Star Equity Holdings, Inc.

Greetings, ladies and gentlemen, and welcome to Star Equity Holdings' third quarter 2024 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, 10-Q, and other 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 our equity at 203-489-1420. 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 Holman, Chief Executive Officer of Star Equity. Please go ahead.

Thank you, Wyatt. Good morning, everyone. We appreciate you joining us for our third quarter 2024 results conference call. On the call with me today are our Executive Chairman, Jeff Everwein, and our Chief Financial Officer, Dave Noble. I'll start today by providing an overview of our recent business developments and financial highlights. Then Dave will provide additional details on our consolidated financial results. Our third quarter revenue increased 30.9% over the third quarter of 2023, driven primarily by the inclusion of timber technologies revenue from the date of acquisition and the inclusion of revenues from our Q4 2023 acquisition of Big Lake Lumber. Gross margin declined by half a percent, largely due to fixed costs remaining constant despite revenue declines at both KBS and Edge Builder Glenbrook, or EBGL. Overall, the organic performance of our building solutions division since the beginning of the year reflects the ongoing impact of higher interest rates, economic uncertainty, and corresponding delays in commercial contracts throughout the first half of the year. We're now beginning to see indications of a slow but steady return to normal, as evidenced by two large KBS projects we announced in early October, a $3 million contract to manufacture cottages and a $1.6 million contract for affordable housing units, both in the state of Maine. We've also received letters of intent and substantial deposits on two additional KBS projects totaling over $5 million, which we expect to announce within weeks. We believe all of these projects illustrate the strength of KBS reputation as New England's premier modular manufacturer and are an encouraging sign of returning demand for large commercial construction projects. We're also seeing increased activity and interest from customers who had previously put projects on hold earlier in the year, and fourth quarter project signings indicate a material improvement in activity across our entire building solutions division. Our construction backlog and sales pipeline remain strong, and the recent interest rate cuts coupled with high demand for housing give us confidence in our ability to convert additional pipeline opportunities into signed contracts in the near future. We believe this momentum shift will translate into significantly improved financial results for both the current quarter and fiscal year 2025. We're also confident that our market reputation as a reliable and high-quality partner gives us a unique and sustainable position which we will continue to leverage as the construction sector regains strength. In our investments division, We announced the further diversification of our portfolio and our entrance into the energy services and transportation and logistics sectors through our investment in Servco, a Colorado-based energy services company that recently expanded into the transportation and logistics sector with its acquisition of Buckshot Trucking. The transaction involved an exchange of shares representative of a $2.5 million investment, and a $1 million promissory note to facilitate the Buckshot acquisition. We believe in Servco's strong management team and ongoing reorganization position it well for long-term growth, and we believe that our investment will generate long-term value for our shareholders. We continue to focus on all elements of our growth strategy, including business solutions division expansion, acquisitions that would mark our entry into new industries, and exploring new opportunities at our investments division. Our fourth quarter 2023 acquisition of Big Lake Lumber, now successfully integrated into our EBGL operation, and our second quarter 2024 acquisition of Timber Technologies are both performing as expected and give us confidence in our ability to identify, evaluate, and close accretive acquisitions. In the coming quarters, we will continue to focus on profitable growth opportunities in addition to improving the strength of our existing businesses. Now, I'll turn the call over to Dave Noble, our CFO, to provide additional third quarter consolidated financial highlights. Dave, please go ahead.

Thank you, Rick, and good morning. Let's now turn to Star Equity's consolidated financial results, which are represented by our two operating divisions, Building Solutions and Investments. In Q3 2024, gross profit was $2.8 million, up 27.9% versus Q3 of 2023. This was driven by increased revenue despite slightly lower gross margins in our building solutions division. SG&A increased by $4 million, or 53.7%, versus Q3 2023, driven largely by a $2.8 million impairment related to our equity investment in TTG. which we acquired through our 2023 sale of DigiRAD. We recorded this impairment after analyzing the financial performance of TTG and considering comparable company EBITDA valuation multiples. Excluding all non-recurring items, SG&A expenses as a percentage of revenue for Q3 2024 were 30.0% versus 30.8% in Q3 of 2023. Moving on to the bottom line results for Star Equity, we reported a net loss from continuing operations of $2 million for Q3 of 2024, compared to a net loss from continuing operations of $2.4 million in Q3 of 2023. On-gap adjusted net loss from continuing operations in Q3 was $0.9 million, or $0.31 per share, compared to adjusted net income of $0.2 million, or $0.07 per share, in Q3 2023. Non-GAAP adjusted EBITDA from continuing operations was a loss of 0.3 million in Q3 versus break-even adjusted EBITDA in the same period last year. Consolidated cash flow from continuing operations for the first nine months of 2024 was an outflow of 3.7 million versus an inflow of 2.7 million in the first nine months of 2023. The negative cash flow from operating activities is attributable to lower levels of business activity in our building solutions division during early 2024 due to the macroeconomic uncertainty and the higher interest rates. However, we are seeing increased activity in Q4, as Rick mentioned. At the end of the third quarter, our consolidated unrestricted cash balance stood at $5.5 million compared to $18.3 million at the end of 2023. This difference is roughly representative of the upfront cash used to close the acquisition of timber technologies in the second quarter of 2024. Also, as previously announced, in the third quarter of 2024, we closed two sale leaseback transactions for our South Paris, Maine, and Big Lake, Minnesota facilities, totaling approximately $8.3 million in net proceeds. These transactions reflect Star's commitment to strategic capital allocation and the prioritization of EBITDA-generating assets and position us well to pursue our long-term growth strategy. Turning to our investments division, our holdings in public equity securities at the end of the quarter amounted to $3.2 million versus $4.8 million a year ago as we substantially exited one of our public equity positions following its acquisition by another public company. Our rollover equity investment and seller note receivable from the sale of Digirad to TTG in May of 2023 were valued at $1.9 million and $8.0 million, respectively. Now I'd like to turn the call back over to Rick for some additional remarks.