Star Equity Holdings' Q3 2025: Contradictions Emerge on AI Adoption, Merger Synergies, Hiring Demand, Growth Strategy, and Attrition Rates

Date of Call: November 13, 2025

Financials Results

• Revenue: $48.0M, up 30% YOY (Q3 2025 vs Q3 2024)
• EPS: GAAP net loss of $0.54 per diluted share (loss of $1.8M) vs net loss of $0.28 per diluted share (loss of $0.8M) in Q3 2024; adjusted net income per share $0.02 vs adjusted net loss of $0.13 prior-year; pro forma adjusted EPS $0.19 vs -$0.54 prior-year

Guidance:

• Expect to deliver $2.0M of synergies (reduce corporate costs toward ~$2M/quarter or ~$8M annualized).
• Synergy run rate targeted to be achieved in ~6 months.
• Board authorized a $3.0M share repurchase program; repurchased ~8% of shares in Q3.
• Building Solutions long-term gross margin target: mid-20s% (trend-line basis).
• Aim to return Business Services (Hudson) toward a mid-cycle target of ~$100M gross profit and ~$20M EBITDA as attrition normalizes.
• Open to partnerships/capital for tech/AI investments; timing not immediate.

Business Commentary:

* Revenue and Earnings Growth: - Star Equity Holdings reported revenue of $48 million for Q3 2025, marking a 30% increase from the same quarter in 2024. Gross profit rose 11%, and the company reported a net loss of $1.8 million, compared to a net loss of $800,000 in the third quarter of last year. - The growth was driven by the inclusion of Star Operating Companies post-merger, reflecting improved operating leverage and the impact of the merger on the company's overall financial performance.

• Pro Forma Financial Metrics:
• On a pro forma basis, considering the full 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.

• This improvement was due to the integration of Star Operating Companies, which contributed positively to Star Equity's financial performance and pro forma adjusted EBITDA.

• Business Services Segment Performance:

• The Business Services segment maintained profitability with revenue at $37 million, slightly up from the previous year, despite a challenging talent acquisition market.

• Resilience in this segment was attributed to strong client relationships, successful execution of the land-and-expand strategy, and the ability to manage costs effectively, sustaining margins in a difficult market environment.

• Building Solutions and Energy Services Growth:

• The Building Solutions segment achieved $9.6 million in revenue with $1.7 million in gross profit and adjusted EBITDA of $600,000.
• The increase in revenue was due to capitalizing on the rebound in commercial construction demand and strong project management, supported by a healthy pipeline and high client retention.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted revenue of $48M (up 30% YOY), pro forma adjusted EPS of $0.19 vs -$0.54 prior year, adjusted EBITDA improvement and pro forma adjusted EBITDA of $3.1M. CEO: "we are operating from a much stronger and more diversified platform"; repurchased ~8% of shares and authorized a $3M buyback; expect $2M of synergies and mid-20s gross margins.

Q&A:

• Question from Theodore O'Neill (Litchfield Hills Research, LLC): 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.
  Response: Projects that were delayed in 2024 finally progressed, driving higher throughput in Building Solutions.

• Question from Theodore O'Neill (Litchfield Hills Research, LLC): 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?
  Response: Q4 seasonality is uncertain and weather-dependent; optimistic assuming sites are ready and weather holds.

• Question from Theodore O'Neill (Litchfield Hills Research, LLC): 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?
  Response: Those project types remain important and present opportunities, though government program reductions could temper volumes; expect recovery over time.

• Question from Michael Mathison (Sidoti & Company, LLC): It looks from your slide deck like the adjusted net revenue as a percentage of sales is higher in the Americas versus APAC. I wondered if you could just explain what's behind that.
  Response: Americas mix is heavier on RPO (no COGS), whereas APAC has substantial contracting where contractor costs are recorded in COGS, lowering adjusted net revenue percent.

• Question from Michael Mathison (Sidoti & Company, LLC): 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?
  Response: Europe is our smallest region, experienced a downturn and some clients insourced work, but a new management team and expansion into other geographies (e.g., Middle East) should drive improvement next year.

• Question from Michael Mathison (Sidoti & Company, LLC): Looking at Building Solutions, revenue was significantly higher than I had expected. The gross margin was a little less than I had forecast, though. Is this gross margin sort of what we can expect going forward?
  Response: Target mid-20s% gross margin on a medium/long-term rolling basis; quarter-to-quarter results can be lumpy due to construction accounting and project mix.

• Question from David Siegfried (Investor): 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?
  Response: Yes — backlog has improved and the sales pipeline contains similar projects; more such contracts are expected.

• Question from David Siegfried (Investor): 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?
  Response: Priority is add-on acquisitions to expand existing businesses/geographies; adjacent (new-geography) deals are secondary; idle Maine facility could be reactivated as opportunities arise.

• Question from David Siegfried (Investor): On the public investments that you have. I think is most of that in Gyrodyne? You have like 150,000 shares. What do you see as a catalyst to monetize that investment?
  Response: Holdings in Gyrodyne are in a company publicly liquidating real estate assets with planned distributions and wind-down toward end of 2027 per its filings.

• Question from David Siegfried (Investor): Regarding Hudson, I noticed they moved to a larger office in Edinburgh this past quarter. What was behind that change, move?
  Response: Edinburgh is a strategic talent hub; moved from shared to leased office to support growth, client engagement and attract talent.

• Question from David Siegfried (Investor): I noticed from Q3 last year, the new logo and expansions and renewals was up considerably. So what was behind that uptick?
  Response: The land-and-expand strategy, plus digital offerings and boutique services, drove renewals, extensions and new logo wins.

• Question from David Siegfried (Investor): Last quarter you mentioned one company interested just in the AI offering. Any follow-up — expansion or success stories with the AI offering?
  Response: Digital capabilities have been embedded into RPO; TalentIQ has multiple clients and positive feedback, and some customers adopt parts or full agentic-AI solutions.

• Question from David Siegfried (Investor): If partnering with private equity or growth capital, how would that impact Star — would they buy equity in Hudson or Star?
  Response: Open to partnerships especially to fund tech/AI investments; structure TBD, likely used to accelerate digital capabilities without Star funding large upfront cash outlays.

• Question from David Siegfried (Investor): What about the preferred shares used for acquisitions — is there a point where interest/dividends become unsustainable?
  Response: Preferred shares are accretive when acquired business cash flows (at lower multiples) cover dividend obligations; acquisition economics guide sustainability.

• Question from David Siegfried (Investor): Could you do another big block repurchase to remove overhang?
  Response: Yes — negotiated block repurchases are preferred and effective; no known institutional holders >5% remain, so any blocks would be <5%.

• Question from William Kim (Presidio Asset Management): With the merger now closed, is there any update on the expected synergies that you plan to achieve?
  Response: Still targeting $2M of synergies, realized primarily through lower corporate costs; aim to reduce corporate to about $2M/quarter (~$8M annualized).

• Question from William Kim (Presidio Asset Management): Do you think that's achievable in the near term? Or is that kind of a year out? What timing are we looking at?
  Response: High confidence in the target; expect to reach the run rate in roughly six months.

• Question from William Kim (Presidio Asset Management): Could you clarify what the quarter-end share count looks like with the repurchase?
  Response: Quarter-end shares roughly 3.4 million (see 10-Q for exact figure).

• Question from William Kim (Presidio Asset Management): Was there a little bit of debt paydown this quarter as well?
  Response: Yes — sub-level debt (Building Solutions acquisition loan and seller note) is amortizing, so principal payments are reducing that debt over time.

• Question from William Kim (Presidio Asset Management): Where in the RPO cycle do you think we are now?
  Response: Business bounced along the bottom; attrition rates are abnormally low but are beginning a gradual return toward normal, implying a gradual recovery ahead.

• Question from William Kim (Presidio Asset Management): If the business got to a more normal environment, is that where you're getting the $100M gross profit, $20M EBITDA number? Mid-cycle or peak?
  Response: Management views the $100M gross profit / $20M EBITDA target as a mid-cycle, normalized level given new geographies and digital offerings, not a peak.

Contradiction Point 1

AI Rollout and Client Adoption

It involves the progress and client adoption of AI technologies, which are crucial for the company's future growth and competitive positioning.

Has the AI rollout yielded any success stories or expansions? - Unknown Attendee

2025Q3: As we continue to build out our AI capability, we're seeing more and more clients showing interest in partial AI solutions. - Jacob Zabkowicz(Global CEO at Hudson RPO Holdings LLC)

How is the Hudson Fusion AI rollout progressing in Europe, and how does it compare to competitors? - Unidentified Analyst

2025Q2: We're seeing wide adoption among existing clients and a very high rate of adoption in new logo clients. - Jacob Zabkowicz(Global CEO of Hudson RPO Holdings LLC)

Contradiction Point 2

Merger Synergies and Capital Allocation

It involves the expected synergies and capital allocation priorities post-merger, which are critical for investors and stakeholders.

Can you provide an update on expected post-merger synergies? - William Kim (Presidio Asset Management)

2025Q3: The goal is to achieve $2 million in synergies, primarily in the corporate line. - Jeffrey Eberwein(CEO & Director)

What are Hudson’s capital allocation priorities if the Star Equity merger is approved? - Unidentified Analyst

2025Q2: We have identified a number of initial opportunities that would provide immediate benefits, including cost saving and revenue enhancing opportunities. - Jeffrey E. Eberwein(CEO & Director)

Contradiction Point 3

Client Hiring Demand and Market Conditions

It reflects differing perspectives on client hiring demand and market conditions, which directly impact the company's revenue and operational strategy.

Given Q3 set a record, will seasonal trends continue into Q4? - Theodore O'Neill (Litchfield Hills Research, LLC)

2025Q3: We have a strong backlog of work, but we'll have to wait and see how the weather shakes out, but the pipeline looks pretty good, and we'll be prepared if we end up with a good weather quarter. - Richard Coleman(COO)

How did clients react this quarter, and did headlines affect top-line demand? - Marc Riddick (Sidoti & Company)

2025Q1: There was momentum in energy, but macro uncertainty created hiring demand uncertainty. Many enterprise-level clients paused their plans, while some commercial areas saw a return to normalcy. Macroeconomic stabilization is needed for client confidence in future growth plans. - Jake Zabkowicz(CEO of Hudson RPO)

Contradiction Point 4

Future Growth Investments and Strategy

It reflects a shift in the company's strategic focus on growth investments and M&A, which impacts shareholder expectations and financial planning.

Are you targeting bolt-on acquisitions in the region or outside the region? - Unknown Attendee

2025Q3: Our priority is to add size to existing businesses. But the bar for adjacent acquisitions in new geographies would be higher. - Jeffrey Eberwein(CEO)

Can you discuss cash allocation priorities, the acquisition pipeline, valuation levels, and how attractive the opportunities are compared to six months ago? - Marc Riddick (Sidoti)

2024Q4: We remain open to acquisitions as well, especially in areas where we think we can enhance our geographic reach and add services. - Jeff Eberwein(CEO)

Contradiction Point 5

Attrition Rates and Hiring Volumes

It involves changes in expectations regarding attrition rates and hiring volumes, which are critical indicators for the company's operational performance and workforce management.

Can you discuss the softness in workplace and low-income housing and whether this view still holds? - Theodore O'Neill (Litchfield Hills Research, LLC)

2025Q3: Attrition normalized for the second quarter running. This will likely lead to hiring volumes increasing. - Richard Coleman(COO)

Will the attrition rate return to high single digits or low double digits in the next few quarters? - David Siegfried (Private Investor)

2024Q4: Attrition rates are normalizing, with a pendulum shift from record highs in 2021-2022 to low levels in 2023-2024. - Jake Zabkowicz(Global CEO-Hudson RPO)