Prepared remarks
Greetings, ladies and gentlemen, and 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-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 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 all 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 at (203) 489-9500 or its Investor Relations representative, 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 Jeff 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'll begin by reviewing the first quarter results for 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 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 $0.7 million 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're 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 $700,000 of stock on our share repurchase program and we have $1.8 million remaining under the current authorization. Over the last 12 months, we've repurchased approximately $3.3 million of stock. And we continue to believe our stock is undervalued. And 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'll turn it over to Jake to discuss our Hudson Talent Solutions business.
Thank you, Jeff, 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 sustained 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 Asia Pacific market, where the conditions remained 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 the first quarter of 2026, exceeding levels seen in any quarter of 2025. We've 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, but 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'll 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'm 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'll 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 contract 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 $900,000. While these results were impacted by near-term factors, our sales pipeline and customer conversations indicate underlying demand remains intact. We're 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 $8.0 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 largest customers' purchases, we're also incorporating their specific needs in our investment decisions. In general, we believe we have significant opportunities to expand our presence in the geographies and markets we serve. I'll now turn the call back over to Jeff for closing remarks. Jeff?
Thank you, Rick. While the first quarter reflected expected seasonality and some near-term challenges, we're 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're 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're 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 road map, we believe we're 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
Operator provides instructions to participants. The first question today comes from Joseph Gomes with NOBLE Capital.
Jeff, I don't know if you could give us a little more insight into your recent announcement on GEE Group and what you think your game plan for that investment is?
Sure. Thanks for asking, Joe. We identified GEE Group as an interesting investment, partly because it was trading below cash per share, which you don't see very often. We also thought it could potentially be a good fit for our Business Services division and could have some synergies with our Hudson Talent business. 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've shown that merging another microcap into our structure can reduce a significant amount of unneeded duplicative costs. On GEE Group specifically, we were glad that they hired a financial adviser and decided to run a more formal process, and we are participating from the outside. We only have public information and do not have any material nonpublic information on GEE Group at this time. We decided to kick off the bidding process by putting a number out there, and importantly, our bid is contingent on the management team agreeing to more normal and customary severance. There are scenarios where we could be the winning bidder and scenarios where other people outbid us. When we enter into these situations, we like to own somewhere between 5% and 10% of the target, so if we are outbid we can still make money on our investment, and it also gives us more credibility when we go public with a bid because we are also a shareholder. We’ll just have to wait and see how it plays out, but either outcome would be positive for us whether we win the bid or someone outbids us and we make a nice profit on our investment.
Okay. Thanks for the update. And then one of the things we've talked about in the past is monetization of some of the real estate assets and/or some of the private investments that you guys have. And maybe you could give us an update there? And kind of similarly, you've got the Oxford Maine plant that you've talked about potentially restarting. Where does that stand at this point?
Yes. Great question, Joe. So we have talked about having, we believe, at least $20 million of assets that don't really generate any EBITDA or certainly not meaningful EBITDA, that we believe will get converted to cash over time. And we did demonstrate that by completing the sale-leasebacks on the assets that came with the Alliance Drilling Tools acquisition that we made a little over one year ago. And the two remaining significant pieces of real estate we own, one is the real estate that came with the Timber Technology acquisition two years ago. And then as you pointed out, we have an idle factory in Maine. And both of those pieces of real estate we believe could either be monetized via sale-leaseback transaction or just sold for cash. I can't remember the estimate off the top of my head, but it's in our investor deck; it's somewhere in the $8 million to $10 million range for those two added together, we believe. And then on the Catalyst MedTech investment, the majority shareholder there is a private equity firm in New York City. That business is doing well once again, completing acquisitions, having nice growth, having a nice future. And like all 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 that the PE firm does. There was a temporary downturn in the performance of that company, and the PE firm marked it down on their books. That was in the 2024 time frame and might have continued into 2025. So we marked it down on our books the same way they marked it down on their books. Now that performance has improved, they have marked it back up to our original mark from when we closed that transaction in May of 2023. But under GAAP accounting, we are not allowed to mark it up in the same way. So we're in the uncomfortable spot of having a different NAV for the exact same investment as what the PE firm has. Long story short, that will get converted to cash whenever the PE firm feels like it's right to investigate alternatives.
The next question comes from Theodore O'Neill with Litchfield Hills Research.
For Rick, on the Building Solutions, can you talk about geographically where you're seeing some strength going here in the second quarter?
Go ahead, Rick.
Thanks, Theo. Sure. Happy to address that. We have good visibility to our pipeline, particularly in KBS, our modular home company in Maine, where we have larger projects, so higher revenue projects. And we can see, beginning at the early stage of the pipeline, where the opportunities are. And then as we move through the pipeline and we begin talking about building modular components for our construction partners, we call that the active pipeline. The active pipeline are those projects where we're negotiating the terms, we're doing the initial design work, but we still haven't signed a contract. So as we look into the active pipeline, we feel pretty confident there is strong demand still for more construction activity. But with interest rates where they are and a lot of uncertainty about interest rates, as well as now having war in the Middle East and a number of other things, it's just been very difficult to move those projects out of the pipeline and into construction-ready mode. But I think that based on what we're seeing here recently, we're going to see significant improvement in the second quarter.
Okay. And I don't know if this is a question for you, Rick. But on the Energy Services, you or Jeff, could you talk about if there are any dynamics related to the change in oil price and the drilling service business?
Yes, I'll take that, Theo. Being from Texas originally, this is a sector I've followed most of my career. We're very happy — I'll get to your question in a second — we've been very happy with this acquisition and we feel like it's really thrived inside of Star. We have invested for growth. They had a plan to increase their market share. And we've executed really well on that plan since we completed the acquisition in March. If you look at Q1 results, 2026 versus 2025, for example, if you look at the pro forma table in our press release, there was pretty nice year-on-year growth and that was way before any increase in oil prices. In fact, the industry shrank in Q1 2026 versus Q1 2025, if you just look at the rig counts in the U.S., for example. They did a very good job of growing in some nontraditional sectors and winning business in things like geothermal, which has a really good growth outlook in the U.S. They've always been active in mining opportunities, water wells. They've also gotten into some carbon capture and some hydrogen drilling, which were really kind of off the radar screen a few years ago. So we're excited about that business. It was performing very well. If activity improves later this year and into the next year, and we think it will, we're poised to continue to have good growth there. It's a little early for clients to suddenly flip a switch and start spending more capital, but the early indicators are certainly there and the conversations are happening.
Okay. My last question is about — can you give us any sort of thoughts about Q2 operating expenses and whether we should be looking for them to be similar to the Q1 levels?
We don't give guidance line by line on that, but we do look at where the consensus is on Bloomberg. And the Q1 results were disappointing to us. We didn't hit our budget. It's short-term temporary factors. But when we look out into Q2, when we look into the second half of the year, I think the Bloomberg consensus for adjusted EBITDA is above $2 million, $2 million to $2.5 million, something like that. We're comfortable with that. If we hit that number, we'll be positive — we'll have positive results for the first half of the year. In other words, the Q2 positive adjusted EBITDA should exceed the Q1 loss. And then if we look out to the second half of the year, the Bloomberg consensus is that our adjusted EBITDA should be — I think it's $9 million. It's in the $8 million to $10 million range. And we're very comfortable with that. Is that an absolute guarantee? No, it's not, but that's what we're projecting internally. It could be higher than that, could be lower than that. But that is our best estimate based on everything we're seeing in the business and based on what we see in the market and conversations with customers, what we see in our pipeline, and historical conversion rates of that pipeline into backlog, which then translates into revenue.
The next question comes from Michael Mathison with Sidoti.
A couple of questions from me. First, sort of a big picture one for Business Services. In light of higher energy prices, global tensions, inflation, all the things we read about, can you comment on hiring trends in the three regions where Business Services operates?
Yes. I'll turn that over to Jake. But just at a high level, I would say our clients predominantly are Fortune 500 companies. And in general, we're asking them to sign multiyear contracts. We had some really nice significant long-term contract renewals from two of our five top clients in Q1, which was very refreshing. But whenever there's uncertainty, regardless of the cause, it's not conducive to the Fortune 500 making long-term commitments. So it is not helpful, but we don't want to use it as an excuse. We want to fight through it and keep pushing and keep providing good services. Jake, I'll turn it over to you to get a little more granular.
Thank you, Jeff. Thank you for the question. When you look at the overall macro hiring, what we're seeing is truly spotty. By spotty, I mean we definitely see some green shoots and some tailwinds in certain areas with some of our businesses. Conversely, we've also had some of our clients say, 'Hey, hold on a second, let's reevaluate where we're investing.' If you look at each region and you take APAC in general first, the hiring volumes in APAC were still relatively strong, but the mix was different. We saw more internal mobility or internal hiring and movements internally versus hiring externally and bringing new people into the businesses. In some of our fee structures in that region, an internal placement is on a lower fee structure than an external placement for multiple reasons. One is that we're sourcing internally; and two is the optics of that cost of just moving internal placements around. In EMEA, the broader market is causing a lot of pause and rethinking investments across all of the countries in EMEA. As I mentioned in the earnings call, we did take a structured approach to reevaluate our Middle East presence. We're going to continue to be in the Middle East. We're going to continue to have an entity and resources there and will help support our enterprise-level clients in the Middle East. But it is taking a drag on a lot of the hiring activity there and having our clients rethink and pause in certain pockets where they would make investments. In the Americas, we're seeing some pretty good signs of strength right now. Latin America continues to be a growth market for us. We're signing new contracts there, a couple this week already. So that's exciting. But it is at a smaller clip and a smaller pace than what we normally see. So we will see contracts, as Jeff mentioned, multiyear contracts. We can hire anywhere from 100 to 1,000 people, if not north of that, every single year. But now we're seeing more project-based hiring. Where we're seeing project-based hiring is a specific time frame of less than one year and a specific number of anywhere from 20 to a couple of hundred. So you get to more of the project-based versus that long-term forecast. As a whole, we're still seeing relatively low attrition across all of the markets. There are some pockets where we are continuing to see some growth, which is great in many of our businesses. But to Jeff's point, our land-and-expand strategy and offering services in markets that were untapped to us before is a critical strategy for our business. We're doing that in the likes of Japan and Latin America and we'll continue to grow in those areas. I hope that answered your question.
It certainly did. Very helpful. Turning to Energy Services. The revenue growth is striking, as you pointed out in your prepared remarks, speaking of market share gains and so forth. Do you feel like past a certain point, Alliance will have to invest in more drilling equipment just to fulfill demand?
Yes. We feel like we've already done that. The CapEx levels there might be essentially flat with the Q1 run rate. After we acquired it, we took a countercyclical approach. We saw an opportunity to increase share and enter some of these new markets. We approved, one step at a time, a higher CapEx spend and that higher CapEx spend very quickly led to revenue growth. We got positive feedback on our thesis very quickly. A lot of that was a one-time increase that was needed to grow the business. From here, we can keep that level flat and still have really good growth.
Great. I'll close out with one more question coming back to Building Solutions. Obviously, the weather in the Northeast was horrendous and that clearly played a role. In the balance of the year, do you see the book-to-bill coming back to 2025 levels?
Short answer is...
I'm sorry, Jeff, why don't you go ahead.
I was going to say short answer, yes, and turn it over to Rick. Go ahead, Rick.
The problem is the numerator in that equation. So as revenue picks up, we expect that, that's going to continue to improve. So I guess that's all the color that I can provide on that for now.
That concludes today's question-and-answer session. I will now turn the call over to Jeff Eberwein for closing remarks.
Well, thank you for joining us. Thank you for your interest in our company and we're available. Our contact information is on our website and is in the press release and our corporate materials. So 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 the Investors section of our website, www.starequity.com. Thank you for participating and have a pleasant day.