Greetings, ladies and gentlemen, and welcome to the Star Equity Holdings, Inc's third quarter 2023 results conference call. Please be advised the discussions on today's call may include forward-looking statements such forward-looking statements involve certain risks and uncertainties that could 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 be referencing non-GAAP financial measures, including EBITDA, adjusted EBITDA, adjusted net income, and adjusted earnings per share, which are all financial measures not recognized under US GAAP. As required by SEC rules and regulations, these non-GAAP financial measures are reconciled to the 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 to -- like one after the call, please contact Star Equity at 203-489-9500 or its Investor Relations representative, Lena Cati, of The Equity Group at 212-836-9611. Also, this call is being broadcast live over the Internet. You may access at Star Equity's website via www.starequity.com. Shortly after the call, a replay will be available on the company's website. It's 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 third quarter 2023 results conference call. With me today are our Executive Chairman, Jeff Eberwein, and our Chief Financial Officer, Dave Noble. It's a pleasure to be with you today to update you on our third quarter results and to discuss our recent acquisition of Big Lake Lumber. Our third quarter revenue decreased 6.1% to $10.4 million, compared to $11.1 million in the third quarter of 2022. And our gross margin was also lower at 21.1% versus 27.7% in the same period last year. The primary driver for the revenue shortfall was the delay in large project starts, which have been adversely impacted by interest rates and macroeconomic uncertainty, causing sector-wide difficulty in securing project financing. It's important to note that, in general, we're not seeing large project cancellations, but rather delays in starts as well as project time line extensions. Year to date, our gross margin increased to 28.6% versus 17.7% in the first nine months of last year, resulting in 29.9% higher gross profit despite lower revenue. And we maintained our mid 20s or higher gross margin target for our Construction division. Sustained execution quality has contributed to the division's ability to maintain pricing levels and combined with management's ability to scale our workforce to meet demand, these factors have contributed to the division's gross margin improvement. We remain confident in the division's ability to continue delivering good results based on stronger signed backlog and a significantly stronger sales opportunity pipeline than at this time last year. Despite economic headwinds across the construction space at large, our reputation as a reliable and high-quality partner in the markets we serve gives us a unique and sustainable position, which we will continue to leverage as the construction sector…

Thank you, Rick, and good morning. Let's now turn to Star Equity's consolidated financial results. I would like to note that due to the sale of our healthcare business on May 4, all results and historical comparisons relate only to continuing operations, which includes construction and investments. Digirad Health is now reported as part of our discontinued operations. In Q3 2023, SG&A increased by 10.9% versus Q3 2022. This was mainly due to transaction costs related to the sale of Digirad as well as increased activity in our investments division. Moving on to bottom line results for Star Equity. We generated a net loss from continuing operations of $2.4 million in Q3, compared to a net loss from continuing operations of $1 million in Q3 of 2022. Non-GAAP adjusted net loss from continuing operations in Q3 was $0.2 million, compared to an adjusted net loss of $0.3 million in Q3 of 2022. Non-GAAP adjusted EBITDA from continuing operations was essentially at breakeven, at minus $14,000 in Q3, versus a positive $0.6 million in Q3 of 2022. For the year-to-date period, non-GAAP adjusted EBITDA from continuing operations improved to minus 50,000, essentially breakeven, from minus $1 million in year-to-date 2022. On a standalone basis, before public company costs, our construction division generated non-GAAP adjusted EBITDA of $0.8 million in Q3, down from $1.8 million in Q3 of 2022. However, year to date, non-GAAP adjusted EBITDA from construction was $3.7 million, which is up from $3.5 million in year-to-date 2022. Consolidated cash flow from continuing operations for Q3 was an inflow of $0.8 million versus an outflow of $3.2 million in Q3 of 2022. This cash flow increase was driven primarily by a decline in working capital needs. For the year-to-date period, consolidated cash flow from continuing operations was an inflow of $2.7 million, compared to an outflow of $0.2 million in the prior year period. As of September 30, 2023, our consolidated balance sheet and liquidity remained strong. As a result of the sale of our healthcare business on May 4, we had just $0.5 million in interest bearing debt, and our consolidated unrestricted cash balance stood at $20.7 million at the end of Q3. Now, I'd like to turn it back to Rick for some additional remarks. Go ahead, Rick

Thank you, Dave. The Big Lake Lumber acquisition represents an important step in executing on our disciplined growth plan following May's transformative Digirad Health divestiture. The Star Equity Board and management team are fully focused on creating additional shareholder value through our targeted business development initiatives and will look to continue looking for additional accretive acquisition opportunities for our construction division as well as new potential platforms for growth. We look forward to sharing more details with shareholders as our plans evolve. Now, I'll turn the call over to the operator for questions.

[Operator Instructions]. The first question comes from Theodore O'Neill with Litchfield Hills Research.

Thank you very much. First question on Big Lake. Is this a one-off opportunity like retiring a founder or there -- or is there more opportunity in the lumbar business in general?

I'd say, this is the latter. In fact, the owner of the business and the entire team are staying as part of the integrated operation with Glenbrook. So we're really excited about having them. They represent a growth opportunity for us. We feel like there are great synergies between the two businesses and we've structured the deal that we have in such a way that everyone's incented to move the business forward.

Okay. Are you giving out any guidance on how this would add to revenue going forward?

No. We are [Technical Difficulty] providing any guidance. Dave, you want to mention --

Yeah. This is Jeff. The business goes up and down. We disclosed in our 8-K what the purchase price was, which was $3.3 million. We do see the business doing around $10 million of revenue with around a 10% EBITDA margin. And we're hopeful that we can grow it and that there will be some synergies by combining this business with the Glenbrook business.

Okay. That's helpful, Jeff. And Rick, you said in your prepared remarks that the market is better now than it was a year ago, does that show up in your backlog and pipeline? And what gives you the confidence that the business is better?

It's both of those, it's our backlog and our pipeline. I think I've mentioned that our pipeline of new business opportunities was significantly higher than it was this time last year. We chose those words carefully because we felt like significantly may not be strong enough, but there's a lot of pent-up demand for business that has just been deferred over the last year or so. And our backlog is strong of deals that are signed and ready to be built.

Thank you. The next question comes from Tate Sullivan with Maxim Group.

Hi. This is Justin Smith for Tate Sullivan in today. So my question is, do you guys think Star's outlook for the modular construction market within New England is more positive than last year? It sounds like you guys do believe that, but if you're able to give any more color on that, please?

Yes. Thank you for the question. We do think that that is much stronger than it was last year. The outlook for 2024, we believe, is going to exceed 2023 results. But we're making assumptions about what the macroeconomic environment will look like. At some point, the pent-up demand for building projects in general but, in particular, residential projects, is got to break through the barrier of the interest rate delays. So we feel good about where we are. We feel good that our business is structured in a way and prepared to absorb an additional amount of construction activity. And we're just moving through the backlog one deal at a time.

And this is -- Justin, this is Jeff. What I would add to that is, clearly, over the last year we've had a massive increase in interest rates and nationwide. And in the New England market, we have seen less -- we have seen that impact demand for residential but also commercial. And it's not just the higher rates, but on commercial projects, it's harder to get credit. And the way we have dealt with that is maintained our pricing discipline, really focused on efficiency, operations, running the tightest ship we possibly can, and the biggest one is getting into new verticals that are less macroeconomic dependent. So we've announced a few of those a year ago. We built dormitories for a college in New England. Earlier this year, we announced we were building some buildings for a school that needed to expand. There's a lot of projects out there for workforce housing. So we see a shortage in the market and the market is starting to adjust to the higher rate environment. And we're also seeing greater adoption of modular. One of the things in Rick's prepared comments was that the Modular Housing Institute says that modular's market share is 6% versus 2% before COVID. So we're just seeing more projects that are going modular, i.e., factory built, and there's a lot of reasons for that. The number one is speed to completion, but also, in a lot of cases, lower cost. It's greener and better quality. When the markets do come back, the regular markets, we think we're well positioned to participate in increases in activity. So we're happy with how we've executed, given the slowdown in the overall market and as we've talked about, through finding some interesting niches that are less macroeconomic dependent.

The next question comes from Devon Xu with North First Capital.

Could you characterize or would you be willing to characterize in terms of your backlog and pipeline, maybe like a ballpark percentage type of growth you're seeing or how we could maybe think about that?

Yeah. We actually wanted to do that on this call, but as we look back at the statistics, we weren't -- we were 100% certain that we were measuring apples and apples just due to the evolution of our systems at both of our constructions business. But the pipeline is where we're seeing the most significant growth. And again, I think that's just pent-up demand building, waiting for financing, waiting for credit approval, as Jeff mentioned. So our backlog is where our near-term opportunities are, of course, and we feel confident that we've got several months of backlog ready to be built.

Got it. And then, I guess, given the kind of unique microeconomic versus pent-up demand environment, how are conversations in terms of M&A going? Are sellers more willing? Or how -- what are you guys doing there?

Well, I would say this, we've looked at a number of different opportunities. We've got access to hundreds and hundreds of opportunities, and it's a bit challenging to weed though them all. Our priorities are, first of all, increasing shareholder value. But we're also looking for opportunities to expand both of our construction business through bolt-on opportunities, and at the same time, looking for other growth acquisitions where we have either specific experience on the corporate team or where we see a good fit with our existing businesses. So we're continuing to weed through those. And because of our holding company structure, we were able to look at a wide variety of alternatives in our investment division as well as in the core operating business.

Got it. I guess could you characterize whether or not it's more of a buyer's market since maybe last quarter, or kind of no change?

Yeah. From what I've seen, it's very situational. There are a number of great opportunities where, as someone mentioned earlier, the founders are retiring and there's no one to pick up the ball and move the business forward. But there are also a number of opportunities where expectations for pricing are just simply too high based on results in 2022 without regard to what the forward-looking environment might be. So we're being very selective, trying to be value to investors, and at the same time, balance that with our desire to grow the business.

[Operator Instructions]. All right. This concludes the question-and-answer session. I would like to turn the floor to Rick Coleman for any closing comments.

Thank you, operator. Before concluding the call, I want to note that we're always available to take your call and to discuss any additional questions you might have, so please don't hesitate to contact us. We'll continue to share our story with existing and potential investors in the coming weeks and months. And as always, we appreciate your interest as well as your continued feedback and support. Thank you.

Thank you for joining the Star Equity Holdings third quarter conference call. Today's call has been recorded and will be available on the Investors section of our website, www.starequity.com.