Star Equity's Harte Hanks Bet: Synergies, Agentic AI, and the Tug of War Between Divisions
Q2 2026: Business Services invests for growth, Building Solutions lags, Energy Services surges, and a $38M merger aims to reshape the holding company.
HSON · Earnings Call · 2026-08-14
Q2 2026: A Holding Company in Transition
Star Equity Holdings (ticker: HSON) reported a mixed second quarter, but the headline was clearly the agentic AI strategy and the transformative acquisition of Harte Hanks. CEO Jeff Eberwein opened the call by touting progress on merger synergies: “we believe we've achieved approximately $3 million of merger synergies” — Jeffrey Eberwein, CEO or Executive (likely CEO or President) · 2026-08-14 from the Hudson merger a year ago, and then unveiled a $38 million deal to acquire Harte Hanks for $5 per share (half cash, half preferred stock). The company expects $10 million in annual cost synergies from the combination, which would bring pro forma revenue to roughly $400 million and adjusted EBITDA to $30 million.
We think that's a pretty attractive multiple that's less than 3x EV to EBITDA on our math.
The deal is structured to avoid issuing common shares, preserving the ability to continue buybacks—a point Eberwein emphasized given the stock's undervaluation.
Business Services: Investing Through the Softness
Business Services, the RPO/talent division, delivered modest revenue growth of 2% to $36.4 million, but gross profit declined 4% to $17.8 million, and adjusted EBITDA fell to $1.6 million from $2.2 million. The decline is largely attributed to deliberate growth investments of $1.5 million in the digital solution Hudson Fusion and expansions into new geographies. Jake Zabkowicz, CEO of Hudson, noted the pressure in the professional talent market, but pointed to resilience: "These initiatives helped limit the year-over-year gross profit decline to less than 5% despite a mixed regional backdrop."
The company's focus on agentic AI tools to enhance recruiter productivity and candidate matching aligns with a broader global theme of AI-driven transformation, echoing similar moves by peers in the HR technology space. The investments are not yet reflected in profits, but the company sees them as essential for competitive positioning.
Building Solutions: Still Waiting for the Cycle
Building Solutions was the clear laggard. Revenue was $14.6 million, gross profit $3.2 million, and adjusted EBITDA just $0.5 million—below expectations. Rick Coleman cited market softness and project timing, but highlighted that new orders of $17.3 million were the highest since Q2 2025, and backlog rose to $10.6 million. Jeff Eberwein provided context on the run rate: “We really want to see new orders of $20 million a quarter, and we want to see revenue of $20 million a quarter” — Jeffrey Eberwein, CEO or Executive (likely CEO or President) · 2026-08-14 as a normal mid-cycle baseline. The book-to-bill ratio improved to 0.77, but the division remains constrained by a weak single-family and commercial multifamily market, with strength only in niche segments like workforce and senior housing.
Energy Services: A Bright Spot
Energy Services continued its strong momentum, with revenue up 19% to $3.9 million, gross profit up 75%, and adjusted EBITDA up 126% to $1.2 million. The growth is attributed to increased utilization of new tools and new client wins in geothermal and mining. Rick Coleman explained: the previous owners had underinvested in inventory, and the new leadership has been gradually adding capacity. "We've done a good deal this year in investing in those tools, and it's paid off." This segment is riding the broader wave of energy products and industrial demand, with opportunities in hydrogen, helium, and carbon capture drilling.
Financial Backdrop
On a consolidated basis, total revenue fell 6% year-over-year to $32.9 million, and operating margin was -5.4%, dragged by the growth spend and Building Solutions underperformance. However, the company maintains a strong balance sheet with Total Revenue at $32M, down 6% YoY and effective net cash of $23 million, providing flexibility for the Harte Hanks acquisition and continued share repurchases.
Prior Context: M&A and Synergies as Recurring Themes
The merger with Harte Hanks is not an isolated event. In the prior quarter (Q1 2026), Jeff Eberwein had already outlined an opportunistic approach to M&A, stating about GEE Group: “There's scenarios where we could be the winning bidder.” — Jeffrey Eberwein, CEO or Senior Executive · 2026-05-12 That willingness to pursue consolidation is now being extended to Harte Hanks. And on synergies, the company has a track record: back in late 2025, Eberwein affirmed the goal of delivering $2 million in synergies from the Hudson merger, a target that has now been surpassed at $3 million. This history suggests the $10 million synergy estimate for Harte Hanks is credible, though execution risk remains.
Conclusion
Star Equity is positioning itself as a diversified services company with a mix of cyclical (Building Solutions), growth (Energy Services), and investment-mode (Business Services) assets. The Harte Hanks acquisition, paired with the cost reduction plan and digital investments, marks a deliberate effort to scale while maintaining discipline. The market remains mixed on the company's ability to execute, but the call demonstrated a clear strategic direction. Whether the agentic AI investments and the merger yield the projected EBITDA expansion will be key to unlocking value.