Prepared remarks
Greetings, ladies and gentlemen. Thank you for standing by, and welcome to the Star Equity Holdings Third Quarter 2025 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-K, 10-Q 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 note that on this call, management will reference non-GAAP financial measures, including EBITDA, adjusted EBITDA, adjusted net income and adjusted earnings per share, which are all financial measures not recognized under U.S. GAAP. As required by SEC rules and regulations, these non-GAAP financial measures are reconciled to their most recent comparable GAAP financial measures in our earnings release issued this morning. If you do not receive a copy of the earnings release and would like one after the call, please contact Star Equity at (203) 489-9500 or its Investor Relations representative, Ms. Lena Cati of the Equity Group at (212) 836-9611. Also, this call is being broadcast live over the Internet and may be accessed at Star Equity's website via 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 Mr. Jeff Eberwein, Chief Executive Officer of Star Equity. Please go ahead, sir.
Thank you, operator, and welcome, everyone. We greatly appreciate your interest in Star Equity Holdings, and thank you for joining us today. As a reminder, on August 22, 2025, the company completed its previously announced acquisition of Star Operating Companies, formerly known as Star Equity Holdings, pursuant to the agreement dated May 21. Effective September 5, the company changed its name to Star Equity Holdings from Hudson Global and our trading symbol on NASDAQ from HSON to STRR. Following the merger, we are now operating as a diversified holding company with four divisions: Building Solutions, Business Services, Energy Services and Investments. I'll begin by reviewing our third quarter results for 2025 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 segment. Finally, Rick Coleman, our Chief Operating Officer, will provide additional insights into the performance of our Building Solutions and Energy Services segments. Third quarter results reflect the impact of our recent merger with revenue, gross profit and adjusted EBITDA, all showing year-over-year growth. These increases were largely driven by the inclusion of Star Operating Companies beginning August 22. For the third quarter of 2025, revenue totaled $48 million, representing a 30% increase from the same quarter in 2024. Gross profit rose 11%. The company reported a net loss of $1.8 million or $0.54 per share, compared to a net loss of $800,000 or $0.28 per diluted share in the third quarter of last year. On a non-GAAP basis, adjusted net income per share was $0.02 compared to an adjusted net loss of $0.13 per share in the prior-year quarter. Importantly, on a pro forma basis, which includes the full third quarter's results from Star Operating Companies, adjusted earnings per share were positive $0.19 versus negative $0.54 in the third quarter a year ago. Adjusted EBITDA increased to $1.3 million from $800,000 in the third quarter of last year, reflecting improved operating leverage following the merger. Pro forma adjusted EBITDA was $3.1 million versus $600,000 in the third quarter of last year. Total cash, including restricted cash, was $18.5 million at the end of the quarter. I'll now turn the call over to Jake to discuss our Business Services segment.
Thank you, Jeff, and good morning. Our Business Services segment continued to demonstrate solid performance in the third quarter despite the challenging macroeconomic environment impacting many industries. While the broader talent acquisition market has contracted in 2025 compared to 2024, our HTS business has been able to maintain its profitability and even saw a slight increase in gross profit for both the third quarter and year-to-date. This resilience highlights the robustness of our business model, our ability to adapt to market shifts and the strength of our long-standing client relationships, which continues to drive repeat business and steady demand for our services. I'm particularly proud to recognize our team has received in the marketplace. HTS was named to the prestigious Bakers Dozen for the 17th consecutive year, a testament to our consistent delivery of high-quality talent acquisition solutions. What's even more notable is that we achieved our highest-ever overall ranking, reflecting the strength of our service offering and our commitment to excellence. Additionally, HTS was recognized as the #1 provider in the Asia Pac region, further underscoring our global reach and our clients' trust in us. For the third quarter of 2025, Business Services revenue was $37 million, slightly up from $36.9 million the same period last year. Gross profit remained flat at $18.6 million compared to the prior-year quarter, again, speaking to the quality of our operations despite external challenges. Adjusted EBITDA for the segment was also flat at $1.7 million. This performance reflects our ability to effectively manage costs, sustain margins while continuing to deliver value to our clients in a difficult market environment. Building on our momentum from the first half of the year, in the third quarter we continued to execute our land-and-expand strategy. This strategy, which emphasizes expanding our geographical footprint and broadening our service offerings to both existing and prospective clients, has proven to be highly effective. As a result, we secured approximately $39.8 million in gross profit from renewals and extensions at existing clients, reflecting the strong relationships we have cultivated by our ability to deliver ongoing value. Additionally, we have secured approximately $11.1 million from new logo wins over the past four quarters. Looking ahead, we're focused on creating a more resilient, agile and growth-oriented business for the long term. By continuing to invest in new technologies such as our digital offering, we are confident in our ability to drive sustainable growth and create lasting value for our clients and stakeholders. Our commitment to execution and operational excellence will continue to guide us as we seize new opportunities and expand our market leadership. Now I'll turn the call over to Rick, who will discuss the financial and operational performance of our Building Solutions and Energy Services segments.
Thank you, Jake, and good morning, everyone. Our Building Solutions segment delivered strong growth during the third quarter, capitalizing on the rebound in commercial construction demand while managing through softness in residential markets. In the third quarter, Building Solutions revenue totaled $9.6 million with a gross profit of $1.7 million and adjusted EBITDA of $600,000. On a pro forma basis, which includes results for the entire third quarter beginning July 1, Building Solutions revenue was $21.4 million, up from $13.7 million in the third quarter of 2024. Pro forma gross profit rose to $5.3 million compared to $2.8 million in the prior-year quarter, while pro forma adjusted EBITDA grew substantially to $2.6 million from $700,000 a year ago. The segment ended the quarter with a $20 million backlog of committed orders and the trailing 12-month book-to-bill ratio remained solid at 1.01, reflecting a healthy pipeline and sales dynamics heading into 2026. By focusing on higher-margin projects and ensuring rigorous project management, we've been able to maintain healthy profit margins and strengthen our existing client relationships. Our reputation for high-quality, on-time and within-budget deliveries is key to our continued success and positions us well to expand our footprint across key markets. Our Energy Services segment also achieved strong results despite a broader slowdown across the energy sector impacted by lower drilling rig counts in all oil-producing basins but offset somewhat by growth in natural gas and geothermal drilling activity. As a smaller company in the drilling arena, we believe our growth opportunities are outsized compared to our larger competitors and expect to drive future growth through strong sales execution, disciplined operations and targeted capital investments. These initiatives have not only improved sales and utilization rates but have also enhanced customer satisfaction and strengthened our overall market position. In the third quarter of 2025, Energy Services revenue was $1.3 million with gross profit of $300,000 and adjusted EBITDA of $100,000. On a pro forma basis, which includes results for the entire third quarter beginning July 1, revenue increased to $3.7 million, gross profit reached $1.5 million and pro forma adjusted EBITDA rose to $1 million, underscoring the segment's strong overall performance. I'll now turn the call back over to Jeff for closing remarks.
Thank you, Rick. Following our recent merger, we are operating from a much stronger and more diversified platform, which has significantly enhanced our scale, expanded our exposure to a broader range of end markets and improved our operating leverage. The integration has been progressing smoothly, and we are already beginning to realize efficiencies across shared services. This will continue to improve our cost structure and streamline operations as we fully integrate the businesses. Across all our operating segments, we remain highly focused on operational excellence, ensuring we optimize every facet of our business for improved performance. At the same time, we're committed to prudent capital allocation and a disciplined approach to growth, which will allow us to maximize shareholder returns while maintaining financial discipline. In line with this strategy, we believe our stock price remains undervalued. In recognition of this belief, during the third quarter, we repurchased about 8% of our shares outstanding, demonstrating our confidence in the intrinsic value of the company and our commitment to enhancing value per share. Furthermore, our Board of Directors has authorized a new $3 million share repurchase program, which underscores their confidence in the long-term growth prospects of the company. Looking ahead, we are well positioned to drive shareholder value through a balanced strategy that combines organic growth, disciplined capital allocation and accretive acquisitions. As part of this strategy, we continue to evaluate acquisition opportunities that complement our diversified holding company model. Our focus remains on identifying scalable cash-generating businesses that align with our long-term growth objectives, particularly those businesses with strong local operating management teams and sustainable competitive advantages. By executing this strategy, we believe we'll strengthen Star Equity's foundation for sustained profitable expansion to deliver meaningful value to our shareholders. Operator, can you please open the line for questions?
Questions and answers
And our first question for today will come from Theodore O'Neill with Litchfield Hills Research.
For Rick, on the third quarter on a pro forma basis, that looks like a record for the quarter, at least in my book here.
Yes. Thanks, Theo. I appreciate you noticing that. We're enjoying the throughput from a lot of projects in the Building Solutions division that were held up in 2024. I think we talked about that in prior calls. But throughout the year, we didn't have jobs being canceled, but they just weren't making it through the pipeline as builders and architects and others were kind of daunted, I guess, by interest rates and other things. So we kept pushing jobs to the right, further out in time, and they finally started coming through.
And looking at seasonal patterns here in the last couple of years, your fourth quarter has been higher than your third quarter. Do you think that seasonal trend will continue?
It's really hard to say, Theo. The fourth quarter is really dependent on a lot of weather patterns. If we have difficulties in Building Solutions, for example, with builders not having the sites ready for us to build on, then there could be delays. But as long as the weather holds, we're optimistic.
And when you talk about softness, I know that part of what you had cited as strength was workplace housing and low-income housing. Is that still the view?
It is an important aspect of what we're doing. Our strategy is more diversified than that, but those are still good opportunities for us. They might be impacted somewhat by government programs shrinking over time, but we expect that will come back.
The next question will come from Michael Mathison with Sidoti & Company.
Congratulations on the revenue performance, you guys. Just a couple of questions from me. First of all, looking at Business Services and going through your slide deck, it looks like the adjusted net revenue as a percentage of sales is much higher in the Americas versus APAC. I wondered if you could just explain what's behind that.
Jake, do you want to walk him through that?
Yes. And I'm sorry, can you repeat that question? I apologize.
It seems from your slide deck that the adjusted net revenue as a percentage of sales is higher in the Americas compared to APAC, and I'm curious why that is.
Yes. We saw some significant growth in our Americas business this last quarter through our land-and-expand strategy, and that has driven some of the uptick for us. And we're really excited to see that as we also launch our digital product, as I mentioned last quarter, and we are seeing the clients really gravitate towards that as agentic AI adds enhanced value to our clients and our partnerships.
Michael, this is Jeff. When we look at the business by region, particularly when reviewing past Hudson results, it's clear there are two distinct segments. The RPO business shows that adjusted net revenue or gross profit equals revenue, with no cost of sales since expenses are categorized under SG&A. On the other hand, in the contracting business, which accounts for around half of our revenue, all contractor expenses appear as cost of sales, resulting in a significantly low adjusted net revenue and margin percentage. That's why we emphasize adjusted net revenue or gross profit as the true measure of revenue, as it better reflects the financials without that pass-through impact. Our contracting operations are predominantly in Australia and Asia Pacific, with minimal activity in the Americas. Therefore, RPO represents a larger share of revenue in the Americas compared to other regions.
Terrific. I just wanted to confirm that it was the impact of contracting. Just as long as we're on the Hudson business, I think the one region we didn't speak of yet is Europe. How does that look?
Jake, do you want to talk about what's going on with Europe?
Yes. Europe is currently undergoing a transformation. We are not only focusing on our land-and-expand strategy but also exploring new geographies. We entered the Middle East last year, and we are beginning to see growth in that area. Europe remains our smallest region compared to the U.S., Americas, and APAC. We are aware of the overall macroeconomic challenges affecting Europe. Last year, we experienced a downturn in the European market, partly because some clients decided to bring their business in-house, which affected our revenue. However, we are also seeing our land-and-expand strategy succeed in other areas within Europe. Thus, Europe will continue to be a priority for us, though it is the smallest region when compared to APAC and the Americas at this time.
Michael, I would add, we do have a new management team there that we're very excited about, and we're very optimistic about the Europe segment doing much better next year than this year.
Okay. Just one last question from me. Looking at Building Solutions, revenue was significantly higher than I had expected. So again, congrats on that. The gross margin was a little less than I had forecast, though. Is this gross margin sort of what we can expect going forward?
Yes. We aim for the mid-20s range. I believe that's the best figure to consider for the medium to long term. In any given quarter, it may be higher or lower depending on our business mix and the complexities of construction accounting. For some major projects, we might recognize expenses more quickly than we recognize revenue. Occasionally, revenue recognition gets delayed, and if we have already accounted for all the expenses, the final revenue recognized after completing the punch list for a big project can have an effective margin of 100% since all expenses have been acknowledged. Therefore, quarter-to-quarter results can fluctuate, and I wouldn't place too much significance on it. Our expectation is a mid-20s trend on a rolling four-quarter basis.
Our next question will come from an investor, David Siegfried.
So just a number of questions. First, regarding Building Solutions. I noticed KBS on September 1, they completed that 10,000-square-foot project in Nantucket. Are there more contracts like that in the pipeline?
This is Jeff. I'll take that. I'll answer it in two ways. On our slides, if you look at Slide 9, we show our backlog, which started to improve about a year ago as some of the larger projects that Rick mentioned, which were on hold, were resumed. We have had several projects that we've announced, some have been completed, and some remain in our backlog. Regarding our sales pipeline, we still have many opportunities that we are working to win and initiate. We also expect to have more projects like that one in the future.
Okay. Good to hear. I noticed you've indicated that you're looking for bolt-ons. Would you be looking for bolt-ons in the region or outside the region? Because you do have that facility in Oxford, Maine that's empty, would you fill capacity?
Yes. Good memory. The short answer to that is kind of D, all the above. Our highest priority is to add more size to our existing businesses. We feel like we have some good operating management teams across all of our businesses. And so we would like to give them more to manage. And so that could be an acquisition in their geographic region. Yes, you're right, we do have an idle factory in Maine, and we constantly explore different ways to reopen that and have more growth. And then the bar is a little bit higher for what we would call an adjacent acquisition where, let's say, it's a business we're in, so we know the business well, but it's in a new geography. We do look at those, but I'd say that's priority #2 after adding to what we have in an existing geography.
Okay. Question on the public investments that you have. I think most of that is in Gyrodyne? You have like 150,000 shares. What do you see as a catalyst to monetize that investment?
Yes, all our holdings in Gyrodyne are publicly available. They are currently in the process of liquidating, as indicated by their public filings. They have a long history of selling their remaining real estate assets and distributing the proceeds as dividends. It is very inexpensive based on net asset value, showing potential returns of 50% to 60% based on their publicly stated NAV. According to their public documents, their plan is to liquidate the remaining real estate holdings and distribute cash to wind down the entity by the end of 2027.
Okay. All right. And then, let's see, so regarding Hudson, I noticed they moved to a larger office in Edinburgh this past quarter. What was behind that change, move?
Very good question. I'll let Jake answer that one. He was there for the grand opening of that new location. Go ahead, Jake.
Yes, David, Edinburgh is a key location for us in the European market and it also serves many of our clients worldwide. One of the reasons we value Edinburgh is the dynamic talent available there, which includes language skills, cost efficiency, and an excellent culture. Over the past year, we reassessed our office presence. In Tampa, we transitioned from a shared office to our own leased space, and we applied the same strategy in Edinburgh. Previously, we were in a shared environment, which didn't fit the identity we’ve developed as Hudson Talent Solutions. Our team has now found a unique office right off Princess Street in Edinburgh, a fantastic location. This new space will help us attract the talent we need for our clients and provide a venue we can be proud of for welcoming both clients and potential clients, showcasing our culture and the quality of our team. We're really excited about this development and recently held a ribbon-cutting ceremony. Edinburgh is a lovely place to visit, and as I mentioned, it offers great talent and culture, and we are proud to be based there.
Yes. I noticed that new logos, expansions, and renewals significantly increased in Q3 compared to previous quarters. What contributed to that growth?
Yes. David, great analysis. As I mentioned before a couple of times, our land-and-expand strategy is really working. And what I mean by that is really looking at the clients that we service today and how do we continue to support them in other geographies and other business lines and making sure we're having those conversations. So we're seeing a pretty significant tailwind with that and allowing us to build on to our existing client portfolio. Not to mention adding the digital offering and our different solutions and our different products, with boutique executive search as well, we are seeing clients gravitate more to that one talent solution. So all of that is allowing us to gain more market share with our clients and provide a better level and a higher quality of level service to them.
Got it. Last quarter, Jeff mentioned that there was a company interested in our AI offering. Are there any updates on that? Has there been any expansion or success stories related to the AI offering?
Yes, David, we have some clients who have different demands and are on unique journeys. We've integrated our digital offerings into our RPO suite. Whether it's TalentIQ, Hudson Flow, or Hudson Core, each client has varying needs. Some seek a complete agentic AI solution, while others prefer specific components. We're able to provide that. Our TalentIQ solution, which offers real-time market intelligence and data, is gaining traction, and we are receiving positive feedback from several partners using it. Importantly, this is a global solution; it doesn't just focus on specific regions. Clients can approach us to identify the best locations for offshore finance or manufacturing facilities, and we assist in informing their decision-making processes.
Yes, this is Jeff. Sorry. I would encourage you to follow and all of our shareholders really follow the Hudson Talent Solutions website. They sometimes have news and announcements that you wouldn't see on Star's website or might not be a Star press release, but they will have more to say about what they're doing on the digital side going forward.
Got it. Okay. Question about the partnering with private equity or growth capital. If someone were interested at some point, how would that impact Star as a company? Would there be like would they have to buy equity in Hudson Talent or in Star Equity? Or I'm just trying to figure that out.
Yes, David, that's a great question. The short answer is we don't know exactly what it will look like. Our top priority is to return to the levels we achieved in 2022, but this time, we want to establish a more stable foundation. In 2022, Hudson's business represented about 70% of what we refer to as enterprise RPO, which involves working with Fortune 500 companies. This time, we're aiming for that figure to be much closer to 100%. When we return to the 2022 levels of around $100 million in gross profit and $20 million in EBITDA, we anticipate it will be more sustainable with a stronger, more stable client base. On top of that, with all our clients inquiring about how AI will impact talent procurement and assessment, it's challenging to predict the future in that area. For instance, we've discussed making interesting investments in digital, AI, and technology. However, Star is unlikely to invest tens of millions of dollars in initiatives that do not generate revenue or immediate cash flow. It may be more logical to collaborate with someone who has expertise and prior investments in digital AI companies, allowing us to leverage their knowledge and capital for these investments. There are various paths we could take, and I encourage you to stay tuned. This won't happen in the next few quarters, but I believe there is a strong likelihood of this occurring in the future. Essentially, we are transforming our business from a highly people-oriented model to one that is more tech-enabled, combining technology with expertise. When the time is right, there may be compelling partners to collaborate with.
Yes. Good. I know there's value in that division because a much larger company, Heidrick & Struggles, just was bought out this past quarter with similar type services that are offered. So what about the preferred shares? I know you utilize that as a tool for acquisitions. But is there a point where you see interest payments becoming unsustainable for the company to carry? I mean, you can't just offer preferred shares endlessly, correct?
That's a great question. Our perspective is that when using preferred shares for an acquisition, we see it as a 10x multiple, considering the par value is $10 per share and the annual dividend is $1 per share. If we can acquire a business that has a growing cash flow, similar to what we did earlier this year, and purchase that business at a multiple of 3, 4, or 5 times its cash flow, then that acquisition becomes very beneficial for us. Essentially, the cash flow generated from the acquisition should more than cover the dividends we would need to pay out.
Got it. Okay. One last question about the mutual funds that have been selling since the Star merger was announced. You took out 8% of the shares back in September, and we are still in the $9 range. Jeff, you were buying at higher prices. I know you believe the company is still undervalued, but I sense there might still be a selling pressure. Do you think you could execute another large block transaction to absorb those shares?
We're always open to that. I think the most effective share repurchases we've done have been a negotiated transaction with a block seller that is by far the most efficient and effective in terms of how to buy back stock. So if there is an overhang, as you say, or remaining block out there and they want to sell to us, we will certainly entertain that. And as far as we know, there are no longer any institutional holders who are above 5%. So if there is a remaining seller out there and they do have a block for sale, it's going to be a block size that's less than 5%.
The next question will come from William Kim with Presidio Asset Management.
So with the merger now closed, I guess, is there any update on the expected synergies that you plan to achieve?
Yes. Great question. We still believe that we'll deliver the $2 million in synergies. And that target could be higher over time, but that's the number that we're comfortable using. And where you're going to see that is in the corporate line. So if you look at the pro forma table in our press release, you'll see EBITDA from each one of our four business segments, and then you'll see a column for corporate. And in Q3, that total was $2.6 million for the quarter. That's a pro forma number. And so as we start to realize some of those synergies, you're going to see the corporate costs decline. And so our goal is to get that number down more to like $2 million a quarter or $8 million on an annualized run rate. So that's really where you're going to see the synergies show up if you're going to be tracking it quarter-to-quarter.
And do you think that's achievable in the near term? Or is that kind of a year out? Or what kind of timing are we looking at?
Yes, it's a gradual process that occurs in steps. We have strong confidence that we will reach that run rate. I would expect that in about six months from now, we should be at that run rate. In other words, the $2 million of synergies should be fully realized by then.
Great. A couple more questions on the corporate side before going to the RPO. Could you just clarify for us what the quarter end share count looks like with the repurchase?
Yes. You'll see the number on the cover of our 10-Q. I think it's right at 3.4 million shares, maybe a little bit higher than that.
Great. Great. Okay. And then is it fair to say there was a little bit of debt paydown this quarter as well?
We have debt on two of our businesses, the Building Solutions and the Energy Services, which have sub-level debt. In Building Solutions, we took out an acquisition loan when we acquired Timber Technologies, and this loan is amortizing. We are making principal payments on it every quarter, similar to the seller note at Timber Technologies. Over time, everything else being equal, we will see our debt decline as these two debt components decrease.
Great. And then my last question is about the RPO business. You previously mentioned the 2022 numbers and the environment the company has been in over the past year with very low attrition. Where do you think we are in the cycle now?
We are currently at a low point. We experienced a significant decline from 2022 to about a year ago. It seems that we've reached the bottom, and while we have not seen a strong recovery yet, we believe it is on the way, partly due to the unusually low attrition rates among Fortune 500 companies. If you had access to the attrition statistics for the Fortune 500, you would have noticed that they were unusually high coming out of COVID, starting in 2021 and continuing into 2022 and the beginning of 2023. Now, we are experiencing a period where attrition rates are substantially below normal levels. Some have described this as a no hiring, no firing job environment. We are beginning to see attrition rates return to a more typical level, but this is a very gradual process. I hope that addresses your question.
If the business were to return to a more normal environment, is that the basis for the $100 million in gross profit and $20 million EBITDA, or are we referring to a return to peak attrition rate numbers?
No, I think reaching that level would be considered mid-cycle, not peak. In the last two years since Jake took the lead in that division, we've introduced our services in the Middle East, launched offerings in Latin America, and made an acquisition in Japan. These are three significant regions we previously did not serve. The importance of the 2022 figures is that $100 million in gross profit and $20 million in EBITDA represents a 20% margin. In 2018, we were at a 10% margin. I've mentioned that once we reach a steady state, our growth should yield a 30% incremental margin. Therefore, we view returning to $100 million in gross profit and $20 million in EBITDA as a normalized mid-cycle level rather than a peak, especially with the business we've built now that includes these three new regions and our digital offering.
This concludes our question-and-answer session. I would like to turn the conference back over to Jeff Eberwein for any closing remarks. Please go ahead.
Well, thank you all for participating in our call and for listening in. We appreciate your interest in the company and really great questions. And so appreciate those. And if you want to get in touch with us, the contact information is on our press release, and you can also look at our website, starequity.com, and we'll be available to answer any questions you have. So reach out. Thanks again for your time today.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.