we think the construction acquisition that we did is going to be a really good case study for that. You know, as an OTC, Pink Sheets listed company, At the time we bought it, we bought it using preferred stock, so there was no cash or parent company stock, common stock that was issued in that transaction. And our vision was to take a business doing 25 to 30 million in revenue and doubling that and significantly increasing the profitability and the value. So that's the kind of opportunity we're going to look for. And then at a high level... Sectors that could be interesting and could fit with that, industrials, materials, financial services, business services, anything that we can understand and add value to is something we would at least consider and look at. And I don't think you're going to see us do venture capital-like investments in pre-revenue companies where it's, It's just not our bailiwick or our strategy.
spk10: Oh, great. Yeah, that's helpful. And then on the funding strategy, I guess, I mean, do you see adding leverage back to the balance sheet, or are you going to try to run the business real light on debt for at least near term?
spk04: Yeah, I think it all depends on the opportunity and the sellers. There's private companies out there. There are other microcaps out there that are already publicly traded. So a lot of it is just going to depend on the preferences of the seller, what it takes to get a deal done. What we like about the company we've created and the structure we've created is that we have a lot of tools in the toolkit. Bank debt is very, very cheap. That's a tool in the toolkit. Non-bank debt is more expensive but is available. We also have our preferred stock, which could be an acquisition currency. Then the bar is high to... issue common stock, but it is possible sometimes to do acquisitions and increase NAV per share, even if common stock is a component of the acquisition consideration.
spk10: All right, great. Thanks for that.
spk00: Our next question comes from the line of Robert Strago with RIS Investments. Please proceed with your question.
spk02: Yeah, concerning our preferred stock, my understanding is that if you're six quarters behind, we are shareholders of both your common and your preferred. We understand we could put people on the board if you're six quarters behind. Why don't we just clean up this preferred? I think it's accruing at over 10% a year, so we could sell another preferred. or have an exchange offer for this preferred and pay some of it off and clean up our balance sheet now that we have the cash. Can we do something like that to make it more attractive? Our stock went up to $4.50 a share. It's back down to $2 and change. So we'd like to see that stock go back up because it should be a lot higher, even though you sell stock at around the same price.
spk04: Yeah, thank you. So I own a common and preferred stock as well. So I share your sentiment and I'm in the same situation. I would just say we're studying all of those options and all of those options are on the table. And I would just tell you to stay tuned. But your comments, thoughts, and observations are not lost on the board. And It's top of mind.
spk02: All right. Thank you very much.
spk00: We have no further questions at this time. I would like to turn the floor back over to management for closing comments.
spk04: Thank you very much for your interest in our company and really good questions today. And I'd just like to note that... David, our CFO, COO, is always available to answer questions, as am I, and Matt Mulchin on the healthcare side. Happy to take your call and discuss any questions you have. So feel free to reach out to us if you have questions and want to do a call. And we're going to continue to meet with investors and share our story in the coming weeks and months. We're scheduled to present at the SIDOTI conference next week on May 20th, for example. And I just want to say we appreciate all of our shareholders, and thanks for your feedback and your support. Have a great day.
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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