Star Equity Holdings, Inc. Announces 2022 Third Quarter Financial Results

Reported a 55% increase in Q3 2022 consolidated gross profit versus Q3 2021

Construction division reported a significant gross margin improvement

OLD GREENWICH, Conn., Nov. 11, 2022 (GLOBE NEWSWIRE) -- Star Equity Holdings, Inc. STRR STRRP))) ("Star Equity" or the "Company"), a diversified holding company, reported today its financial results for the three months (third quarter) and nine months (year to date) ended September 30, 2022.

Following the sale of a portion of our Healthcare business in early 2021, all financial results for the 2022 and 2021 reporting periods, unless stated otherwise, relate to continuing operations, which include the Healthcare, Construction, and Investments divisions.

Third Quarter 2022 Financial Highlights vs. Third Quarter 2021 (unaudited)

• Revenues decreased by 16.0% to $24.2 million from $28.9 million.
• Gross profit increased by 54.8% to $5.8 million from $3.7 million.
• Net loss from continuing operations was $1.9 million (or $0.12 per basic and diluted share) compared to a net loss from continuing operations of $2.1 million (or $0.42 per basic and diluted share).
• Non-GAAP adjusted net income from continuing operations was $0.8 million (or $0.05 per diluted share) compared to a loss of $1.5 million (or $0.28 per diluted share).
• Non-GAAP adjusted EBITDA from continuing operations was $1.5 million versus a loss of $0.6 million.
  

Year to Date 2022 Financial Highlights vs. Year to Date 2021 (unaudited)

• Revenues increased by 3.9% to $80.0 million from $77.0 million.
• Gross profit increased by 98.9% to $16.6 million from $8.3 million.
• Net loss from continuing operations was $7.2 million (or $0.49 per basic and diluted share) compared to a net loss from continuing operations of $4.5 million (or $0.90 per basic and diluted share).
• Non-GAAP adjusted net income from continuing operations was $0.5 million (or $0.04 per diluted share) compared to a loss of $6.9 million (or $1.36 per diluted share).
• Non-GAAP adjusted EBITDA from continuing operations was $2.9 million versus a loss of $4.5 million.
• As of September 30, 2022, cash and cash equivalents increased to $8.5 million from $5.6 million; net debt, defined as total debt less total cash and cash equivalents, decreased to $3.3 million from $8.5 million.

Rick Coleman, Chief Executive Officer, noted, "In the third quarter of 2022 we made considerable progress on our operating plan at both our Construction and Healthcare divisions, and we grew gross profit by 55% versus the prior year quarter despite an overall 16% decrease in revenue. Our Healthcare division revenue decreased by 11% versus the prior year quarter and gross margin decreased by one percentage point to 21% primarily driven by the continued impact of labor market tightness on our scanning service utilization. Our Construction division revenue decreased by 21% due primarily to the timing of revenue recognition on certain projects which had a positive impact in the prior quarter. Similar to last quarter, gross margin improved substantially to 28% due to increased pricing, improved operations, and commodity price risk mitigation. Despite quarterly variations due to the timing of profit recognition, particularly on large projects, we expect our Construction division to continue performing over time against our 20% gross margin target."

Mr. Coleman continued, "We continue to be optimistic about the overall performance of our operating portfolio and our ability to identify and integrate future acquisitions either as bolt-ons for our existing divisions or entry into a new business sector."

Revenues

The Company's third quarter 2022 revenues decreased 16.0% to $24.2 million from $28.9 million in the third quarter of 2021.

Our Healthcare third quarter 2022 and year to date 2022 revenue decreased 11.3% and 5.9%, respectively, versus the prior year periods, driven primarily by lower scanning revenue due to the continuing national shortage of Nuclear Medicine Technologists.

Our Construction third quarter 2022 revenue decreased 21.0% and year to date 2022 revenue increased 16.2% versus the prior year periods. The decrease in third quarter 2022 revenue was driven primarily by the timing of revenue recognition on certain projects. The year to date 2022 increase was due to large commercial projects at KBS. Construction division third quarter 2022 revenue accounted for 45.8% of Star Equity's total revenue.

Gross Profit

Healthcare third quarter 2022 gross profit decreased 16.3% and year to date 2022 gross profit increased 3.4% versus the prior year period, respectively. The third quarter 2022 gross profit decrease was driven by lower scanning revenue due to the continuing national shortage of Nuclear Medicine Technologists, while year to date 2022 was driven by an improved mix of product and service revenues.

Construction third quarter 2022 and year to date 2022 gross profit increased 478.9% and 1,049.0% from the prior year period, due to an increase in revenue during the period and significantly increased pricing levels.

Operating Expenses

On a consolidated basis, third quarter 2022 and year to date 2022 sales, general and administrative ("SG&A") expenses increased by $1.7 million, or 31.9%, and $4.7 million or 29.5% versus the prior year period. The increase in SG&A was driven primarily by one-time litigation costs. SG&A as a percentage of revenue increased in third quarter 2022 and year to date 2022 to 28.3% and 25.6% versus 18.0% and 20.6% in third quarter 2021 and year to date 2021.

Net Income

Third quarter 2022 net loss from continuing operations was $1.9 million, or $0.12 per basic and diluted share, compared to net loss of $2.1 million, or $0.42 per basic and diluted share in the same period in the prior year. Third quarter 2022 non-GAAP adjusted net income from continuing operations was $0.8 million, or $0.05 per diluted share, compared to adjusted net loss from continuing operations of $1.5 million, or $0.28 per diluted share, in the prior year period.

Year to date 2022 net loss from continuing operations was $7.2 million, or $0.49 per basic and diluted share, compared to net loss of $4.5 million, or $0.90 per basic and diluted share, in the same period in the prior year. Year to date 2022 non-GAAP adjusted net income from continuing operations was $0.5 million, or $0.04 per diluted share, compared to adjusted net loss from continuing operations of $6.9 million, or $1.36 per diluted share, in the prior year period.

Non-GAAP Adjusted EBITDA

Third quarter 2022 non-GAAP adjusted EBITDA from continuing operations was $1.5 million versus a loss of $0.6 million in the same quarter of the prior year due to improvements in the Company's operations leading to increased gross profit at both our Healthcare and Construction divisions. Year to date 2022 non-GAAP adjusted EBITDA was $2.9 million, compared to a loss of $4.5 million in 9M 2021, primarily due to large commercial projects at KBS and overall Construction division pricing increases.

Operating Cash Flow

Third quarter 2022 cash flow from operations was an outflow of $3.2 million, compared to an outflow of $0.6 million for the same period in the prior year. The increase in cash outflow was primarily due to working capital changes as well as one-time litigation costs in the Healthcare division. Year to date 2022 cash flow from operations was an outflow of $0.2 million, compared to an outflow of $8.2 million for 9M 2021, primarily due to large commercial projects at KBS and significant Construction division pricing increases.

Preferred Stock Dividends

In each quarter of 2022, the Company's board of directors declared cash dividends to holders of our Series A Preferred Stock of $0.25 per share for an aggregate amount of approximately $1.4 million. The dividend record dates were March 1, 2022, June 1, 2022, and September 1, 2022, and the payment dates were March 10, 2022, June 10, 2022, and September 12, 2022.

Conference Call Information

A conference call is scheduled for today, November 11, 2022 at 10:00 a.m. ET (7:00 a.m. PT) to discuss the results. The call may be accessed by dialing 1-877-407-9039 (international callers: +1-201-689-8470) five minutes prior to the scheduled start time and referencing Star Equity. A simultaneous webcast of the call may be accessed online from the Events & Presentations link on the Investor Relations page at starequity.com/events-and-presentations/presentations; an archived replay of the webcast will be available within 15 minutes of the end of the conference call.

If you have any questions, either prior to or after our scheduled Earnings Conference call, please e-mail admin@starequity.com or lcati@equityny.com.

Use of Non-GAAP Financial Measures by Star Equity Holdings, Inc.

This release presents the non-GAAP financial measures "adjusted net income (loss)," "adjusted net income (loss) per basic and diluted share," and "adjusted EBITDA from continuing operations." The most directly comparable measures for these non-GAAP financial measures are "net income (loss)," "net income (loss) per basic and diluted share," and "cash flows from operating activities." The Company has included below unaudited adjusted financial information, which presents the Company's results of operations after excluding acquired intangible asset amortization, unrealized gain (loss) on equity securities and derivatives, litigation costs, non-recurring gain on disposals, one time severance costs, financing costs, COVID-19 protection equipment, gain or loss from loan forgiveness, and income tax adjustments. Further excluded in the measure of adjusted EBITDA are stock-based compensation, interest, taxes, depreciation, and amortization.

A discussion of the reasons why management believes that the presentation of non-GAAP financial measures provides useful information to investors regarding the Company's financial condition and results of operations is included as Exhibit 99.2 to the Company's report on Form 8-K filed with the Securities and Exchange Commission on November 14, 2022.

About Star Equity Holdings, Inc.

Star Equity Holdings, Inc. is a diversified holding company with three divisions: Healthcare, Construction, and Investments.

Healthcare

Our Healthcare division designs, manufactures, and distributes diagnostic medical imaging products and provides mobile imaging services. Our Healthcare division operates in two businesses: (i) diagnostic services and (ii) diagnostic imaging. The diagnostic services business offers imaging services to healthcare providers as an outsourced alternative to purchasing and operating their own equipment. The diagnostic imaging business develops, sells, and maintains solid-state gamma cameras.

Construction

Our Construction division manufactures modular housing units for commercial and residential real estate projects and operates in two businesses: (i) modular building manufacturing and (ii) structural wall panel and wood foundation manufacturing, including building supply distribution operations for professional builders.

Investments

Our Investments division manages and finances the Company's real estate assets and investments.

Forward-Looking Statements

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements in this release that are not statements of historical fact are hereby identified as "forward-looking statements" for the purpose of the safe harbor provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking Statements include, without limitation, statements regarding (i) the plans and objectives of management for future operations, including plans or objectives relating to acquisitions and related integration, development of commercially viable products, novel technologies, and modern applicable services, (ii) projections of income (including income/loss), EBITDA, earnings (including earnings/loss) per share, capital expenditures, cost reductions, capital structure or other financial items, (iii) the future financial performance of the Company or acquisition targets and (iv) the assumptions underlying or relating to any statement described above. Moreover, forward-looking statements necessarily involve assumptions on the Company's part. These forward-looking statements generally are identified by the words "believe", "expect", "anticipate", "estimate", "project", "intend", "plan", "should", "may", "will", "would", "will be", "will continue" or similar expressions. Such forward-looking statements are not meant to predict or guarantee actual results, performance, events or circumstances and may not be realized because they are based upon the Company's current projections, plans, objectives, beliefs, expectations, estimates and assumptions and are subject to a number of risks and uncertainties and other influences, many of which the Company has no control over. Actual results and the timing of certain events and circumstances may differ materially from those described above as a result of these risks and uncertainties. Factors that may influence or contribute to the inaccuracy of forward-looking statements or cause actual results to differ materially from expected or desired results may include, without limitation, the substantial amount of debt of the Company and the Company's ability to repay or refinance it or incur additional debt in the future; the Company's need for a significant amount of cash to service and repay the debt and to pay dividends on the Company's preferred stock; the restrictions contained in the debt agreements that limit the discretion of management in operating the business; legal, regulatory, political and economic risks in markets and public health crises that reduce economic activity and cause restrictions on operations (including the recent coronavirus COVID-19 outbreak); the length of time associated with servicing customers; losses of significant contracts or failure to get potential contracts being discussed; disruptions in the relationship with third party vendors; accounts receivable turnover; insufficient cash flows and resulting lack of liquidity; the Company's inability to expand the Company's business; unfavorable changes in the extensive governmental legislation and regulations governing healthcare providers and the provision of healthcare services and the competitive impact of such changes (including unfavorable changes to reimbursement policies); high costs of regulatory compliance; the liability and compliance costs regarding environmental regulations; the underlying condition of the technology support industry; the lack of product diversification; development and introduction of new technologies and intense competition in the healthcare industry; existing or increased competition; risks to the price and volatility of the Company's common stock and preferred stock; stock volatility and in liquidity; risks to preferred stockholders of not receiving dividends and risks to the Company's ability to pursue growth opportunities if the Company continues to pay dividends according to the terms of the Company's preferred stock; the Company's ability to execute on its business strategy (including any cost reduction plans); the Company's failure to realize expected benefits of restructuring and cost-cutting actions; the Company's ability to preserve and monetize its net operating losses; risks associated with the Company's possible pursuit of acquisitions; the Company's ability to consummate successful acquisitions and execute related integration, as well as factors related to the Company's business including economic and financial market conditions generally and economic conditions in the Company's markets; failure to keep pace with evolving technologies and difficulties integrating technologies; system failures; losses of key management personnel and the inability to attract and retain highly qualified management and personnel in the future; and the continued demand for and market acceptance of the Company's services. For a detailed discussion of cautionary statements and risks that may affect the Company's future results of operations and financial results, please refer to the Company's filings with the Securities and Exchange Commission, including, but not limited to, the risk factors in the Company's most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. This release reflects management's views as of the date presented.

All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that actual results will not differ materially from expectations, and, therefore, you are cautioned not to place undue reliance on such statements. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

(Financial tables follow)

Star Equity Holdings, Inc.
Condensed Consolidated Statements of Operations
(Unaudited) (In thousands, except for per share amounts)

*Earnings per share may not add due to rounding

Star Equity Holdings, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)

Star Equity Holdings, Inc.
Reconciliation of Non-GAAP Financial Measures
(Unaudited)
(In thousands, except per share amounts)

(1)   Reflects adjustments for any unrealized gains or losses in equity securities.
(2)   Reflects adjustments for any unrealized gains or losses in derivatives value.
(3)   Reflects one time litigation costs.
(4)   Reflects the gain from the sale of MDOS.
(5)   Reflects one-time write off in uncollectible tenant receivable.
(6)   Reflects financing costs from our credit facilities.
(7)   Reflects purchases related to COVID -19 Protection Equipment.
(8)   Reflects the forgiveness of the Paycheck Protection Program.
(9)   Reflects the severance expense for our former Healthcare division CEO and other employees.
(10)   Per share amounts are computed independently for each discrete item presented. Therefore, the sum of the quarterly per share amounts will not necessarily equal to the total for the year, and the sum of individual items may not equal the total.

Star Equity Holdings, Inc.
Reconciliation of Non-GAAP Financial Measures
(Unaudited)
(In thousands)

(1)   Reflects adjustments for any unrealized gains or losses on equity securities.
(2)   Reflects adjustments for any unrealized gains or losses in derivatives value.
(3)   Reflects one time litigation costs.
(4)   Reflects the gain from the sale of MDOS.
(5)   Reflects one-time write off in uncollectible tenant receivable.
(6)   Reflects financing costs from our credit facilities.
(7)   Reflects purchases related to COVID -19 personal protection equipment.
(8)   Reflects the forgiveness of the Paycheck Protection Program.
(9)   Reflects the severance and retention expense for our former Healthcare division CEO and other employees.
(10)   Reflects the reclassification of prior year Diagnostic Services and Diagnostic Imaging net income into Healthcare segment and intercompany elimination from Construction and Investments segments.

Star Equity Holdings, Inc.
Supplemental Debt Information
(Unaudited)
(In thousands)

A summary of the Company's credit facilities are as follows:

Star Equity Holdings, Inc.
Supplemental Segment Information
(Unaudited)
(In thousands)

(1)  Segment information has been recast for all periods presented to reflect Healthcare as one segment. Intercompany elimination previously allocated to Investments have been reclassified to a separate line.