Star Equity (STRR) Q3 2015 earnings summary

Executive summary

• Q3 revenue fell 26.3% YoY to $110.0M; on a constant-currency basis, revenue declined 14.7%, reflecting divestitures and weaker contracting activity, partly offset by retained-market growth.

• Nine-month net income was $5.0M versus a $15.9M loss in 2014, primarily reflecting $21.2M in gains associated with business sales and exits, including discontinued operations.

Financial highlights

• Q3 gross margin was $45.1M versus $55.7M; constant-currency gross margin declined 7.2%, as permanent recruitment gains were outweighed by lower temporary contracting margin.

• Q3 operating loss was $3.8M versus $5.1M; net loss narrowed to $2.1M from $7.0M, and diluted loss per share improved to $0.06 from $0.21.

• 9M operating income was $3.1M versus an $11.4M loss; net income was $5.0M versus a $15.9M loss, including $19.8M of continuing-operations gains on sale and exit of businesses.

• 9M revenue was $357.1M versus $444.5M; constant-currency revenue fell 8.3%, with contracting declines partly offset by permanent recruitment growth.

• 9M operating cash use was $18.2M versus $20.7M; investing generated $22.3M, mainly from business sales, and cash increased $2.3M to $36.4M.

Outlook and guidance

• Management expected 2015 capex of $3M–$4M, excluding landlord-funded improvements, and restructuring payments of $4M–$5M; spending to remain selective and strategically directed.

• Management expected available liquidity to cover needs for at least 12 months, based on $36.4M cash and $18.6M of additional borrowing availability as of September 30, 2015.