Star Equity signals strong Building Solutions momentum and targets value creation with Hudson Global merger

Earnings Call Insights: Star Equity Holdings (STRR) Q2 2025

MANAGEMENT VIEW

* Richard Kenneth Coleman, Chief Executive Officer, reported a 76% revenue increase over the same quarter last year, primarily from organic growth in the KBS business and the inclusion of Alliance Drilling Tools and Timber Technologies. He highlighted an improved gross margin of 26% versus 16% in the prior-year period, attributing the gain to higher revenues and the addition of higher-margin businesses.
* The Building Solutions division saw a 51% increase in revenues to $20.4 million, with Coleman noting, "We've seen a significant uptick in customer interest in construction activity over the past few quarters." The division’s order backlog stood at $25.7 million at quarter end, compared to $14 million a year ago.
* On Energy Services, Coleman stated, "The integration of Alliance Drilling Tools, or ADT, is continuing smoothly," and noted that despite macroeconomic headwinds, ADT generated $3.3 million in revenue and $0.5 million in non-GAAP adjusted EBITDA.
* David James Noble, Chief Financial Officer, stated, "Gross profit was $6.3 million, up 182% versus Q2 of '24, driven by increased revenue at KBS as well as the addition of TT and ADT to our portfolio of companies. SG&A as a percentage of revenue decreased to 27% compared to 40% in the second quarter of last year."
* Jeffrey E. Eberwein, Executive Chairman, highlighted two milestones: "Star Equity's $5.8 million in adjusted EBITDA was driven by a $5.5 million realized gain from Star Equity Funds investment in Servotronics... This marks a significant milestone and watershed win for Star Equity Fund." He also emphasized the definitive merger agreement with Hudson Global, which is expected to "generate considerable value for stockholders due to increased scale, further diversification of revenue streams and elimination of redundant public company costs."

OUTLOOK

* Jeffrey E. Eberwein stated, "We are confident in the Building Solutions outlook for the next few quarters, it should be at least flat with what we did in Q2, I would say the same on Energy Services."
* Eberwein added regarding the forthcoming merger, "We believe we're able to remove $2 million of redundant public company costs, corporate overhead cost -- that doesn't happen on day one, but a few quarters, certainly a year-in, and we think those cost savings will be fully realized."
* No formal guidance was issued, consistent with the previous quarter’s position.

FINANCIAL RESULTS

* Star Equity reported a positive net income from operations of $3.5 million in Q2 2025 compared to a net loss from operations of $3.8 million in Q2 2024.
* Non-GAAP adjusted net income from operations was $6 million or $1.87 per share, compared to an adjusted net loss of $0.9 million or $0.29 per share in the prior-year period.
* Non-GAAP adjusted EBITDA from operations was a positive $7 million, primarily driven by realized gains on securities in the Investments division.
* Consolidated cash flow from operations for Q2 2025 was an outflow of $1.7 million, while unrestricted cash was $1.9 million at quarter end, with the reduction attributed to the acquisition of ADT.

Q&A

* Tate H. Sullivan, Maxim Group: Asked about divisional pricing power. Richard Kenneth Coleman explained that Building Solutions can maintain or raise prices in response to lumber market volatility, and Energy Services has "very little restriction on our ability to gently raise prices," especially on in-demand tools.
* Sullivan: Inquired about merger closing timing. Jeffrey E. Eberwein responded, "That's the plan... as quickly as we possibly can. The last hurdle at this point is getting the shareholder vote."
* Michael Jay Mathison, Sidoti & Co.: Questioned Energy Services’ ability to increase prices amid industry pressure. Eberwein replied, "ADT has a really high service level... we've been able to increase utilization and gain share because of that."
* Mathison: Asked about the nature of Building Solutions’ backlog. Coleman described it as "a mix of a little bit of everything," and Eberwein noted, "We have a policy of issuing a press release on any large projects... we started to get some of those projects unclogged."
* Mathison: Probed for forward guidance post-merger. Eberwein stated, "We stopped giving formal guidance... we are confident in the Building Solutions outlook for the next few quarters."
* Theodore Rudd O'Neill, Litchfield Hills Research: Asked about $4.9 million in Other income. Eberwein confirmed, "Yes, it does," regarding the $5.5 million realized gains.
* O'Neill: Asked about prefab vs. stick-built dynamics. Coleman highlighted quality, timing, and waste advantages for prefab, adding "as more partners and builders... get comfortable with modular construction, then... that creates additional opportunities for us."

SENTIMENT ANALYSIS

* Analysts focused on pricing power, backlog quality, and merger execution, indicating a positive but probing tone about sustainability of results and post-merger plans.
* Management’s prepared remarks conveyed confidence, with phrases like "we're excited about the business," but in the Q&A were more measured, reiterating the absence of formal guidance and explaining dynamics behind divisional performance.
* Compared to the previous quarter, both analysts and management displayed increased optimism, particularly regarding backlog momentum and merger prospects.

QUARTER-OVER-QUARTER COMPARISON

* Revenue and gross profit growth accelerated sharply from Q1 to Q2, with notable improvement in margins and the transition from operating loss to profit.
* Guidance language remained informal but signaled sustained confidence in both Building Solutions and Energy Services, consistent with prior quarter tone, but with added emphasis on value creation from the Hudson Global merger.
* Analysts shifted their focus from project timing and integration issues in Q1 to pricing power and merger timing in Q2.
* Management’s confidence level rose, bolstered by strong performance and successful investment outcomes.

RISKS AND CONCERNS

* Macroeconomic headwinds including rig count declines affected the Energy Services division, though integration of ADT is proceeding smoothly.
* Cash outflows were noted, with management pointing to acquisition-related costs and improvements expected from operational performance and future cash receipts.
* The merger with Hudson Global remains subject to shareholder approval, representing a key near-term risk and opportunity.

FINAL TAKEAWAY

Star Equity Holdings delivered substantial revenue and profit growth in Q2 2025, driven by organic expansion and recent acquisitions. Management emphasized confidence in the outlook for its core divisions and highlighted the strategic rationale and expected synergies from the pending Hudson Global merger, positioning the company for continued value creation and operational improvement in the coming quarters.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/strr/earnings/transcripts]

MORE ON STAR EQUITY HOLDINGS

* Star Equity Holdings, Inc. (STRR) Q2 2025 Earnings Call Transcript [https://seekingalpha.com/article/4813177-star-equity-holdings-inc-strr-q2-2025-earnings-call-transcript]
* Star Equity Holdings and Hudson Global to merge in stock-for-stock deal [https://seekingalpha.com/news/4451319-star-equity-holdings-and-hudson-global-to-merge-in-stock-for-stock-deal]
* Seeking Alpha’s Quant Rating on Star Equity Holdings [https://seekingalpha.com/symbol/STRR/ratings/quant-ratings]
* Historical earnings data for Star Equity Holdings [https://seekingalpha.com/symbol/STRR/earnings]
* Financial information for Star Equity Holdings [https://seekingalpha.com/symbol/STRR/income-statement]