Star Equity Q4 2024 Earnings Report

Star Equity EPS Results

• Actual EPS: $0.15
• Consensus EPS: -$0.17
• Beat/Miss: Beat by +$0.32
• One Year Ago EPS: N/A

Star Equity Revenue Results

• Actual Revenue: $17.10 million
• Expected Revenue: $14.00 million
• Beat/Miss: Beat by +$3.10 million
• YoY Revenue Growth: N/A

Star Equity Announcement Details

• Quarter: Q4 2024
• Date: 3/20/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, March 20, 2025
• Conference Call Time: 10:00AM ET

Hudson Global, Inc. is a publicly traded talent acquisition and recruitment firm that provides a range of staffing and workforce solutions to organizations around the world. Operating primarily through two service lines—recruitment process outsourcing (RPO) and retained executive search—the company connects employers with qualified professionals across a variety of disciplines, including finance, accounting, technology, human resources and legal. Its flexible engagement models encompass project-based sourcing, volume hiring and high-level leadership searches, enabling clients to tailor recruitment strategies to their specific business objectives.

With a global footprint spanning North America, Europe, Asia-Pacific and Latin America, Hudson Global supports multinational corporations as well as regional and niche market clients. The firm leverages a combination of proprietary technology, industry-focused talent networks and consultant expertise to streamline candidate identification, assessment and onboarding. By integrating data analytics and market intelligence into its service delivery, Hudson Global seeks to reduce time-to-hire and improve retention rates for hard-to-fill and strategic roles.

Founded in 1977 and headquartered in New York City, Hudson Global has evolved through a series of strategic acquisitions and organic expansions to reinforce its position in the competitive staffing landscape. The company is governed by a board of directors and led by an executive management team with extensive experience in human capital, professional services and global operations. As a Nasdaq-listed entity, Hudson Global adheres to public company governance standards while continuously refining its offerings to address evolving talent market trends and client demands.

Star Equity Q4 2024 Earnings Call Transcript

Key Takeaways

• In Q4 2024, revenue grew 21.1% YoY to $17.1 billion and full-year revenue rose 16.5% to $53.4 billion, primarily driven by the acquisitions of Timber Technologies and Big Lake Lumber.
• Fourth-quarter gross profit surged 55.3% to $4.5 million thanks to Timber Technologies’ high margins, while full-year gross profit fell 7.2% due to a one-time $574 thousand purchase price adjustment and weaker demand at KBS and Edge Builder.
• The Building Solutions division saw demand recover in H2 2024 with signed backlog reaching $17.2 million at year-end and momentum carrying into Q1 2025 amid structural tailwinds for factory-built construction.
• The newly formed Energy Services division from the acquisition of Alliance Drilling Tools adds 48% gross margins and $2.4 million adjusted EBITDA, diversifying the company’s operating portfolio.
• Operating cash flow swung to an outflow of $1.5 million in Q4, cash balances fell to $5.6 million from $18.9 million, and interest-bearing debt climbed to $11.3 million following Timber Technologies financing.

Presentation

[Operator]

Greetings, ladies and gentlemen, and welcome to Star Equity Holdings' Fourth Quarter 2024 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 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.

[Operator]

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 this morning. 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 Rick Coleman, Chief Executive Officer of Star Equity.

[Rick Coleman, CEO at Star Equity Holdings]

Thank you, Operator. Good morning, and thank you for joining us today for our Fourth Quarter 2024 Results Conference Call. On the call with me today are Executive Chairman Jeff Eberwein and Chief Financial Officer Dave Noble. I'll start today by providing an overview of our recent business developments and financial highlights. Dave will provide additional details on our consolidated financial results. In the fourth quarter of 2024, revenue increased by 21.1% to $17.1 million versus $14.1 million in the fourth quarter of 2023. For the full year 2024, revenue increased 16.5% to $53.4 million from $45.8 million in 2023. The revenue increases in both periods are largely attributable to M&A activity, particularly the acquisition of Timber Technologies, which we completed in the second quarter of 2024, and the full-year revenue impact of our Big Lake Lumber acquisition, which we completed in the fourth quarter of 2023.

[Rick Coleman, CEO at Star Equity Holdings]

Fourth quarter 2024 gross profit increased 55.3% to $4.5 million versus $2.9 million in Q4 2023, due primarily to the inclusion of gross profit from Timber Technologies, which generates the highest gross margin of Star's Business Solutions businesses. Full-year 2024 gross profit declined 7.2% due to a one-time $574,000 purchase-price-accounting adjustment related to the Timber Technologies acquisition, as well as lower revenues and utilization at our KBS and EBGL businesses. Our Building Solutions division was negatively impacted by demand softness during the first half of 2024, as project starts were delayed primarily due to interest rate sensitivity and credit availability. However, during the second half of 2024, and especially in Q4, momentum shifted as several large projects placed on hold earlier in the year received final approvals and began production.

[Rick Coleman, CEO at Star Equity Holdings]

This positive momentum has continued into the first quarter of 2025, as evidenced by our recent announcements of multiple large project signings. Our signed backlog representing committed projects and orders stood at $17.2 million at year-end and has increased year-to-date as demand continues to build. Over the long term, we have conviction in the structural tailwinds for our Building Solutions division, as factory-built construction continues to gain market share versus traditional building methods. While we are well-positioned for a strong 2025, we are continuing to monitor the potential impact of the current administration's fiscal policy on our operating businesses. The application of tariffs is one example, and we have taken preemptive action to reduce our businesses' exposure to Canadian lumber in favor of domestic lumber. In addition, we have implemented strategies and enhanced our contract language to further reduce the risks associated with changes in input costs.

[Rick Coleman, CEO at Star Equity Holdings]

Although we can pass some price increases through to the customer, drastic or rapid price increases risk impacting overall demand for wood-based construction. Lastly, I want to highlight our recently announced acquisition of Alliance Drilling Tools, which established our Energy Services division, diversifying our operating business portfolio and providing a new platform for growth. We are excited to partner with a business of ADT's caliber and growth potential and expect them to contribute significantly to Star's consolidated results going forward. Since its founding, ADT has exhibited strong revenue and profitability growth with consistent cash generation. As previously announced, for full year 2024, ADT generated revenue of approximately $10.5 million, gross margin of 48%, and adjusted EBITDA of $2.4 million. Its business model allows for the majority of costs, including freight, repairs, and damages, to be passed directly to customers, which minimizes ADT's operational expenses, CapEx, and risk exposure.

[Rick Coleman, CEO at Star Equity Holdings]

We believe all of our operating companies operate in industries that support further expansion and will continue to evaluate opportunities for organic growth as well as additional acquisitions. Now I'll turn the call over to Dave Noble, our CFO, who will provide additional fourth quarter consolidated financial highlights. Dave, go ahead.

[Dave Noble, CFO at Star Equity Holdings]

Thank you, Rick, and good morning. Let's move on to Star Equity's consolidated financial results, which for the fourth quarter and full year of 2024 are represented by our two operating divisions, Building Solutions and Investments. In Q4 2024, consolidated gross profit was $4.4 million, up 55.9% versus Q4 of 2023, driven by increased revenues and higher gross margins in our Building Solutions division. However, for the full year, gross profit decreased by 7.3% to $11.1 million from $11.9 million in 2023, driven primarily by lower gross margin percentages in our Building Solutions division during the first half of the year. SG&A increased by $1 million, or 31.7% versus Q4 of 2023. As a percentage of revenue, SG&A increased in Q4 of 2024 to 24.7% versus 22.8% in Q4 of 2023. For fiscal year 2024, SG&A was $17 million versus $14.5 million in 2023.

[Dave Noble, CFO at Star Equity Holdings]

The main driver of the increase in SG&A are the full-year impacts of the Timber Technologies and the Big Lake Lumber acquisitions. In the fourth quarter of 2024, we reclassified the 2024 impairments of our cost-method investment from SG&A to other income and expense to align this with the gains and losses of our Investments division. For reference, these impairments follow the mark-to-market valuations done by Catalyst, formerly TTG, their largest shareholder, the private equity fund. Moving to the bottom line, in Q4, our net loss from continuing operations was $2.5 million versus net income from continuing operations of $1.8 million in Q4 of 2023. Non-GAAP adjusted net income from continuing operations in Q4 was $0.5 million, or income of $0.15 per diluted share. This compares to adjusted net loss of $0.3 million in Q4 of 2023, or a loss of $0.10 per diluted share.

[Dave Noble, CFO at Star Equity Holdings]

Non-GAAP adjusted EBITDA from continuing operations increased to $1.1 million in Q4, from -$0.1 million in Q4 of 2023. Segment non-GAAP adjusted EBITDA at our Business Solutions division increased to $2.3 million in Q4 this year, up from $0.7 million in Q4 of 2023. Q4 2024 cash flow from consolidated operations was an outflow of $1.5 million, compared to an inflow of $28,000 for the same period in the prior year. The decrease in operating cash flow was primarily due to increases in working capital associated with the increased business activity in Q4 of 2024. As of December 31, 2024, the outstanding balance in our interest-bearing debt was $11.3 million versus $2.0 million at the end of December 2023. Our cash balance, including restricted cash, stood at $5.6 million, down from $18.9 million at the end of 2023.

[Dave Noble, CFO at Star Equity Holdings]

The changes in both debt and cash balances can largely be explained by the Timber Technologies acquisition and its related financing, both of which closed in May of 2024. Turning to our Investments division, our holdings in public equity securities at the end of the year amounted to $3.4 million versus $4.8 million a year ago, as we substantially exited one of our public equity positions following its acquisition. Our rollover equity investment and seller note receivable from the sale of Digirad Health to Catalyst, formerly TTG, in May of 2023, were valued at $1.4 million and $8.2 million, respectively. As disclosed in Enservco's public filings in the fourth quarter of 2024, we provided Enservco a notice of default regarding the $1 million promissory note issued to Star related to our initial investment.

[Dave Noble, CFO at Star Equity Holdings]

As a result of this default, we canceled the issuance of 250,000 Star preferred shares, which collateralized that note. We continue to hold approximately $12.5 million of common shares in Enservco, and we remain in contact with Enservco regarding potential opportunities to collaborate on business opportunities. Now I'd like to turn the call back over to Rick for some additional remarks.

[Rick Coleman, CEO at Star Equity Holdings]

Thank you, Dave. We ended 2024 with strong activity across our Business Solutions division, and that momentum was carried forward into the first quarter of 2025. We're encouraged by the recent performance at all of our businesses, our growing sales pipeline and backlog, and the opportunities presented by our establishment of our Energy Services division. In short, we're excited for the year ahead. Now I'd like to turn the call over to the operator for questions.

[Operator]

Thank you. We will now begin the question-and-answer session. To ask a question, you may press star, then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause for a moment to assemble our roster. Our first question today will come from Theodore O'Neill of Litchfield Hills Research. Please go ahead.

[Theodore O'Neill, CEO at Litchfield Hills Research]

Thank you very much, and congratulations for beating the revenue and the non-GAAP EPS numbers. I'd like to ask about the building side of the business. The Building Solutions, two questions. One is you announced two big wins in March, and I think you disclosed how those are going to flow through 2025. Can we read anything into that in terms of additional business? I'd like to know what accounts for the margin improvement in Building Solutions.

[Rick Coleman, CEO at Star Equity Holdings]

Thanks, Theo. Appreciate the question. This is Rick. One of the things that definitely impacts the margin improvements in the Building Solutions division is increased revenues. We do have a platform in place that's necessary to operate the business, and those fixed costs are now being spread across a number of different projects and our broader revenue base. That's a big piece of it. What we're looking for in the future is really indicated by what our sales pipeline looks like. The new opportunities that come into the pipeline are evaluated every week. We negotiate those deals, and hopefully when we win them, we add them to our backlog. What we see in the pipeline and the backlog is fairly substantial growth beginning in the fourth quarter of 2024 and carrying forward into 2025.

[Theodore O'Neill, CEO at Litchfield Hills Research]

Okay. Can you break out what's in the $1.7 million of other expense in the quarter?

[Rick Coleman, CEO at Star Equity Holdings]

Dave, do you want to take that one?

[Dave Noble, CFO at Star Equity Holdings]

Sure, I can take that. Yeah, the big thing, we mentioned this in the commentary. We had to take a bit of a write-down on our investment in the equity of a former Digirad, which we sold to TTG, now Catalyst. We pretty much have stayed in sync with the private equity firm that put that company together. Given that they're in the midst of a turnaround, they've had some write-down of that equity. We've had that in three of the four quarters of last year, and the final quarter was around that $1.7 million number. Furthermore, we re-characterized that. We had been showing that in SG&A, but we've reclassified that into other income because it better aligns with our other investments-related activity.

[Theodore O'Neill, CEO at Litchfield Hills Research]

Okay. All right. That's pretty much all of it now. You've written that down to close to zero?

[Dave Noble, CFO at Star Equity Holdings]

The equity portion is down to one or two.

[Dave Noble, CFO at Star Equity Holdings]

Again, they're in the midst of a turnaround, and this is a long-term hold. From an accounting perspective, we can never write it back up. I think all of the senior management are super hopeful that this is going to be a win over the long term. We believe Sentinel, who's the private equity firm, is going to turn this thing around and make a good investment. We are happy to be part of it.

[Theodore O'Neill, CEO at Litchfield Hills Research]

Okay. There's nothing from.

[Jeff Eberwein, Executive Chairman at Star Equity Holdings]

Yeah.

[Theodore O'Neill, CEO at Litchfield Hills Research]

Go ahead, sorry.

[Jeff Eberwein, Executive Chairman at Star Equity Holdings]

Yeah, this is Jeff. We also have a debt investment with them. We own equity, and we own debt in Catalyst. Unfortunately, the way that GAAP accounting works is we have to write it down if there's a possibility of it being impaired. As Dave said, our methodology is just to follow the mark-to-market that the PE firm does. If it does turn around the way we think it will, unfortunately, we don't get to write that back up under the GAAP accounting rules. The more important thing is that the PE firm will sell this business at some point. It's in a fund that ends in a few years. What we really care about is that exit a few years from now.

[Jeff Eberwein, Executive Chairman at Star Equity Holdings]

Our hope is that both the note and the equity, our original equity of $6 million, are fully recouped, and there's even upside to that. The mark-to-market is just a non-cash item on paper until the business gets sold.

[Theodore O'Neill, CEO at Litchfield Hills Research]

Right. Right. Okay. I asked about it because I thought there might be something from the Enservco issue. Will that appear in next quarter?

[Jeff Eberwein, Executive Chairman at Star Equity Holdings]

Bill, do you want to handle that?

[Jeff Eberwein, Executive Chairman at Star Equity Holdings]

Write-down of the Enservco note. The write-down of the Enservco note actually ends up hitting our stockholders' equity because it was over-collateralized. It never hit the P&L.

[Theodore O'Neill, CEO at Litchfield Hills Research]

Okay. My last question is, what's going on in Enservco have any impact on Alliance Drilling?

[Jeff Eberwein, Executive Chairman at Star Equity Holdings]

No.

[Theodore O'Neill, CEO at Litchfield Hills Research]

Great. Thanks very much.

[Operator]

Our next question today will come from Tate Sullivan of Maxim Group. Please go ahead.

[Tate Sullivan, Managing Director and Senior Research Analyst at Maxim Group]

Thank you. You covered this on the acquisition call and Alliance Drilling, but what specifically did you like about their business, even after your investment or during your investment in Enservco? Can you comment on Alliance Drilling's customer mix? Is it smaller operators, larger operators, or a mix thereof, please?

[Jeff Eberwein, Executive Chairman at Star Equity Holdings]

Rick, why don't you handle that?

[Jeff Eberwein, Executive Chairman at Star Equity Holdings]

Rick?

[Jeff Eberwein, Executive Chairman at Star Equity Holdings]

Are you there, Rick? This is Jeff.

[Rick Coleman, CEO at Star Equity Holdings]

Sorry. I'm sorry. I was on mute. I appreciate the question, Tate. I apologize for that. Yeah. One of the things we liked about Alliance Drilling, obviously, was the fact that they operate in multiple sectors of the drilling stream. Their experience is pretty substantial. The founders are still part of the company and are planning to stay for a while while we transition. There is a strong management team beneath them. All of them, when we've talked to them about their growth opportunities, have noted that they think that the company has a great upside potential with additional customers, but also tapping into additional revenue from their current customer base. We believe that a minimal investment in additional tools and some geographic expansion will really help grow that business over time.

[Jeff Eberwein, Executive Chairman at Star Equity Holdings]

Tate, I would add on the customer mix.

[Theodore O'Neill, CEO at Litchfield Hills Research]

Yeah, sorry.

[Jeff Eberwein, Executive Chairman at Star Equity Holdings]

Yeah. Yeah. Their two biggest customers are household names in the energy sector. Great counterparties. I think they have no credit risk with their customers, no history of bad debt expense. It is a mix of public companies and some private companies. We think it is a healthy mix. As Rick mentioned, it is about two-thirds traditional energy, but they have been very successful in growing other sectors: geothermal, water wells, a little bit of minerals and mining. It is mainly in the U.S., but there is some occasional activity elsewhere in the Americas.

[Theodore O'Neill, CEO at Litchfield Hills Research]

Thank you. Not to overlook the tariff issue, which I tend to, but I mean, you commented on the timber from Canada for your modular construction business. Is that mostly the New England KBS operation? Does KBS mostly get its timber from Canada? Are there substitutes on the U.S. side? Can you just talk about where the current sourcing is for KBS?

[Jeff Eberwein, Executive Chairman at Star Equity Holdings]

Yeah. Rick will talk about the sourcing, but I'd say lumber, it's not quite a global commodity, but the U.S. and Canada are very closely linked markets. So regardless of where one sources, if lumber prices go up in Canada, they go up in the U.S. and vice versa. But Rick, why don't you talk about the sourcing issue?

[Rick Coleman, CEO at Star Equity Holdings]

Sure. Regarding KBS, which you specifically asked about, KBS sources mostly domestic lumber. There are some inputs, windows, trusses, things like that that come from other suppliers that may contain Canadian lumber. We do expect there could be some price impact. As Jeff mentioned, if prices go up for Canadian lumber, prices are likely to go up for domestic lumber as well. As long as those price increases are not overly sudden or large, we can address them. We can adjust our pricing and pass along some of that to our customers. Any large or dramatic increase is going to impact construction across the country. We will have to keep an eye on that. We do have a hedging strategy. We have other strategies in our customer contracts that protect us. Timber Tech uses very little Canadian lumber.

[Rick Coleman, CEO at Star Equity Holdings]

They source almost exclusively domestic lumber, Southern Yellow Pine from southern states. EdgeBuilder is probably where we have the most concentration of Canadian lumber, but they also have, they're watching it very carefully, and they use a hedging strategy to protect us there.

[Theodore O'Neill, CEO at Litchfield Hills Research]

Thank you all.

[Operator]

Our next question today will come from Al Hill, a private investor. Please go ahead.

[Operator]

Hey, good morning, guys. Hey, I'm looking at your balance sheet, and it looks like your book value is about $11.4 million, and obviously, per share, and your stock price is about $2.22. That's five times book. Have you ever thought about just selling the company or selling the parts of it and returning all the equity to shareholders? It just seems like we're kicking a dead horse, and I just don't see any positivity. I hear what you're saying, but I'm very, very disappointed in the results. You're giving preferred dividends out when you're not making money. I'd just like to know what the board considers selling the company.

[Jeff Eberwein, Executive Chairman at Star Equity Holdings]

This is Jeff, and I'm Executive Chairman of the board and the company's biggest shareholder. I would say all options are on the table to maximize value for shareholders. We agree the stock is really cheap, ridiculously cheap. With respect to the preferred stock, by paying a dividend, it causes the preferred stock to trade pretty close to par. We have been able to use it as an acquisition currency. If you look at the ADT acquisition, most of that purchase price was paid in preferred stock. Yes, a 10% dividend yield is a healthy yield, but if we can buy businesses at three and four times EBITDA and use our preferred stock, it's very, very accretive to the common stock. The situation between our stock price and the intrinsic value isn't sustainable over the long term.

[Jeff Eberwein, Executive Chairman at Star Equity Holdings]

We share your frustration, and all I can say is all options are on the table to maximize value for shareholders, including the one you mentioned.

[Operator]

Again, ladies and gentlemen, if you would like to ask a question, please press star, then one. This concludes our question-and-answer session. I would like to turn the conference back over to Rick Coleman for any closing remarks.

[Rick Coleman, CEO at Star Equity Holdings]

Thank you, operator. Before concluding, I just want to note that we're always available to take your call and discuss any additional questions you might have. Please do not hesitate to contact us. We'll continue to share our story with existing and potential investors in the coming weeks and months. As always, we appreciate all of our shareholders and your continued feedback and support. Thank you.

[Operator]

Thank you for joining the Star Equity Holdings fourth-quarter conference call. Today's call has been recorded and will be available on the investor section of our website, www.starequity.com. The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.

Participants

Executives

• Jeff Eberwein, Executive Chairman
• Dave Noble, CFO
• Company Representative
• Rick Coleman, CEO

Analysts

• Analyst
• Tate Sullivan, Managing Director and Senior Research Analyst at Maxim Group
• Theodore O'Neill, CEO at Litchfield Hills Research