Prepared remarks
Greetings, ladies and gentlemen. Welcome to Star Equity Holdings First Quarter 2026 Financial Results Conference Call. Please be advised that the discussions on today's call may include forward-looking statements. Such forward-looking statements involve certain risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. Please refer to Star Equity's most recent 10-Ks, 10-Qs, and other 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 may reference non-GAAP financial measures, including EBITDA, Adjusted EBITDA, Adjusted Net Income, and Adjusted Earnings Per Share, which are financial measures not recognized under U.S. 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 yesterday afternoon. If you did not receive a copy of the earnings release and would like one after the call, please contact Star Equity or its investor relations representative, Lena Cati of The Equity Group, using the contact information on the company's website. Also, this call is being broadcast live over the Internet and may be accessed at Star Equity's website at www.starequity.com. Shortly after the call, a replay will also be available on the company's website. It is now my pleasure to introduce Jeffrey E. Eberwein, Chief Executive Officer of Star Equity.
Thank you, operator, and welcome, everyone. We greatly appreciate your interest in Star Equity Holdings, and we thank you for joining us today. I will begin by reviewing the first quarter results in 2026 at the holding company level. After that, Jake Zabkowicz, Global CEO of Hudson Talent Solutions, will give us an update on the performance of our business services division. Finally, Rick Coleman, our Chief Operating Officer, will provide additional insights into the performance of our Building Solutions and Energy Services divisions. As highlighted on slide 3 of our earnings slides deck, our first quarter results reflect the merger we completed last August, with revenue and gross profit showing strong year-over-year growth. These increases were driven largely by the inclusion of STAR operating companies' results beginning after the merger closed on August 22, 2025. We have realized approximately $2.6 million of merger synergies on an annualized basis as shown on slide 4, and that beats our initial expectation of about $2 million in merger synergies. Going back to the first quarter, we were impacted by the timing of new project starts and broader macroeconomic conditions. Despite these near-term pressures, we continued to make progress advancing our strategic priorities and strengthening our operating platform. Revenue increased 57% year-over-year to $50.1 million; gross profit increased 25% to $20.6 million. We reported an adjusted EBITDA loss of $1.6 million compared to a loss of $700 thousand in the prior year period. At the division level, our performance was mixed. Energy Services delivered a strong quarter and continued to gain market share across key end markets. Business Services was worse than expected in a challenging talent environment, and we continue to invest for growth. Building Solutions was impacted by delayed project awards and weather-related disruptions. That said, we are already seeing signs of improvement as we move through the second quarter, supported by new business wins, improving activity levels, and continued operational and cost focus across the organization. As shown on slide 5, we ended the first quarter with $10.3 million of total cash, including $2.2 million of restricted cash. During Q1, we used $1.4 million in operating cash flow. We generated a little over $3 million from the sale-leaseback transactions. We repurchased about $700 thousand of stock under our share repurchase program, and we have $1.8 million remaining under the current authorization. Over the last 12 months, we have repurchased approximately $3.3 million of stock and we continue to believe our stock is undervalued; we view share repurchases as an extremely attractive use of our capital. Across the company, we remain focused on disciplined execution, cost management, and investing in growth initiatives that we believe will enhance our competitive position and drive improved financial performance over the balance of the year. Now I will turn it over to Jake to discuss our Hudson Talent Solutions business. Thank you, Jake, and good morning.
Our business services division continued to demonstrate solid top-line growth in the first quarter despite the challenging macroeconomic environment impacting many industries. As shown on slide 10 of the deck, revenue increased by 9.8%, and HTS year-over-year gross profit increased 6.4%, reflecting steady improvement despite continued macroeconomic pressures in the talent market. Regionally, the Americas and EMEA performed well with gross profit growth of 21% and 11%, respectively, partially offset by an 8% decline in the Asia-Pacific market, where conditions remain more challenging. We have maintained a strong focus on innovation and operational efficiencies, including the expanded deployment of our AgenTic AI solutions to enhance recruiter productivity, improve candidate matching, and deliver greater value to our clients. These efforts are helping us navigate the current environment while positioning us to capitalize on improving market conditions in the future. As an example, new business activity accelerated meaningfully in Q1 2026, exceeding levels seen in any quarter of 2025. We have also achieved multiple renewals in Q1 with many of our existing clients opting for a noncompetitive engagement process. This shows the depth and breadth of our partnerships in a very competitive market. We continue to take steps to strengthen our partnerships, maintain a disciplined approach to our investments, and grow the business. We are executing our playbook of land and expand, with recent wins coming off the acquisition in Japan, giving us a foothold to address previously untapped opportunities. We have also taken steps to recalibrate our business in the Middle East, maintaining our commitment to have a presence in the region while being realistic about the opportunity there given the broader macroeconomic environment. Additionally, the enhancements to our geographical footprint and our product offerings, particularly our digital offering, have driven robust new-logo interest. We have seen an uptick in customer conversations in recent months and are focused on forging long-term client relationships. We will continue to take a disciplined approach as we execute our playbook for the remainder of the year. Looking ahead, we are focused on creating a more resilient, agile, and growth-oriented business for the longer term. Now, I am turning the call over to Rick, who will discuss the financial and operational performance of our Building Solutions and our Energy Services divisions. Rick?
Thanks, Jake, and good morning, everyone. I will start with Building Solutions, highlighted on slide 8. First-quarter performance, which is normally soft in the quarter, was below our expectations. A combination of delayed contracting awards, severe winter weather across our key markets, and continued macroeconomic pressures put downward pressure on both commercial and residential construction activity. Revenue for the quarter was $11.6 million, gross profit was $1.6 million, and adjusted EBITDA was a loss of $900 thousand. While these results were impacted by near-term factors, our sales pipeline and customer conversations indicate underlying demand remains intact. We are also encouraged by recent wins, including a $4.2 million New Hampshire multifamily housing project we announced in April. Moving on to slide 9, our quarter-end backlog was $8 million. While the book-to-bill ratio of 0.72 is a significant decline from Q4, it partially reflects the timing of significant projects which slipped from Q1 to Q2. We expect backlog to rebuild as activity normalizes throughout the remainder of the year. Consistent with the strategy we outlined previously, we remain focused on disciplined project selection, operational execution, and margin management. We believe these priorities, combined with improving market conditions, position the business for stronger performance as the year progresses. Turning to slide 13, the Energy Services division delivered a strong quarter, maintaining the momentum we highlighted last quarter. Revenue was $3.5 million, gross profit was $1.5 million, and adjusted EBITDA was $1 million. The business continues to gain share in core markets, with particularly strong mining and geothermal performance. These results reflect disciplined execution and the benefits of our diversified exposure across billing applications, which continues to differentiate the platform and support consistent growth. Importantly, the division's strong growth has come as a result of market share gains in a declining rig count environment. We continue to invest in new tools to support this growth and believe the division is positioned to perform well in all conditions. Recognizing that we represent a relatively small percentage of our customers' largest customers' purchases, we are also incorporating their specific needs into our investment decisions. In general, we believe we have significant opportunities to expand our presence in the geographies and markets we serve. I will now turn the call back over to Jeffrey for closing remarks.
Thank you, Rick. While the first quarter reflected expected seasonality and some near-term challenges, we are encouraged by improving activity levels, recent business wins, and the continued strength of our Energy Services platform. As we look ahead, our priorities remain consistent: driving organic growth, improving operational efficiency, and maintaining a rigorous approach to capital allocation. In parallel, we continue to evaluate accretive M&A opportunities across our operating divisions as well as potential new verticals where we can apply our operating model. Our confidence in the path forward is grounded in the progress made over the past year; 2025 marked a pivotal period for Star following the August merger. We are beginning to realize the benefits of shared services, enhanced collaboration, and a more diversified holding company structure. This has strengthened our operating and financial position, expanded our strategic flexibility, and increased our capacity to execute on a multipronged growth strategy. Across the organization, we are investing in people, technology, and processes to enhance scalability, deepen competitive advantages, and drive margin expansion and cash generation. This disciplined approach, combining organic execution with targeted external growth, positions us to compound value over time. With a stronger platform and a clear strategic roadmap, we believe we are well positioned to navigate the current environment and deliver improved performance over the balance of the year. We remain confident in our long-term outlook and continue to believe our shares are undervalued relative to the strength of our business and the opportunities ahead. Operator, can you please open the line for questions?
Questions and answers
We will now begin the question-and-answer session. To ask a question, you may press *1 on your touch-tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. At this time, we will pause momentarily to assemble our roster. The first question today comes from Joe Gomes with Noble Capital. Please go ahead.
Good morning. Thanks for taking my questions. Jeffrey, could you give us a little more insight into your recent announcement on G-Group and what you think your game plan for that investment is?
Sure. Thanks for asking, Joe. We identified G-Group as an interesting investment partly because it was trading below cash per share, which you do not see very often. Also, we thought it could potentially be a good fit for our business services division and could have some synergies with our Hudson Talent business. On top of that, Star itself is an amalgamation of a few different companies, and we completed a merger last year where we initially thought we would realize cost savings of $2 million, and that number came in at $2.6 million. So we believe we have shown that merging another microcap into our structure can reduce a significant amount of duplicative costs. On G-Group specifically, we were glad that they hired a financial adviser and decided to run a more formal process. We are participating from the outside. We only have public information; we do not have any material nonpublic information on G-Group at this time. We decided to kick off the bidding process, for lack of a better term, by putting a number out there and, importantly, our bid is contingent on the management team there agreeing to more normal and customary severance. We will see how it plays out. There are scenarios where we could be the winning bidder and scenarios where others outbid us. When we enter into these situations, we like to own somewhere between 5% and 10% of the target. If we are outbid, we make money on our investment, and it also gives us more credibility when we go public and bid that we are also a shareholder. We will just have to wait and see how it plays out. Either one of those outcomes would be positive for us: if we end up being the winning bidder or if someone outbids us and we make a nice profit on our investment.
Okay. Thanks for the update. One of the things we talked about in the past is monetization of some of the real estate assets or some of the private investments that you have. Maybe you could give us an update there. Similarly, you have the Oxford main plant that you talked about potentially restarting. Where does that stand at this point?
Yeah, great question, Joe. We have talked about having, we believe, at least $20 million of assets that do not really generate meaningful EBITDA and that we believe will be converted to cash over time. We demonstrated that by completing the sale-leasebacks on the assets that came with the Alliance Drilling Tools acquisition that we made a little over a year ago. The two remaining significant pieces of real estate we own are the real estate that came with the Timber Technology acquisition two years ago and, as you pointed out, we have an idle factory in Maine. Both of those pieces of real estate we believe could either be monetized via sale-leaseback transactions or sold for cash.
And I cannot remember the exact estimate off the top of my head, but it is in our investor deck. It is somewhere in the $8 million to $10 million range for those two properties combined, we believe. On the Catalyst MedTech investment, the majority shareholder there is a private equity firm in New York City, and that business is doing well: completing acquisitions, showing growth, and having a strong future. As with private equity investments, the private equity firm will exit at some point. Our policy has always been to mark this investment using the same methodology the PE firm uses. There was a downturn—a temporary downturn in the performance of that company—and the PE firm marked it down on their books, which was in the 2024 timeframe and might have continued into 2025. We marked it down on our books the same way. Now that performance has improved, they have marked it back up to our original mark from when we closed that transaction in May 2023, but under GAAP accounting we are not allowed to do that retroactively. So we are in the uncomfortable spot of having a different NAV for the exact same investment than the PE firm has. Long story short, that will convert to cash whenever the PE firm decides it is the right time to pursue alternatives.
Okay. Thanks. I will get back in queue.
The next question comes from Theodore O'Neill with Litchfield Hills Research. Please go ahead.
Thanks very much. For Rick on Building Solutions, can you talk about geographically where you are seeing some strength going into the second quarter?
Go ahead, Rick.
Thanks, Theodore. Happy to address that. We have good visibility to our pipeline, particularly in KBS, our modular home company in Wayne, where we have larger projects and higher revenue opportunities. We can see, beginning at the early stage of the pipeline, where the opportunities are. As we move through the pipeline and begin talking about building modular components for our construction partners, we call that the active pipeline. The active pipeline consists of projects where we are negotiating terms and doing initial design work but have not yet signed a contract. As we look into the active pipeline, we feel confident there is strong demand for more construction activity. But with interest rates where they are and a lot of uncertainty about rates, as well as geopolitical events such as the war in the Middle East and other factors, it has been difficult to move those projects out of the pipeline and into construction-ready mode. Based on what we are seeing recently, we expect to see significant improvement in the second quarter.
I do not know if this is a question for you, Rick, but on the Energy Services, could you or Jeffrey talk about any dynamics related to the change in oil price and the drilling services business?
I will take that, Theodore. Being from Texas originally, this is a sector I have followed for much of my career. We are very happy with this acquisition; we feel it has thrived inside Star. We have invested for growth. They had a plan to increase market share and we have executed on that plan since we completed the acquisition in March. If you look at Q1 2026 results versus 2025, including the pro forma table in our press release, there was meaningful year-on-year growth, and that was before any increase in oil prices. In fact, the industry shrank in Q1 2026 versus Q1 2025 if you look at U.S. rig counts, for example. They did a very good job of growing in some nontraditional sectors and winning business in areas like geothermal, which has a strong growth outlook in the U.S. They have always been active in mining opportunities, water wells, and they have also entered carbon capture and some hydrogen drilling, which were off the radar a few years ago. We are excited about that business. It was performing very well, and if activity improves later this year and into next year, as we expect it might, we are poised to continue to grow. It is a little early for clients to suddenly flip a switch and start spending more capital, but the early indicators are there and the conversations are happening.
My last question is: can you give any thoughts about Q2 operating expenses and whether we should expect them to be similar to Q1 levels?
That is a really good question. We do not provide line-by-line guidance on that, but we do look at consensus estimates. The Q1 results were disappointing to us; we did not hit our budget. Those were short-term, temporary factors. When we look into Q2 and the second half of the year, the Bloomberg consensus for adjusted EBITDA is above $2 million—around $2 to $2.5 million. We are comfortable with that. If we hit that number, we will be positive and it will represent an improvement versus Q1. Looking into the second half of the year, the Bloomberg consensus is that our adjusted EBITDA should be in the $8 million to $10 million range, and we are comfortable with that. That is our best estimate based on what we are seeing in the business, our market conversations, our pipeline, and historical conversion rates of that pipeline into backlog and then revenue. It is not an absolute guarantee, but that is our current internal projection.
Next question comes from Michael Mathison with Sidoti. Please go ahead.
Good morning. A couple of questions. First, a big-picture one for Business Services: in light of higher energy prices, global tensions, inflation, and other factors, can you comment on hiring trends in the three regions where Business Services operates?
I will turn that over to Jake, but at a high level, our clients are predominantly large enterprises and Fortune 500 companies. In general, uncertainty makes those clients less likely to make long-term commitments. We did have some significant long-term contract renewals from two of our top five clients in Q1, which was refreshing. Jake, do you want to give a more granular view?
Thank you, Jeffrey, and good morning, Michael. When you look at the overall macro hiring picture, it is truly spotty. We see green shoots and tailwinds in certain areas, and in other pockets clients are pausing to reevaluate investments. In APAC, hiring volumes have been relatively strong but the mix has shifted: more internal mobility and internal hires versus external hires. Internal placements are often on a lower fee structure than external placements for multiple reasons, including sourcing and cost optics. In EMEA, geopolitical and macro conditions are causing many clients to pause and rethink investments across countries. We took a structured approach to reevaluate our Middle East presence: we will continue to have an entity and resources there to support enterprise clients, but hiring activity has slowed in pockets. In the Americas, we are seeing encouraging signs of strength. Latin America continues to be a growth market for us; we are signing new contracts there, including some this week. However, deployments there are at a smaller clip than normal. We are also seeing more project-based hiring—shorter-term engagements with specific time frames and defined headcount—rather than long-term, large-scale hiring plans. As a whole, attrition remains relatively low across our markets. Our land-and-expand strategy and entry into untapped markets like Japan and Latin America are critical for the business and we will continue to grow in those areas.
Turning to Energy Services: the revenue growth is striking. Do you feel that past a certain point, Alliance will have to invest in more drilling equipment just to fulfill demand?
We feel like we have already made the necessary investments. After we acquired Alliance, we took a countercyclical approach and approved a one-time increase in CapEx to enter new markets and increase share. That CapEx quickly led to revenue growth, validating the thesis. From here, we believe CapEx can remain roughly flat at the Q1 run rate and still support meaningful growth.
Thanks. One more on Building Solutions: obviously the weather in the Northeast was horrendous and that clearly played a role. Do you see the book-to-bill coming back to 2025 levels?
Short answer: yes. The issue has been the numerator in that equation. As revenue picks up, we expect the book-to-bill ratio to improve. That is the color I can provide at this time.
Okay. Thank you for taking my questions, and good luck in the coming quarter.
That concludes today's question-and-answer session. I will now turn the call back over to Jeffrey E. Eberwein for closing remarks.
Thank you for joining us and for your interest in our company. Our contact information is on our website and in the press release and corporate materials, so please reach out if you have any follow-up questions. Thank you for your interest.
Thank you for joining the Star Equity Holdings First Quarter Conference Call. Today's call has been recorded and will be available on our website, www.starequity.com. Thank you for participating, and have a pleasant day.