Star Equity Holdings, Inc.

Greetings, ladies and gentlemen, and welcome to Star Equity Holdings, Inc. Second Quarter 2022 Results Conference Call. Please be advised that the discussion 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 and 10-Q filings for a more complete discussion of risk factors that could affect these projections and assumptions. The company assumes no obligation to update forward-looking statements as a result of new information, future events, or otherwise. Please also note that on this call, management will reference 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 morning. 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 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 Equity's website at 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. Thank you. You may begin.

Thank you, Operator. Good morning, and thank you all for joining us today for our second quarter 2022 results conference call. On the call today are our Executive Chairman, Jeff Everwine, and our Chief Financial Officer, David Noble. and operational performance with a 19% revenue increase, as well as a significant improvement in gross margins. On a segment basis, as compared to the second quarter of 2021, our healthcare division revenue decreased by 6.4% to $13.9 million, predominantly driven by a decrease in revenue from fewer total scanning days due to the national shortage of nuclear medicine technologists. However, gross margin improved by 3.5 percentage points to 26.4%, and gross profit for the quarter increased by 7.9%, both due to a better mix of products and services sold. Our construction division second quarter revenue grew by 53.7% due to large commercial projects at KBS and pricing increases that we implemented to mitigate the impact of higher raw materials costs. Gross margin improved substantially due to increased pricing, improved operations, and commodity price risk mitigation. We believe this quarter's performance shows continued progress toward our construction division goal of generating a gross margin over 20%. Finally, our January equity offering strengthened our cash position, which remains strong and leaves us well-positioned to fund high-return internal growth investments and to pursue acquisitions, which could be either bolt-ons for our existing divisions or entry into a new business sector. Now I'll turn the call over to David Noble, our CFO, to highlight additional construction division and consolidated second quarter financial results.

Dave, please go ahead. Thank you, Rick, and good morning. Let me first touch again on the performance of our construction division as it was a major driver to the turnaround in our financial results. Q2 construction revenue was $16.8 million versus $10.9 million in Q2 of 2021 for a 53.7% year-over-year increase. Gross margin was a positive 14.8% versus a negative 16.9% in Q2 of 2021. The modular business specifically was even higher in terms of gross margin. The increase in revenues for the construction division was driven mainly by multifamily and commercial scale modular projects at our KBS modular business. In Q2, our construction segment accounted for 54.7% of Star Equity's total consolidated revenues. The increase in gross margin percentage was due to significantly increased pricing levels to offset higher input costs in both residential and commercial projects as well as much better risk management around building materials price volatility. Our construction backlog and sales pipeline remain very strong. Let's now turn to the Star Equity consolidated results. In Q2 2022, SG&A increased by 23% versus Q2 2021. This increase was driven primarily by one-time litigation costs and secondarily by severance expense associated with executive management change. Both of these related to the DigiRADS health business. As a result, SG&A as a percentage of revenue increased slightly in Q2 2021 to 22.4% versus 21.6% of revenues in Q2 of 2021. Moving on to Q2 bottom line results for Star Equity, we had a net loss from continuing operations of 1.6 million compared to a net loss from continuing operations of 1.8 million in Q2 of 2021. Non-GAAP adjusted net income from continuing operations in Q2 was a positive 0.5 million. This compares very favorably to the adjusted net loss of 3.7 million in Q2 of 2021. Non-GAAP adjusted EBITDA increased to a positive 1.3 million in Q2 compared to a negative 2.9 million in Q2 of 2021. This substantial improvement in consolidated adjusted EBITDA was due to operational improvement and a bottom line turnaround in our construction division, where segment non-GAAP adjusted EBITDA swung from a negative 2.8 million in Q2 of 2021 to a positive 1.3 million in Q2 this year. Importantly, consolidated operating cash flow for Q2 was a positive 3.6 million versus a negative 5.4 million in Q2 of 2021. As of June 30, 2022, our balance and liquidity were very strong. The outstanding balance in our interest-bearing credit facilities was $11.6 million, while our cash balance stood at $13.7 million, leaving us with an overall net debt position of negative $2.1 million. Now I'd like to turn the call over to the operator for any questions.