Star Equity Holdings, Inc.

Greetings, ladies and gentlemen, and welcome to Star Equity Holdings, Inc., 4th Quarter 2023 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 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, Lina Kati, 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 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.

Thank you, Operator. Good morning, and thank you all for joining us today for our fourth quarter 2023 results conference call. On the call with me today are Executive Chairman Jeff Everwine and Chief Financial Officer Dave Noble. In the fourth quarter of 2023, our construction revenue and gross profit declined compared to the fourth quarter of 2022. However, for the full year 2023, strong pricing discipline and an improved business mix resulted in year-over-year construction gross margin improvement from 21.6 percent to 26 percent. Credit tightening in the second half of 2023 was a contributing factor and caused delays in some commercial projects, pushing revenue into 2024 and, in some cases, indefinitely. However, single-family residential activity and our overall backlog in sales pipeline indicate continued pent-up demand, although the timing continues to be tempered by ongoing interest rate sensitivity. We believe this is a temporary situation and are continuing our focus on the niche markets where we've built significant expertise and a strong reputation, including affordable and workforce housing, educational buildings and dormitories, and environmentally sustainable housing. In these markets, we feel our experience and reputation give us a sustainable competitive advantage. Based on our sales pipeline, we believe demand in all of these sectors will remain strong. We also have continued conviction in the ongoing growth of factory-built construction in the United States, which according to Modular Building Institute's most recent report, now accounts for 6% of all new construction starts in North America. having tripled from 2% in 2015. Despite lower revenue in 2023 versus 2022, we achieved and continue to maintain our mid-20s gross margin target for our construction division. Sustained execution quality has contributed to the division's ability to maintain pricing levels and has contributed to the division's gross margin improvement. We remain confident in the division's ability to maintain strong growth margins as revenues recover amid a stronger macroeconomic backdrop. Lastly, we closed the accretive Big Lake Lumber bolt-on acquisition in the fourth quarter and have successfully integrated it into our Glenbrook operation. As Dave will discuss, our balance sheet is strong and we have ample cash to expand our business. During the coming quarters, we will continue to evaluate construction division acquisition opportunities to augment our focus on sustainable organic growth. We will also examine potential acquisitions in new industries and explore opportunities in our investments division. Now I'll turn the call over to Dave Noble, our CFO, who will provide additional fourth quarter consolidated financial highlights.

Dave, please go ahead. Thank you, Rick, and good morning. Let's move on to Star Equity's consolidated results. In Q4 2023, SG&A decreased by 1 million or 23.8% versus Q2 in 22. As a percentage of revenue, SG&A decreased in Q4 to 22.8% versus 23.9% in Q4 of 2022. In Q4, we generated net income from continuing operations of 1.8 million versus net income from continuing operations of 0.9 million in Q4 of 22. Non-GAAP adjusted net income from continuing operations in Q4 was a negative 0.4 million. This compares to adjusted net income of 0.5 million in Q4 of 2022. Non-GAAP adjusted EBITDA from continuing operations decreased to negative 0.1 million in Q4 from a positive 0.9 million in Q4 of 22. Segment non-GAAP adjusted EBITDA at our construction division decreased to 0.7 million in Q4 this year, down from 2.9 million in Q4 of 22. Despite some economic headwinds which impacted our construction revenue all year, we continue to make progress across this operating segment in 2023. For the full year, our construction gross margins were 26.5% versus 22.2% in 2022. We also closed a bolt-on acquisition in this segment in Q4, as Rick mentioned, which will bolster revenues in 2024. Construction non-gap adjusted EBITDA for 2023 was $4.4 million versus $6.3 million in 2022. As of December 31, 2023, our consolidated balance sheet and liquidity were strong. The outstanding balance on our interest-bearing debt was $2 million, while our cash balance stood at $18.3 million. Now I'd like to turn the call over to the operator for questions.