Star Equity Holdings, Inc. (NASDAQ:STRRP) is a diversified multi-industry holding company with two main divisions: Building Solutions and Investments. The company recently announced the acquisition of Timber Technologies, a Wisconsin-based engineered wood products manufacturer, as part of its strategy to expand and diversify its Building Solutions business.
Business Overview
Star Equity's Building Solutions division, formerly known as the Construction division, is the company's largest segment. It operates in the construction industry, a key sector of the economy. The division consists of three main operating businesses: KBS Builders, Inc. (KBS), EdgeBuilder, Inc. (EdgeBuilder), and Glenbrook Building Supply, Inc. (Glenbrook), with the latter two managed together and referred to as EBGL.KBS is a Maine-based modular builder that manufactures custom modular homes, primarily for the single-family and multi-family residential markets in the New England region. EBGL, based in the Minneapolis-St. Paul area, manufactures and delivers structural wall panels and other engineered wood-based products, primarily for multi-family residential buildings, and also distributes building materials from two lumberyard locations.
The company's Investments division currently holds and manages its corporate-owned real estate, including manufacturing facilities leased to the Building Solutions businesses, as well as internally-funded, concentrated minority investments in public companies. It also holds a $7 million promissory note and a $6 million private equity stake in TTG Parent LLC, the parent entity of TTG Imaging Solutions, LLC, which were acquired as part of the sale of the company's former Healthcare division in 2023.
Timber Technologies Acquisition
On May 17, 2024, Star Equity announced the acquisition of Timber Technologies, a Wisconsin-based manufacturer of engineered wood products, including glue-laminated (glulam) wood products. Timber Technologies will operate within Star Equity's Building Solutions division, and its existing management team will continue to run the day-to-day operations.The acquisition of Timber Technologies represents a strategic move by Star Equity to expand its presence in the growing engineered wood products market. Glulam products offer superior strength, durability, and environmental sustainability compared to solid timber and are gaining market share over less sustainable building materials such as steel, concrete, and aluminum. Timber Technologies has a strong market footprint in the Midwest and Northwest regions, and its products complement the multifamily and residential construction segments that Star Equity's Building Solutions division currently serves.
Financial Performance
For the full year 2023, Star Equity reported annual revenue of $45.785 million and a net loss of $1.548 million. The company's annual operating cash flow was $2.698 million, and its annual free cash flow was $2.0 million.In the first quarter of 2024, the company's revenue decreased by 26.1% to $9.1 million, compared to $12.3 million in the same period of 2023. Gross profit margin declined to 17.3% from 34.6% in the prior-year quarter, and the company reported a net loss from continuing operations of $2.2 million, compared to a breakeven result in the first quarter of 2023.
The decline in first-quarter performance was primarily due to the impact of economic headwinds on the company's Building Solutions division, with several large commercial projects being delayed due to customer financing issues. However, the company's sales pipeline and signed backlog remain roughly equivalent to historical averages, and management believes the impact is temporary, with strong demand for new construction in the markets it serves.
Liquidity and Capital Structure
As of March 31, 2024, Star Equity had $14.7 million in unrestricted cash and just $1.9 million in interest-bearing debt, primarily under a revolving credit facility with Premier Bank. The company also has a new $4.0 million working capital line of credit with KeyBank, which was secured in April 2024.The acquisition of Timber Technologies was financed primarily through the use of Star Equity's cash reserves, as well as a $7.0 million term loan from Bridgewater Bank. The company believes the addition of Timber Technologies, with its history of profitability and strong cash generation, will improve its overall financial position.
Risks and Outlook
Star Equity faces several risks, including the potential for continued economic headwinds and project delays in its Building Solutions division, as well as volatility in the value of its investment portfolio. The company's ability to successfully integrate and realize synergies from its acquisitions, such as Timber Technologies, will also be crucial to its future performance.However, the company's management remains optimistic about the company's growth prospects. In addition to the Timber Technologies acquisition, Star Equity is focused on expanding and diversifying its revenue base through organic growth initiatives and additional strategic acquisitions. The company believes the engineered wood products market, in particular, presents significant opportunities for growth and consolidation.