Star Equity (STRR) Q2 2015 earnings summary

Executive summary

• Q2 revenue was $122.7M and gross margin $50.2M; reported net income of $13.9M included $20.0M in gains from business sales and exits.

• On a constant-currency basis, Q2 revenue fell 6.9% and gross margin fell 4.2%; growth in Asia Pacific and retained businesses partly offset divestitures and weaker UK results.

Financial highlights

• Q2 revenue was $122.7M vs. $151.1M YoY; gross margin was $50.2M vs. $59.9M, and operating income was $13.6M vs. a $2.9M loss.

• Q2 net income was $13.9M vs. a $4.4M loss; basic and diluted EPS was $0.41 vs. a loss of $0.13.

• H1 revenue was $247.1M vs. $295.2M; gross margin was $98.1M vs. $113.9M, and operating income was $6.9M vs. a $6.2M loss.

• H1 net income was $7.0M vs. a net loss of $8.9M; EPS was $0.21 vs. a loss of $0.27, primarily reflecting $21.4M of sale and exit gains, including discontinued operations.

• H1 operating cash use was $23.0M; investing cash provided $23.4M, mainly from business sales, and cash ended June at $34.8M.

Outlook and guidance

• Management expected FY2015 capital expenditures of $3.0M–$4.0M, excluding landlord-funded improvements, and restructuring payments of $4.0M–$5.0M.

• Cash of $34.8M plus $22.3M of borrowing availability was considered sufficient for needs through at least the next 12 months.

• Near-term cash needs included operations, restructuring and capital expenditures; spending was to be closely managed while retaining strategic investment for growth.