STARC-O-Nomics: 5 Ways Containment Is Transforming Project Profitability

Discover five ways temporary containment is transforming project profitability for contractors. Learn how savvy contractors are applying a well-established technique for transforming routine, transactional purchases into strategic buying opportunities that can help offset the disastrous effects of supply chain disruptions, skyrocketing costs, labor shortages and burdensome legislation.

In this STARC-O-Nomics webinar, John Barrell moderated a discussion with Chris McKenzie and Lisa Dupuis on how containment is reshaping project profitability. They highlighted the challenges contractors face post-COVID, including supply chain issues and rising costs. STARC Systems offers solutions like STARC Assistants and durable containment panels that allow contractors to charge for containment even after initial costs are covered. The company is also expanding rental services and enabling contractors to manage inventory more effectively. The session concluded with audience questions, emphasizing STARC's role in enhancing contractor revenue and safety during renovations.

Full Webinar Transcript

For those who prefer text, we've included the complete webinar transcript below. Use it to quickly find topics covered in the presentation and reference important details shared by our speakers.

Welcome to STARConomics, five ways containment is transforming project profitability.

Thank you for joining us. I'm John Farrell, Senior Content Manager for STARC Systems, and I'll be your moderator for today's webinar.

Our guests today, excuse me, are Chris McKenzie, vice president of strategic partnerships at STARC Systems, and Lisa Dupuis, chief financial officer. Chris and Lisa, why don't you tell us a little about your backgrounds?

Sure, John. Hi, everybody. Thanks so much for joining us. My name is Chris McKenzie, and I am the vice president of strategic partnerships at STARC Systems.

In this in essence, my responsibility is focusing on national customer relationships and new verticals such as commercial office space, education, data centers, and airports. I've had the pleasure of being with STARC with the two founders, Bruce Bickford and Tim Hebert, from almost day one when there were just three of us with the company. And now, most of you already know we're shipping to all fifty states in about five different countries, and have recently moved into a fifty thousand square foot facility. So I'm excited to be here. Thank you, John.

Excellent. And Lisa?

Hi, everyone. My name is Lisa Dupuy. And although I've only been with STARC for about a year now, I do have prior experience in a few different industries, including manufacturing and health care. And I have also spent about six years working for a design firm, and, therefore, I'm pretty familiar with project accounting.

I'm excited to be part of this webinar, which is actually my first webinar. Excellent.

Well, welcome, Lisa.

Our goal today is to identify and explain five ways containment is transforming project profitability.

But we wanna keep the presentation as interactive as possible. So rather than just walk our audience through some slides, I'm gonna be asking Chris and Lisa some direct questions. So be sure to put your own questions in the Q and A box because we'll be diving into those later. And, yes, the replay will be made available following today's live broadcast.

On that note oh, excuse me.

Chris, why don't you, tell us what you're hearing from contractors right now?

Thanks, John. You know, from our vantage point, we're learning of unprecedented profitability challenges post COVID and the gross margins that were tight already pre COVID. From a supply chain standpoint, delays and backorders of mission critical components are creating an environment of unprecedented unpredictability.

The material delays are causing significant project delays, which erode profitability and on time performance.

And then, of course, we're talking about the rising prices, which we're all hearing about from week to week, in addition to fluctuating transportation costs, can wreak havoc as contractors are committed to bid pricing and final total cost of a project can exceed commitments submitted months ago.

So our customers and prospects are contending with a trifecta of unprecedented challenges.

Contractors are trying to balance the surge in need for construction services while accounting for the matter, for the matter of not only rising material costs, but material delays, but also labor shortages in the industry as well.

Well, before we go any further, Chris, STARC is a leading manufacturer of reusable temporary wall stores and accessories.

Why do you feel the company is uniquely positioned to weigh in on things like supply chain inflation and skilled labor shortages? What's STARC's vantage point here?

Well, if you go to the next slide, you take a look at we have the visibility of an incredible amount of partnerships with customers all over the world.

We have contractors from anywhere from five million dollars a year into the billions of dollars a year. So we get into some pretty intricate conversations with a lot of our customers and we've become quite significant partners with these folks. So, as a result of our fast growth and product acceptability, we have incredible visibility of contractor challenges and creative solutions. And fortunately for us, STARC Assistants is actually being used more to help mitigate many of these previously mentioned, challenges of unpredictability.

So it makes sense for us to share some of these best practices with the trend that we're we like to call STARConomics.

Excellent. So what are these five ways contractors are leveraging containment to transform project profitability?

Well, what we're gonna hit for is some basic mechanics associated with charging for containment even after the product has been paid off, which many of you probably already do. Labor savings associated with the use of STARC systems, selling it back to the owners, which may be, creative to some of you, renting it as either the renter or the rentee, and then, Lisa's gonna dive into some of the tax advantage treatments.

Excellent.

I'm gonna walk you through some of the steps.

First of all, business as usual. Charge for containment. No surprise there. You're charging the customer for containment used on the project. The advantage of Starrick Systems is the incredible durability of our panels enable contractors to continue charging the same rate for containment over and over and over again, even after the containment costs of the original project have been paid for through three or four phases.

The only variable now is gonna be a labor charge. But as you can see, in the next slide, the setup time you should start is gonna be a fraction of the time required to build a sheetrock wall. Go ahead and push play on that.

So not only are you charging for containment even after it's been paid for on the first project, you continue to charge the same fees. But now the only variable, as I said before, is labor. And as you can see, you simply lay groundwork by anchoring one of the panels into the containment drawing area. And by the t nuts and lining up the slots in the t nuts with a simple lift and drop, raising the panel to the ceiling.

And that, everyone, is how you install a hundred feet of wall in just an hour. And when we talk about labor savings, compare that to the, sheetrock time associated with one hundred feet maybe taking about two days and perhaps two to four men or ladies. So that given, there's a significant labor advantage. So you continue to charge for containment fees even after the material that you purchased has been paid for and of course you experience dramatic labor savings with the installation and, by the way, the breakdown of the product as well.

Next slide.

Now this may be creative to some of you. In many instances, contractors will order hundreds of feet from us on one order and then just call two months later for more product. So we asked them what happened to the original product and they're telling us that their customer appreciated the usability and infection control property so much that they actually purchased the panels directly from the contractor to be utilized at the hospital for either their smaller projects and renovation projects or more importantly, some COVID isolation areas as well. Many of you probably already know that when you utilize start systems, you can create negative pressure behind the walls and the panels once they're installed.

As a result of that, many hospitals see that potential versatility in use and offer to purchase it from the contractor. So take a step back, do the basic math. They've charged for containment for the product, which paid for itself after about three to four phases, and then the hospital decides to purchase the product at a reduced rate, maybe fifty to eighty percent of the original cost. And that way, the contractors have now deemed STARC systems to be incredibly profitable, both for project profitability in addition to longer term company profitability as well.

Next slide.

And this is what we call the renter or the rentee exercise.

Many customers now beginning to rent containment product and have it installed, we have a number of locations throughout the country that will actually perform rental and installation services. We have a number of DKI locations and a number of independent contractors around the country as well. And we're about to roll out and introduce a national initiative that's gonna fill in the gaps where we don't have current rental services, that we're gonna backfill those and offer rental services. So what happens is a contractor will submit the drawing to us or our rental service partner, and on-site will be delivered the exact amount of panels that you need.

It'll be installed and then broken down and taken off. So the labor charge the labor cost to the contract is non existent. And whatever rental fees they are charged by the rental company, it's usually about the cost of actually putting up sheetrock. The only advantage, of course, is it's much one tenth of the time, and of course, it's very green.

You're not depositing any non bioregradable waste into the dump. And you can upcharge some of the rental invoicing that you're receiving from the rental and service provider.

Or, next slide, another major trend we are seeing, and this is pretty significant, is that many of our customers are forming their own division within their organization.

It's really disintermediating their other distributors by any chance, but they will formulate their own distributorship within the organization.

That distributorship or that company's distributorship, company owned distributorship, will purchase large volumes of STARC systems, and then they will rent it out to the individual projects and jobs that are going on throughout that particular organizational's customer portfolio.

So in essence, they purchase the product, they will store the product, the project managers on the individual project will submit to them their needs for that particular project, and it'll be shipped out of their own distributorship, not from STARC Systems. And they can do that for job after job after job, and then it comes back. So in essence, by buying large volumes of STARC Systems, you certainly save a little bit on some, volume discount capability.

But now you only charge out for the time and use of the product while it's only on the job. So at no time or at no point is the entire purchase of STARC Systems inventory applied to the project profitability.

K. So, Chris, just so I Go ahead. Be clear here. You're saying contractors can rent STARC to meet their job requirements, or they can purchase in bulk and rent it out to project owners. So there's lots of flexibility there. Now let's, talk tax advantages.

Lisa, what should, contractors be keeping top of mind when it comes to capital expenditures? How can they capitalize on accelerated depreciation?

Well, there's, there's two tax advantages, and one is the first one is bonus depreciation. And this is calculated by multiplying the bonus depreciation rate, which is currently, at a hundred percent by the cost basis of the asset that's acquired. So, for example, a business that claims bonus depreciation on an item, if it costs a hundred thousand dollars the resulting deduction would be, dollars twenty one thousand, assuming that the company's tax rate is twenty one percent.

The second tax advantage is, called section one seventy nine, and it's part of the IRS code. And what that is is it's an immediate expense tax deduction that businesses can take for purchases of depreciable business equipment, and this would be where a star containment would fall. So instead of capitalizing and depreciating the asset over a period of time, so this allows businesses to lower their current tax liability rather than taking that over time in future tax years. So it is possible that both can be used in the same year, but, of course, you'll need to, discuss this more formally with your CPA firm.

But, just a couple of summary points. The the bonus depreciation does let the businesses deduct a percentage of the cost, and section one seventy nine lets businesses deduct a set dollar amount of the new assets. So in the past, the bonus was only fifty percent of an asset's cost, but in twenty twenty, it was a hundred percent. So now both methods really let you deduct the entire cost in the same year.

So one seventy nine is more flexibility, however, there are, limitations in terms of the amount, So you wanna, again, check on that.

And but overall, they're both really good, tax saving, purchase.

Great. Well, thank you, Lisa. Chris, is there anything else you'd like to add?

Well, nice job, Lisa, and thank you for that help.

Certainly, with all this profitability talk and functionality talk, I I would be remiss if I did not mention that STARC Systems certainly, and its primary function is to exceed ICRA class four requirements, which, of course, protects patients and employees and visitors to any building that's undergoing occupied renovation. So mission critical to make sure we validate what is indeed the primary focus of StarEx Systems, and that is protecting patients' lives and safety.

And in summary, we manufacture three different lines of prefabricated temporary containment. And prefabricated is nothing new in the world of, contracting, but it certainly is original in the world of temporary containment. And as a result of that, and based upon your challenges, many contractors are not looking at our system as just a cost, but it's a reliable revenue generator, not only saving time, but saving labor and creating a much more predictable gross margin.

And also, it is also bypassing any of the supply chain uncertainties that you have. You can order a hundred feet, two hundred, five hundred feet of wall from one company, and you're gonna receive everything you need to build that wall with one phone call or one email.

That's it, John.

Excellent. Well, Chris and Lisa, thank you very much. It was an informative session. Excuse me. We covered quite a bit in half an hour, but why don't we finish up with some questions from the audience?

Let's see what we have here coming in.

First question, the STARC systems have a warranty, no matter how often we use the system.

It's a great point. Absolutely, we do. For the, RealWall component, which is a three layered, original flagship product, there's a three year warranty on the the product.

And with LiveArea, there's a two year warranty on the product. And that is independent of how often you use the product. And we kind of brought that in earlier. I wanted to emphasize it more so as it relates to the reusability of the product early on, well after it's paid for. You still have hundreds of uses of the system.

So it is warrantied for three years after original delivery date.

Okay. Now the question is, how do I find a rental service in my area?

Give us a call and we'll hook you right up. So, if you have a question, you can send us the drawing and we can research and make sure if we don't have one there, we'll certainly try to find some accommodation for you. But, check-in with us and we do have a number of contacts out there that we'll connect you with.

Okay. Another question, since Ted Healthcare, are infection control professionals accepting STARC systems as a replacement to drywall in sensitive healthcare environments?

Well, if you check our customer satisfaction surveys, they're not only accepting it, they're embracing and encouraging it. So, primarily due to the fact that it can go up much more quickly without noise, installation noise associated with traditional sheetrock installations.

So patient satisfaction levels are higher. Obviously, the infection control protocol and efficacy are solid, and exceed all ACRA class four requirements. So the infection control professionals highly endorse the product, as a matter of fact.

Excellent. Final question. Actually, it's not the final. Next to final is, what is the market rental rate?

Well, that's a great question. That's gonna depend on the individual service provider that we connect you with. We do not dictate what folks charge for that. But usually, at the end of the day, what we are finding as an experience is you end up paying less than you would for installing sheetrock.

So it's worth giving it a try to take a look at it. If we have it in your area, it'll be comparable, but less than the sheetrock installation. But, of course, it'll go up faster, look better, and it'll be a turnkey event. Now keeping in mind that this initiative is relatively new, we've been engaged with DKI for a few years, depending on where their locations are, in addition to some independent contractors.

But we do have some gaps in coverage that we expect to cover, completely in quarter one of twenty twenty two.

Good to know.

Next question. If the ICRA barrier or rated assembly needs to extend to the structure above, how is the how is that accomplished with your system with above ceiling MEP elements in the way?

Are you talking about the Fireblock? Because our, traditional product is set up and designed to extend only to the hung ceiling. So if you go into the deck with FireblockWall, we are recommending customers will manufacture a listed, soffit coming down from the deck and in and around the, impediments that are there. And they will meet the FireblockWall, down at the base below the soffit that they construct. And we can get into more detail by Almon's call for more questions. But the customer would if we're going all the way to the deck and there are impediments there, they will construct their own soffit where the, FireblockWall will meet the bottom of the soffit.

I see. And the final question is, do you have local reps to provide a demonstration?

We do. We have, sales associates located throughout the country, as a matter of fact. So give us a call, and we'd be glad to set up an appointment for you for, a demonstration of the superiority of the system.

Excellent. Well, Chris and Ise, I wanna thank you very much. On behalf of STARC Systems, I'd like to thank everyone for attending today's webinar. If you'd like additional information, please reach out to Chris McKenzie. His email is on the screen. It's chris at STARCsystems.com.

A replay will be made available shortly, so look for an email from us later today. And if you're planning to attend HFSE in Austin next week, stop by booth one hundred and eleven to say hello and check out our full line of reusable temporary walls, doors, and accessories. Thanks again, everyone. Have a great day.

Thank you, everybody. Bye bye.