Star Equity Holdings, Inc. Common Stock 2026 Q2 Earnings Call

Please go ahead. Thank you, operator, and welcome everyone.

We greatly appreciate your interest in Star Equity Holdings, and thank you for joining us today. I'll begin by reviewing some highlights from our second quarter results at the holding company level. After that, Jake Zabkowicz, CEO of Hudson Talent Solutions, will give us an update on the performance of that business, which is inside our business services division. Rick Coleman, our COO, will provide some insights into the performance of our building solutions and energy services divisions. Then I'll discuss some of the key points in the merger with Harte Hanks that we announced this morning. One item I'd like to point out just to get started is slide 5 from our earnings deck, where you can see the progress we've made on the cost synergies.

You may recall that a year ago, when we announced the merger with Hudson, we projected approximately $2 million of merger synergies, and we believe we've achieved approximately $3 million of merger synergies at this point in time. We measure that from the adjusted EBITDA table, which you can find on pages 10 and 12 of our earnings release. In that table, you'll see that for the first half of the year, our corporate costs, if you look at the corporate column, were $3.6 million. That's down from $5.1 million on a pro forma basis. So that's savings year-over-year of $1.5 million for six months, and that's how we get to the $3 million merger synergy number. When we look at the division results for Q2, business services had modest revenue growth.

Gross profit was down slightly year over year, reflecting some pressure in the professional talent market. We did have growth investments of $1.5 million, and just a reminder, that rolls through our income statement, so that shows up as an expense and the benefit will come in future periods. Our building solutions division had results below our expectations. That is due to market softness and the timing of some contracts when the project started, and in particular, when the revenue gets recognized. We will come back to this issue, but we had a large project that was mainly completed in Q2, but most of the revenue for that project will be recognized in Q3. Energy services posted very strong year-over-year gains in revenue, gross profit, and adjusted EBITDA. That is due to higher utilization of our tools and some new client wins in the geothermal and mining industries.

Turning to the balance sheet, we ended the second quarter with $8.9 million in cash. That does include $2.1 million of restricted cash. Our working capital, excluding cash, was $21.5 million, which compares to $22.4 million at the end of the year. So we have made a little bit of progress on more efficient working capital management. We have continued to repurchase shares. We repurchased about $0.2 million in Q2, and we have $1.6 million remaining on our authorization of $3 million, which the board approved last September. We continue to believe our stock is undervalued, and we view share repurchases as a very attractive allocation of capital. Across the company, we remain focused on disciplined execution, cost management, and we are continuing to invest in growth initiatives that we believe will enhance our competitive position and drive improved financial performance over time.

Now I would like to turn it over to Jake to discuss our business services division.

Thank you, Jeff, and good morning. As Jeff mentioned, our business services division delivered solid performance in the second quarter, with revenue up modestly year over year, despite continued macroeconomic uncertainty and sustained pressure in the professional talent market. As shown on slide 11, second quarter 2026 business services revenue was $36.4 million, up 2% from $35.5 million in the prior year quarter. While gross profit was $17.8 million, down 4% from $18.6 million a year ago. Adjusted EBITDA for the division was $1.6 million, compared to $2.2 million in the prior year quarter. That decline largely reflects deliberate growth investments in the second quarter, as we invested $1.5 million with our digital solution, Hudson Fusion, entering into new geographies and also related initiatives, compared to $0.8 million in the second quarter of 2025.

Regionally, as shown on slide 13, the Americas performed well with gross profit growth of approximately 10%, while the EMEA and the APAC regions gross profit declined 10% and 13% respectively, reflecting more challenging conditions in those markets. APAC remains our largest region at 62% of the divisional revenue and 43% of the gross profit in the quarter, with the Americas contributing 39% of the gross profit and EMEA at 18%. We have maintained a strong focus on innovation and operational efficiencies, including the expanded development of our agentic AI and automation tools to enhance recruiter productivity, improve our candidate matching, and deliver greater value to our clients. These initiatives help limit the year-over-year gross profit decline to less than 5% despite mixed regional backdrop. We believe our continued focus on technology-enabled delivery and deep client relationships position us to capitalize on the improving market conditions over time.

Turning to slide 12, on a rolling four-quarter basis, RPO new business total contract value was $122.5 million, comprised of $8.3 million in new logo wins and $114.2 million in renewals and expansions with our existing clients. The trailing 12-month gross profit of $72 million has been relatively stable over the past four quarters, while our trailing 12-month adjusted EBITDA margin was 5.4%, down from 7.9% a year ago. Again, reflecting the growth investments I mentioned earlier. Importantly, we've seen an uptick in new customer conversations and robust new logo interest in recent months, supported by enhancements in our geographical footprint and digital offerings. We continue to execute our land and expand playbook, including leveraging our recent acquisition with ACG in the Japanese market.

Looking ahead, we continue to take a disciplined approach and execute our playbook for the remainder of the year with a focus on creating a more resilient, agile, and growth-oriented business over the longer term. Now I'll turn the call over to Rick, who will discuss the financial and operational performance of our building solutions and our energy services division.

Rick? Thank you, Jake, and good morning, everyone.

I'll start with an overview of our building solutions division highlighted on slide nine. As Jeff mentioned earlier, second quarter performance was below our expectations as both residential and commercial construction markets remain challenging. Our results were further impacted by project timing and revenue recognition as one large project that was largely constructed in the second quarter will be completed and recognized in the third quarter. Second quarter building solutions revenue was $14.6 million, gross profit was $3.2 million, and adjusted EBITDA was a half a million. On a pro forma basis for the second quarter of 2025, building solutions revenue was $20.4 million, gross profit was $5.2 million, and adjusted EBITDA was $2.3 million.