Star Equity Holdings, Inc.

Greetings, everyone, and welcome to Star Equity Holdings' fourth quarter 2025 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 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. As required by SEC rules and regulations, these non-GAAP financial measures are reconciled to their 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 investors representative, Lena Caddy, from 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 thank you for joining us today. I'll begin by reviewing our fourth quarter results for 2025 at the holding company level. After that, Jake Zabkiewicz, our Global CEO of Hudson Talent Solutions, will give us an update on the performance of our business services segment. Then Rick Coleman, our Chief Operating Officer, will provide insights into the performance of two business segments, Building Solutions and Energy Services. Our fourth quarter financial results reflect positive momentum and improvement over the prior year quarter, largely attributable to the addition of Building Solutions and Energy Services divisions, which were added in August 2025. As compared to the fourth quarter of 2024, our fourth quarter 2025 revenue grew 69%, gross profit increased 38%, and adjusted EBITDA grew 156% to $2.2 million. Similarly, our 2025 full-year results were impacted by the addition of these divisions starting in August. when compared to 2024, it drove a revenue increase of 23%, a 14% increase in gross profit, and an increase in adjusted EBITDA from 0.9 million to 4.2 million. If we look at the results on a pro forma basis, our full year revenue grew to approximately 225 million, a 7% increase, Our gross profit grew to approximately $95 million, a 6% increase, and our adjusted EBITDA almost tripled to $12.6 million. We ended the year with $13.4 million in cash, including restricted cash. Year-end working capital, excluding cash, jumped to $22.4 million, which represents a temporary buildup that is expected to decline in the first quarter of 2026. Lastly, we ended 2025 with $215 million of usable NOL carry-forwards. Now I'll turn the call over to Jake to discuss our business services segment.

Thank you, Jeff, and good morning. Our business services segment delivered another strong quarter, demonstrating solid performance despite a challenging macroeconomic landscape that has affected many industries. We've continued to adapt to market shifts supported by enduring strength of our client relationships, which drive repeat business and consistent demand for our services. In the fourth quarter, our business services division achieved 3% increase in gross profit versus Q4 of 2024, while a full year gross profit increased 2% compared to 2024, a resilient outcome given the economic challenges facing the talent market in 2025, and many companies in the sector experienced a continued revenue declines. Regionally, both APAC and the Americas delivered strong performances with gross profit of 11.7% and 4.4% respectively. These gains were partially offset by EMEA where gross profit declined 18.7%. Throughout 2025, we made strategic investments to accelerate future growth while realizing cost efficiencies throughout operational improvements. We've also expanded our go-to-market strategy, enhancing our services portfolio to better meet the evolving needs of existing and prospective clients. At the same time, we continue to lead in digital transformation of the hiring industry, leveraging agentic AI and advanced automation to streamline workflows, enhance decision-making, and respond rapidly to the evolving client demands. By expanding our digital ecosystem and strengthening our enterprise capabilities, we are delivering more innovative and efficient, cost-effective talent solutions at scale. These investments enable us to improve speed, accuracy, transparency across hiring life cycles while empowering our teams and clients with smarter tools and data-driven insights. Looking ahead, our talented and dedicated team is well-positioned to sustain this momentum. We remain focused on building a resilient, agile, and growth-orientated business that can quickly adapt and shift to the market dynamics while continuously delivering value to our clients and partners. This commitment is underpinned by continued investments in our people, technology, and culture of service excellence that prioritizes collaboration, accountability, and innovation. Now I'm turning the call over to Rick, who will be discussing financial and operational performance of our building solutions and energy services segments.

Thank you, Jay. Good morning, everyone. Residential and commercial building demand were relatively soft throughout the year, but our building solutions segment delivered strong results. including significantly higher sales and profitability. Fourth quarter 2025 building solutions revenue was $18 million, gross profit was $4.6 million, and adjusted EBITDA was $1.9 million. For the full year 2025, revenue was $27.6 million, gross profit was $6.3 million, and adjusted EBITDA was $2.5 million. On a pro forma basis, all full-year 2025 metrics improved over 2024 with revenue of $71.9 million, gross profit of $18 million, and adjusted EBITDA of $7.2 million. Building solutions backlog as of December 31, 2025, was $9.6 million, and the trailing 12-month book-to-bill ratio was .89. We expect the backlog trends to improve in the first half of the year as several high-value projects move from the pipeline to the backlog. For 2026, we expect the U.S. home construction market to be in a gradual, modest recovery. With solid underlying demand from a long-term housing shortage and favorable demographics, single-family construction and new home sales should improve in 2026. However, gains are likely to be modest and constrained by still elevated interest rates. At the same time, the market is adapting to the current environment and consumer affordability concerns, with greater emphasis on smaller, more affordable homes and townhomes in lower-cost regions, trends where we have significant strength and experience. In this environment, our strategy of project selectivity and disciplined execution will remain central to our approach. By concentrating on high value, high margin opportunities, and ensuring rigorous project management, we've been able to maintain healthy profit margins while deepening our existing client relationships. Those relationships, combined with our reputation for high quality work delivered on time and within budget, are critical to our continued success and position us well to expand our footprint across key markets. Turning to our Energy Services Division, ADT's performance showed continued strength. Although the broader oil and gas sector experienced a weaker fourth quarter, the division expanded market share across all core markets, with particularly robust growth in mining and geothermal. These results highlight the team's ability to combine strong execution with innovation across a broad range of drilling markets and applications. Fourth quarter 2025 energy services revenue was $3.6 million. Gross profit was $1.6 million, and adjusted EBITDA was $0.9 million. Full year 2025 revenue was $4.9 million. Gross profit was $1.9 million, and adjusted EBITDA was $1 million. On a pro forma basis, revenue for the full year 2025 was 13.2 million. Gross profit was 5.5 million and adjusted EBITDA was 2.9 million. Looking ahead for both our building solutions and energy services segments, we plan to deepen our presence in core markets while thoughtfully entering new markets where we see attractive long-term demand. As always, Our priority is to deliver sustainable, long-term value for shareholders, customers, and employees. I'll now turn the call back over to Jeff for some closing remarks.

Jeff?

Thank you, Rick. 2025 marked a transformational year for STAR and a critical step toward our long-term objectives of building scale and increasing value per share. The integration work since the merger is tracking well, and we are already realizing the anticipated cost synergies and enhanced collaboration benefits of our diversified holding company structure. The merger has also significantly strengthened our operating and financial position. We now have a broader range of strategic options and a greater capacity to execute on our multifaceted growth strategy. We remain confident in our long-term outlook and continue to believe that our stock is undervalued for the length of our business and the opportunities ahead. Reflecting that conviction, in 2025, we repurchased over $2.6 million of our stock as dollars and intend to continue using share repurchases under our recently approved plan as a tool to enhance shareholder value. Across each of our business divisions, we are focused on driving organic growth, improving operational efficiency, and maintaining a rigorous approach to capital allocation. We're investing in people, technology, and processes to deepen our competitive advantages and improve scalability, while also sharpening our focus on margin expansion and cash generation. In parallel, we continue to identify and evaluate potential accretive acquisitions that can build on the strengths of our existing operating divisions, as well as opportunities that could establish entirely new verticals. A disciplined approach to this dual path, growth from within and targeted external expansion, provides us operating flexibility and positions us to compound value over time. We're excited to build on the momentum of our fourth quarter performance as we work to deliver sustained long-term shareholder value. With a more resilient balance sheet, a stronger operating platform, and a clear strategic roadmap, we believe Star is better positioned than ever to capture attractive opportunities, navigate market cycles, and expand our leadership in the markets we serve. We're committed to executing with discipline, maintaining a long-term mindset, and continuing to align our actions with the interests of shareholders. Operator, can you please open the line for questions?

At this time, we'll begin the question and answer session. To ask a question, you may press star and then one using a touchtone telephone. To withdraw your questions, you may press star and two. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. Once again, that is star and then one to join the question queue. Our first question today comes from Theodore O'Neill from Witchfield Hills Research. Please go ahead with your question.

Oh, thanks very much. For Rick, a couple of questions. The backlog dropped significantly, Q3 to Q4, and I'm wondering if there's a seasonal component to that. The second is, has weather had an impact since it's been severe in some places here where we are and out in Wisconsin as well? And the third question is, are you seeing any delays in projects going forward as certain, as some people might be waiting for a change in interest rates?

Thanks, Steele. Good question. We appreciate that. Yeah, we've seen, first of all, to the backlog. I think there's some seasonality to it, but, you know, the current backlog is a point in time. It affects our book-to-bill ratio, of course, but it can be impacted by a lot of different things. As projects move through the sales pipeline and get into what we refer to as the active pipeline, where we're actively negotiating the terms of a deal, A lot of things can happen at the back end. One of those is weather, as you mentioned. But weather can also affect site preparation for setting a modular home or wall panels. Design changes often come in at the last minute. Permitting issues and always financing is an issue. And the financing impact hits us two different ways. If interest rates are holding their own as they are today at a relatively high level, that means there's fewer projects being built. Sometimes it's builders waiting to see some improvement. Sometimes it's just people not willing to move out of their existing low mortgage rates. So that happens, and banks also. at the tail end want to see some additional information before they finalize a project. So all of those things have an impact on us and keep us from moving something that we're ready to build to the final signature line. So I'm not sure if all of that answered 100% of your questions. I know that weather in particular you asked more about. We did have more weather impact than we expected, particularly around the Twin Cities area. But, you know, it's a temporary thing, and those projects haven't gone away, so we would expect to see some improvement in the coming quarters.

Okay. And for Jeff, can you give us any update on what you're seeing in the M&A front?

Yeah, good question. We have a lot of activity right now, nothing imminent, but when I look across our three divisions, operating divisions, we are in discussions on acquisition opportunities that would increase our size and be very complimentary. There's a few things we're looking at in building solutions, a few in energy services, and also in our business services division. So, you know, it's active. Nothing is imminent, but, you know, we're having some robust discussions, and it's always hard to predict which ones get to the finish line just because you have a buyer and a seller, and in some of these cases, they're private companies, and there's a lot of issues. It can be family issues or just a lot of issues can come into play there. So we're working on several. Nothing's imminent, but I'll put it this way. I'd be disappointed if we didn't finalize one or more of those by the end of the year.

Okay. Thank you very much. Thank you.

Our next question comes from Joe Gomes from Noble Capital. Please go ahead with your question.

Good morning. Morning, Joe.

I wanted to start off with just kind of big, broad, you know, did fourth quarter results come in line with your expectations going into the quarter? If not, what were the variances and what drove them?

Yeah, I appreciate the question. I would say you know, roughly in line with our expectations, but on the weaker side, you know, within business services, Europe, not just Europe, it's EMEA has continued to be a weak spot for us. We see that turning around dramatically. In 2026, we re-engineered some things there. We have new leadership there, which is really important. But when I look at that division, the EMEA piece of that was weaker than we expected. And building solutions as well with weather and project slippage, it was on the weaker side of our expectations. And I'll say that weakness is gonna continue into Q1. Q1's gonna be our weakest quarter of the year, probably by far, but things are lining up pretty well for significant improvement the rest of the year. So we think we're gonna continue to show year-over-year improvement, but for people looking at quarter-by-quarter Q1 will be lower than Q4 in terms of revenue and EBITDA. But when we look out at what the consensus is on Bloomberg for the full year, for 2026, we're very comfortable with those numbers.

Okay.

Thanks for that. And then I drilled down a little bit more on the M&A front. I don't know if you can provide any additional color on the G group investment that you had made.

Yeah, we think we're only operating on public information there. It could potentially be a fit for our business services division. the business we're already in, Hudson Town Solutions, has some similarities to that business. So it's a business we think we understand pretty well, a business we're already in or at least adjacent to. We think there could be a lot of cost synergies, not just from G Group no longer being a public company, but also just inside of Star. And we like the fact that their stock before our announcement was trading around cash. So we've, you know, tried to interact with them as we disclosed, and they didn't engage with us. So we crossed 5%, went public. We wanted to let shareholders know about that lack of engagement. And since then, they announced that they've engaged an investment banker and seems like they're going to run a process. We expect to participate in that process, but we're very disciplined. So hopefully it gets sold. And if it's accretive and attractive, we could participate in that process. And if someone else comes in and, just to be frank, pays a higher value than what we see, we'll benefit as shareholders and go on to the next one. I will say the benefit of our model is to increase size and scale over time, and STAR is an amalgamation of three microcaps already. And so we are looking for other microcaps that could be a fit for STAR. And I will say us going public on that one has led to frustrated shareholders, not only of G Group, but frustrated shareholders of other companies coming to us with ideas which we like. That's a positive of our public actions. So even if we don't end up with G Group at the end of the day as part of STAR, I'll be totally fine. We'll make money on our investment. And it has already done a lot to lead to some interesting idea flow into Star's M&A team.

Great. And then one more for me. You talked about temporary buildup in working capital. I wonder if you could provide a little more color as to what's behind that and why you think that will happen. turn around here in the first half of this year?

Yeah, working capital, as you know, fluctuates each quarter. And it's very hard to predict. And it depends on the business. But in a lot of cases, our counterparties are some pretty big companies. And they're very credit worthy. They have really high credit ratings. But they'll often stretch partners sometimes. And if we have a big invoice, hard to know if it's going to get paid in December or get paid in January. And Q4 was just one of those odd quarters where a lot of different things align to cause a working capital buildup. A lot of payments came in, for example, in January. So, you know, don't want to predict exactly where it's going to end up at the end of Q1. Usually Q1 is a poor working capital quarter and Q4 is a positive one. And for whatever reason, it seems like that is going to be the opposite this time around where Q4 had a working capital buildup and Q1 will be, from a working capital standpoint,

much better than a typical Q1. Okay, great. Thank you for that. I'll get back in queue. Thanks. Thanks, Joe.

Our next question comes from Michael Matheson from Sidoti & Company. Please go ahead with your question.

Good morning, you guys. Good morning. A couple questions from me, starting with business services. We all see the news. The headlines about hiring are very gloomy, just gloomy day by day. But Hudson revenue was up 5% year over year. Can you comment about the verticals where you saw success in the quarter?

Sure. I'll let Jake answer that question.

Yeah, Mike, good morning. Thank you for that question. We have a very unique position here at Hudson Talent Solutions, right? We are About 1,000 employees. We are in over 30 different countries, and that has actually allowed us to diversify both from our client perspective as well as from an industry perspective. Yes, the market is soft, unfortunately, with the macroeconomic challenges that everybody's facing. We're seeing some trepidation in both the investments and hiring, but also people wanting to leave their jobs. From a sector perspective, we did see an increase in our manufacturing and our life sciences businesses, which was pretty interesting. We saw that based on our land and expand strategy, where we're taking our existing clients into new markets and new regions and new geographies that they have higher needs for. But those are the two primarily stable industries that we've seen across the board consistently in 2025. With the addition to our Our acquisition strategy in 2025 as well, we brought on ACG Group, which is our Japanese acquisition that we did in Q3 into Q4. And we are excited about growing and landing and expanding new clients and existing clients into the Japanese market as well. So we have more to come there. The team is actively working on it. And, yes, the revenue growth was positive for FY25. considering the fact that many in our industry saw revenue declines in FY25.

Great. Turning to building solutions, I noted that the gross margin was 25% in the quarter. That met the target you discussed in the last quarterly call, where it was below 20%. Do you feel like 25% is kind of the new moral? Obviously, it'll fluctuate a little bit quarter to quarter, but is that a good figure to use for modeling?

Short version, yes.

This is Jeff again. Short version, yes. Short version, yes, Michael. You know, it's always tricky in that business to look at it quarter by quarter. So we look at it more at trend over time. But we've had a lot of initiatives underway to improve gross margin. And mix plays a role. A lot of different things play a role. But our internal target is 25%. That is a number we expect to achieve over time and hopefully even improve on. But for modeling purposes, I do think that's a good number to use. But I wouldn't want someone to think that there's some guarantee or expectation that we're going to hit that number every single quarter just because there's a lot of issues that come into play with mix and weather and things like that. But short version, yes, that's a good number to use.

Sure, understood. Things will be different quarter by quarter. You also mentioned or referred to the $2 million in administrative and SSGA expense synergies you were forecasting would come out of the merger. Can you talk about the timing for fully harvesting that? Do you think that it'll all be baked in this year? And at what point would you think some of the non-recurring charges would drop off and just be at a steady state?

Yeah, really good question. I think the key thing I look at is our segment reporting if one were to look at q4 for the corporate column the corporate and I'm looking at the adjusted EBITDA line so it was 1.9 million that number for q4 was significantly lower than the pro forma number for Q3. I don't have that number off the top of my head, but that does represent a pretty good sequential decline. Said another way, if you take Q4 times four, you would get to somewhere in this seven and a half to eight range for corporates. And that's a pretty good number. If you look at pro forma, well, if you just looked at corporate of the two companies separately before the merger, I think it was a lot higher than eight. It was in the 10, 11 range, maybe even higher than that. We've achieved most of the synergies already. You know, still some more to come. But, you know, that 1.9 for corporate for Q4, I was happy to see that number.

Great. And just if you could talk about the non-recurring charges, please. You know, do you think that they'll drop off at some point as the business stabilizes?

Yes.

Okay, great. Well, thank you for taking my questions, and congratulations on the quarter. Thanks, Michael.

Our next question comes from George Melas from MKH Management. Please go ahead with your question.

Great. Thank you. Good morning, everybody. Could you give us some perspective on the growth that you expect in 26 in revenue and net revenue? What gives you some confidence that you will grow? And just also maybe try to understand on the business services side, if you exclude the acquisition in Japan, what was your organic gross profit growth?

Yeah, I'll turn it over to Jake here in a minute. But when I look business by business, our outlook right now is that building solutions will show some growth despite the low backlog number in Q4. When we look at our sales pipeline, what we expect will get converted into official backlogs. It is pretty exciting. We do have to execute. There's a lot of moving parts and a lot of macro factors out there, but we'll be disappointed if building solutions doesn't have better results in 2026 than in 2025. Same thing for the Energy Services Division. They have done an excellent job of diversifying away from traditional energy, meaning oil and gas. They have been growing share in oil and gas, which has been good to see, but they've done a very good job getting into some of these non-energy sectors that need service and use similar tools, and that would be mining, water, which are fairly big markets out west, and then the more recent ones are hydrogen drilling and even carbon capture. which is becoming a theme, and that's in addition to geothermal, which they've been in for some time. So really pleased to see that. And we do have growth expectations for the business services divisions. I want to turn this over to Jake to talk about that division.

Thanks, Jeff, and great question. If we look at our trajectory and our growth strategy for FY26, it's going to be very consistent with what we've implemented in FY25, where it's a three-prong approach. Prong number one is new logo growth, where we have our go-to-market team actively pursuing both active and passive deals out there in the industry and the market. They are meeting with new prospective clients, holding meetings, events and participating in key events across the world, which is great. The second prong is land and expand, which you've heard me say in a couple of these calls, where we take our existing clients and we expand with them into either a new geography that we can support them in, or we take on an additional business unit or project within that client group. And that has worked really well in FY25. And part of those expansions lead to are also growth strategy in different regions. So, for instance, the investment in Latin America that we made in FY25 or in Japan in Q3, Q4 of last year. So we're going to continue that land and expand strategy. And then the third piece, as Jeff alluded to earlier, is that we have an M&A strategy here in the business services solution. We will continue to actively look at companies across the world to see if they can fit nicely within Hudson Talent Solutions But that will be our third key pillar in our growth strategy. Regarding your question on Japan, I don't have the exact number, but the Japanese revenue for FY25 was minimal because of the acquisition and when we started ramping up with our clients. We do expect that to continue to grow in FY26. But from the actual number, it had a minimal impact but more of a growth strategy for our current and existing clients today.

Great, super. Thanks for this clarity. And just a quick question on the tax side of things. With the significant NOL that, Jeff, you referred to, do you expect to pay cash taxes in 2026? And if so, can you give us roughly how much you expect? Of course, it depends on your results, but maybe give us a range.

Yeah, I'll let Matt Diamond, our Chief Accounting Officer, take a stab at that one.

Sure. Cash taxes is one of those things that's tricky to predict. I'm going to go back to the question before for one second just to say that the revenue for the full year for Japan was $254,000, so it was not a significant driver on the growth rate. If you back out that from the organic rate, it doesn't change the rounding at all in terms of business services for Japan. full year net revenue, gross revenue rate. And that'll be included in our 10K. There will be some more information around the Japanese acquisition. In terms of cash taxes, there were a couple things that impacted our provision in the quarter. One was that there was what we would call a discrete item where there was 1.1 million of an impairment from a statutory perspective. So these are investments that are intercompany that are UK subholds. It's just the way that our organization entity chart works in Hong Kong, India, Singapore, and Germany. And in those entities, there was an impact where we wrote down the internal investment. This is eliminated in consolidation, so there's no effect on our books in total. from an investment point of view, so you wouldn't see it in our financial statements. However, there is a deferred tax impact, and the deferred tax impact is $1.1 million. So that had a negative impact on our provision in the quarter. In terms of general cash taxes on a go-forward basis, the tricky part is that because we have revenue mix in different countries, and there are statutory rates that are in different countries. As you know, in the U.S., we have significant NOLs. We're you know, 215 million of usable NOLs as of the end of this year that we can utilize, but that's, you know, in the U.S. Internationally, the U.K. has a statutory tax rate of 25%. Australia has a statutory tax rate of 30%. And in Australia, particularly, in the quarter, you know, we had strong results, and therefore there was a, you know, a provision and a cash tax impact from that. So as long as we have, you know, positive results in these international entities where there are statutory tax rates, we will pay cash taxes. It's hard to predict because it depends on the mix in the country. It depends on forex rates. It depends on some things like that. But, you know, going forward, we do expect to continue to pay taxes in these entities where we have positive results with statutory tax rates.

So, George, I hope that answered your question.

I mean, if you want... I really appreciate that education. I appreciate the education as well. Thank you.

Yeah, it's very frustrating given that we have a significant NOL, but the NOL is just for the U.S., and you'll see in our 10-K when it gets filed, there'll be a table that shows where we paid cash taxes, and number one almost always is Australia. And this is all from the business services where the business is global. And the other ones you'll see there where we pay some cash taxes are the UK. Those are the two bigger ones. Some smaller ones might be Hong Kong, China, and India. You know, over time, as we have more income in the U.S., our tax rate will look, for gap purposes, will look more and more normal. And the cash taxes we pay every year will be a modest amount, nothing that's a game changer. A million or two is what we would expect or what we would tell someone to model.

Great.

Thank you.

Once again, if you would like to ask a question, please press star and then one. To withdraw your questions, you may press star and two. Our next question comes from David Siegfried, who is a private investor. Please go ahead with your question.

Hey, good morning. Thanks for taking my call. Good morning. So the sales leaseback, it looks like the Evanston, Wyoming property was completed. Are the other two going to be closed here in the next month or two?

Yes. and so that cash should show up maybe in first quarter?

That's our expectation.

Got it. And then, did I understand correctly regarding building solutions that the pipeline would be potentially restored in the first half, 2026?

Well, there's kind of two concepts here. We have a very strict definition for the word backlog. Backlog means signed contract, and we've received a cash deposit from the client. So that's our definition. I don't know about other companies' definitions. And our backlog was down in the fourth quarter for all the reasons that Rick mentioned. When we look at the pipeline, the sales pipeline of all the projects, that hasn't really changed. And there's some pretty exciting things in that pipeline. And when we look at the pipeline, we assign probabilities to it. So we have the total pipeline, which is just all the projects that we're pursuing. And then we have the active pipeline, which is what Rick was referring to. And the active pipeline are ones where it's really advanced. There's been a lot of design work. We've probably already sent them a contract. It's, you know, active pipeline is things that might have a, you know, greater than 50% chance of closing in a fairly short period of time, a quarter or two. And then once it's signed, it goes from active pipeline to backlog. So I would be, I think we would be more concerned about the one quarter dip in backlog than if there was something going on in the pipeline or the active pipeline, and there simply isn't. Our pipeline is fine. Our active pipeline is fine. And so it's just a matter of time before some of those projects that we're pursuing get officially signed, and then they will turn into backlog.

Okay. Yeah, thank you. And then with the new logo and expansions with HTS, I mean, I think it's one of the largest quarters that I've seen. And I think I remember hearing that generally Q1 is seasonally large as well. So is that a good precursor to revenue growth in HTS for 2026?

Yeah, I... I'll turn it over to Jake here. I think the short version is yes. We have a few large clients that we've had, in some cases, over 10 years. And when we renew a contract, almost always it's got the same expiration date as the previous contract. So we renew for three years, two years, four years. And there's an unusually large number of those clients in Q1, and when I first saw that number for Q4, I was like, oh, well, you know, did client X, Y, and Z that normally renews in Q1, did we get them renewed a little bit early? And the answer was no, those are new clients, or not the ones I was thinking of. Jake, why don't you elaborate on that?

Yeah, David, as far as Q4 to Q1, we do see, just because of the cycle of buyers and the buying habits of our clients, you see a lot of renewals and signatures at the end of Q4 and also into the beginning of Q1, right? And so we've been fortunate enough to continue the great work, and I'm very proud of the team, both leveraging our digital ecosystem as well as just our land expand strategy. So Q4 and Q1 are usually strong renewal and new logo signatures, and you start to see that tailor off throughout the year just because of buying habits within the client groups and the cyclical nature of our business.

Yeah, it makes sense. Well, good to see you anyways. So they acquired Philadelphia integration, so it sounds like you just hired the team, and how is that going to help HTS going forward?

Yeah, Dave, great question. That's a tuck-in integration that we did, and very excited about bringing on Jessica and her team for a couple of reasons. One is It adds on to our contingent book of business. So you have contingent search, not on the retained side, but on the contingent side, which is nice. And the team is also helping with some newly acquired clients and new logo clients that we've signed in Q4 and Q1 of this year. So nice tuck-in, very small, very similar to what we did with the previous acquisitions in 2025, but something we're excited to add on to our portfolio. Okay, good.

And then I see the AI certification for HTS. It's one of the first international organizations globally to earn independent validation. Would you say that's a competitive advantage for HTS?

Great question. We're really proud of it, and the team has done a phenomenal job on ensuring that we get that ISO certification. Is it a competitive advantage? Yeah, I do think it is because we are one of the first. More would likely follow because of the adoption of agentic AI in our workforce and within our business units than they should. However, as I've shared with our clients and our prospective clients, they're all excited to see that certification because it gives them a level of certainty and calmness as we bring AI into their workflows.

That's particularly true of the Fortune 500, which are the clients we are targeting. Those are the ones that would care about that the most. Some of the midsize or regional clients might care a little bit less about it, but it kind of fits with our strategy of really targeting the larger multinational companies that hire thousands of people a year.

Got it. And then the restricted cash, I see that's what, $3.1 million. What's the restricted cash all about?

Yeah, that'll gradually get released over time. It's a bucket of a few different things. A lot of times when we do a sale leaseback, we will need to put a deposit in And we will work in to the language of the contract that if we hit certain metrics, that deposit gets released to us. So some of it is sale leasebacks. Others relate to some deposits we have. And in a couple situations, it relates to some of the bank agreements we have where in order to have a bank line in place, we need to promise to have X amount on deposit with them as a requirement for that credit line. And we put that in the restricted cash category, but we've been able to renegotiate those lower over time. Like I'll give you an example. When we acquired Timber Technologies, We got an acquisition loan from Bridgewater Bank, and all of this is public, but this is just an example. We got an acquisition loan from Bridgewater Bank. It's an amortizing loan. We were a new client for them, so they didn't have any history with us. And part of the deal was that we would put a million dollars on deposit with them, and that money gets released over time. And so that restricted cash will go from a million to zero just with the passage of time and assuming we're not in violation of any covenants or anything.

Okay. That's helpful. Thank you for that information. And just regarding your corporate expense, Q3, you're at 2.6. Q4, 2.2. Well, that was 1.9, but 300 was one time. So it's good to see you getting to that run rate because I know that that's what you were shooting for within six months of November. So you're a little bit ahead of that. That's good. And there's still room to take out some corporate expense, I understand.

There is. I will say, though, and you'll see this in our proxy when it comes out, the little bit counteracted by by bonuses um you know we 2025 wasn't a super robust year so we didn't have full bonuses in that um so we we do expect we do have some some expense categories that we expect to decline into 2026 versus 2025, so we do expect further progress. But, you know, it's possible that that's at least partially offset by having, you know, full bonuses instead of partial bonuses, which only happens if we're meeting and exceeding our targets. So that's a high-class problem.

Yeah, definitely. You'd rather pay the bonus and report the revenue, right? Yeah. Good. And then regarding stock buybacks, so 6,000 shares at 11 basically in Q4, and that was just purchases, small purchases on the open market, correct?

Yeah, and that was very frustrating to us. The window is only open a few times a year, and then when it's open – Not only is it a liquid stock, but we have to abide by the, I think it's 10B18 rules, which are very restrictive on when an issuer can buy back stock. So we decided to change course, and this is all public. You'd find this in an 8K that was filed around the end of the year, maybe beginning of January, where we put in place a 10B5 purchase plan. So it's on autopilot. buying every single day, even when the window is closed. And we followed all the rules that go with having a 10B5 program. And it's just on autopilot. It buys a little bit every day, subject to the 10B18 trading rules. And the buy order is with the trading desk. And it's up to $2 million. And it making progress, and we'll give an update on that. And our next call, we'll give an update on how much we bought in Q1, but it's already significantly higher than that teeny tiny amount we bought in Q4.

Yeah, good to hear. And then one last question, Jeff, regarding you buying common shares. Really good to see that. Do you think the board will follow your example?

You know, I don't want to speak for the other members of the board, but I think there will be – let me just say I think there will be purchases from other insiders as well, not just me.

Okay, yeah. Very good. Well, thank you for the time.

Thank you.

Good question.

Thank you, David.

And once again, if you would like to ask a question, please press star and 1. And ladies and gentlemen, in showing no additional questions, we'll conclude today's question and answer session. I'd like to turn the floor back over to Jeff Eberwine for closing remarks.

Well, thank you for your interest in STAR. As we mentioned, 2025 was a transformative year with the merger that was completed in August, and the teams have worked really hard to get that integrated, and we think we're well on our way to executing on our strategy, and we're very excited to show what we can do going forward.

Thank you for joining the Star Equity Holdings fourth quarter conference call. Today's call has been recorded and will be available in the investor section of our website, www.starequity.com. Once again, thank you very much for joining. The call has now concluded. Have a great day.