Star Equity Holdings, Inc.

Greetings, ladies and gentlemen, and welcome to Star Equity Holdings, Inc.' 's second quarter 2023 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 and 10-Q filings for a more complete description 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, Operator. Good morning, everyone. Thanks for joining us for our second quarter 2023 results conference call. On the phone with me today are Executive Chairman Jeff Everwine and our Chief Financial Officer Dave Noble. It's a pleasure to be with you today and update you on our second quarter performance. It's especially gratifying to report on the previously announced sale of our healthcare division and its dramatic positive impact on our company. We completed the divestiture of our healthcare division, which operated as DigiRat Health, for $40 million on May 4th. This was a truly transformative transaction, which created immediate shareholder value and significantly strengthened our balance sheet. We ended the second quarter with a cash balance of $21.4 million and zero debt, leaving us in a much stronger position to execute on our next stage of growth, including bolt-on and new business acquisitions and the ability to thoughtfully explore new opportunities within our investments division. In addition to having $21.4 million of cash and no debt, We also have a $6 million equity position in TTG Imaging Solutions, the successor company to DigiRAD, $8.5 million in notes receivable, a $4.8 million public equity portfolio, and $5 million of real estate. All of this is in addition to our valuable and growing construction businesses. Second quarter of 2023, revenue decreased 47% to $8.9 million versus $16.8 million in the second quarter of 2022, while the growth margin percentage increased to 29.3% versus 14.4% in the same period last year. The primary driver for the revenue shortfall was project timing, which, in addition to normal variability, was impacted by interest rates and macroeconomic uncertainty. Despite lower revenue in the period, the division's growth margin percentage more than doubled versus the same period last year due to quality execution and management's ability to maintain pricing levels while controlling input costs. We remain confident in the division's ability to continue delivering good results based on a healthy sales pipeline as well as a significant project backlog. As with any construction-related business, Revenue and expense recognition can vary greatly from project to project and quarter to quarter, and we caution investors to not read too much into single-period results. Year-to-date, gross profit increased by 70.5.8% versus the first six months of last year, and we maintain our mid-20s or higher gross margin percentage target for our construction division. Despite economic headwinds across the construction space at large, our reputation as a reliable and high-quality partner in select markets gives us a unique and sustainable position. Our reputation is strong and growing in the geographies we serve, and we're continuing to target expanding opportunities in workforce and affordable housing, educational dormitories and school buildings, and environmentally sustainable housing. Heading into the second half of the year, we expect to maintain or grow our backlog. In addition, our management teams continue to improve our manufacturing processes and strengthen our relationships with all of our clients and partners. 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 Consolidated Financial Results. I would like to note that due to the sale of our healthcare business on May 4th, as Rick mentioned, all results and historical comparisons relate only to continuing operations, which include construction and investments. DigiRad Health is now reported as part of our discontinued operations. In Q2 2023, SG&A increased by 31.7% versus Q2 2022. This was due to transactions-related costs related to the sale of DigiRad Health, as well as increased activity at our investments division. Moving on to bottom line results for Star Equity, we generated a net loss from continuing operations of 1.4 million in Q2 compared to a net loss from continuing operations of 1.3 million in Q2 of 2022. Non-GAAP adjusted net loss from continuing operations in Q2 was at 0.9 million compared to an adjusted net loss of 0.8 million in Q2 of 2022. Non-gap adjusted EBITDA from continuing operations decreased to a negative 0.8 million in Q2 of 2023 from a negative 0.4 million in Q2 of 2022. Construction generated non-gap adjusted EBITDA of positive 0.7 million in Q2 this year, down from 1.3 million in Q2 of 2022. For the year-to-date period, non-GAAP adjusted EBITDA from continuing operations improved to a loss of $36,000 from a loss of $1.5 million in the first half of 2022. Consolidated cash flow from continuing operations for Q2 was a negative $3.3 million versus a positive $3.6 million in Q2 of 2022. This was driven by transactions-related costs for the sale of DigiRAD, increased investments-related expenses, well as working capital related changes for the year-to-date period consolidated cash flow from continuing operations was a positive 1.9 million compared to a positive 2.9 million in the prior year period as of june 30 2023 our consolidated balance sheet and liquidity were strong as a result of the sale of our healthcare business as was mentioned on may 4th we had zero interest-bearing debt remaining And our cash balance stood at $21.4 million at the end of Q2. Now I'd like to turn the call back to Rick to add some additional remarks.