Star Equity Holdings, Inc.

Previous wording

The Company’s objective is to increase value to the Company’s stockholders by providing global Recruitment Process Outsourcing (“RPO”) solutions to customers. With direct operations in fourteen countries and relationships with specialized professionals and organizations around the globe, the Company brings a strong ability to match talent with opportunities by assessing, recruiting, developing, and engaging highly successful people for the Company’s clients. The Company combines broad geographic presence, world-class talent solutions and a tailored, consultative approach to help businesses and professionals achieve maximum performance. The Company seeks to continually upgrade its service offerings and delivery capability tools to make the Company and candidates more successful in achieving clients’ business requirements.

Current wording

The Company’s objective is to increase value to the Company’s stockholders by providing global Recruitment Process Outsourcing (“RPO”) solutions to customers. With direct operations in fifteen countries and relationships with specialized professionals and organizations around the globe, the Company brings a strong ability to match talent with opportunities by assessing, recruiting, developing, and engaging highly successful people for the Company’s clients. The Company combines broad geographic presence, world-class talent solutions and a tailored, consultative approach to help businesses and professionals achieve maximum performance. The Company seeks to continually upgrade its service offerings and delivery capability tools to make the Company and candidates more successful in achieving clients’ business requirements.

Previous wording

This MD&A discusses the results of the Company’s business for the three and nine months ended September 30, 2024 and 2023.

Current wording

This MD&A discusses the results of the Company’s business for the three months ended March 31, 2025 and 2024.

Previous wording

Our clients’ demands for RPO and contracting services largely depend on the market conditions and the strength of the labor markets in the countries where we operate. In the third quarter of 2024, the market conditions remained challenging due to persistent inflation, higher interest rates, and decreased demand for labor in certain markets. We anticipate that these challenging market conditions will continue into the final quarter of 2024.

Current wording

Our clients’ demands for RPO and contracting services largely depend on the market conditions and the strength of the labor markets in the countries where we operate. In the first quarter of 2025, the market conditions remained challenging due to persistent inflation, higher interest rates, market uncertainty related to disruptions in trade and decreased demand for labor in certain markets. We anticipate that these challenging market conditions will continue into the next quarter of 2025.

Previous wording

Economic conditions in most of the world’s major markets continued to slow down throughout 2023 and into the third quarter of 2024. Higher than expected inflation in most markets and rising interest rates have led to significant market disruption, including further wage inflation, increased operating costs, staffing challenges, reduced consumer confidence, and limited capital market accessibility that impact our business. In addition, in connection with the challenging business environment, some of our customers have reduced demand, and certain other customers have eliminated our services on a temporary or permanent basis. These conditions and expected future inflation and potential interest rate increases could have material adverse impacts on various aspects of our business in the future.

Current wording

Economic conditions in most of the world’s major markets continued to slow down throughout 2024. Higher than expected inflation in most markets and rising interest rates have led to significant market disruption, including further wage inflation, increased operating costs, staffing challenges, reduced consumer confidence, and limited capital market accessibility that impact our business. In addition, in connection with the challenging business environment, some of our customers have reduced demand, and certain other customers have eliminated our services on a temporary or permanent basis. These conditions and expected future inflation and potential interest rate increases could have material adverse impacts on various aspects of our business in the future.

Previous wording

The following is a summary of the Company’s financial performance highlights for the three and nine months ended September 30, 2024 and 2023. This summary should be considered in the context of the additional disclosures in this MD&A which further highlight Company results by segment.

Current wording

The following is a summary of the Company’s financial performance highlights for the three months ended March 31, 2025 and 2024. This summary should be considered in the context of the additional disclosures in this MD&A which further highlight Company results by segment.

Previous wording

•Revenue was $106.5 million for the nine months ended September 30, 2024, compared to $127.4 million for the same period in 2023, a decrease of $20.9 million, or 16.4%. The decrease in revenue was principally driven by a decline in Australia.

Current wording

•Revenue was $31.9 million for the three months ended March 31, 2025, compared to $33.9 million for the same period in 2024, a decrease of $2.0 million, or 6.0%. The decrease in revenue was principally driven by a decline in Australia.

Previous wording

◦On a constant currency basis, the Company’s revenue decreased $20.6 million, or 16.2%, due to a decrease in RPO revenue of $11.2 million, or 18.0%, coupled with a decrease in contracting revenue of $9.4 million, or 14.6%, compared to the same period in 2023.

Current wording

◦On a constant currency basis, the Company’s revenue decreased $1.1 million, or 3.3%, due to a decrease in contracting revenue of $1.3 million, or 7.2%, partially offset by a $0.2 million, or 1.1%, increase in RPO revenue, compared to the same period in 2024.

Previous wording

◦On a constant currency basis, SG&A and Non-Op increased $0.5 million, or 3.0%, as compared to the same period in 2023. SG&A and Non-Op as a percentage of revenue was 51.2% for the three months ended September 30, 2024, compared to 45.8% for the same period in 2023.

Current wording

◦On a constant currency basis, SG&A and Non-Op decreased $0.8 million, or 4.2%, as compared to the same period in 2024. SG&A and Non-Op as a percentage of revenue was 56.2% for the three months ended March 31, 2025, compared to 56.7% for the same period in 2024.

Previous wording

•EBITDA loss was $0.3 million for the three months ended September 30, 2024, compared to EBITDA of $1.2 million for the same period in 2023, a decrease in EBITDA of $1.5 million. On a constant currency basis, EBITDA decreased $1.6 million.

Current wording

•EBITDA loss was $1.5 million for the three months ended March 31, 2025, compared to EBITDA loss of $2.7 million for the same period in 2024, a decrease in EBITDA loss of $1.2 million. On a constant currency basis, EBITDA loss also decreased $1.2 million.

Previous wording

The Company operates on a global basis, with the majority of its revenue generated outside of the U.S. Accordingly, fluctuations in foreign currency exchange rates can affect the Company’s results of operations. For the discussion of reportable segment results of operations, the Company uses constant currency information. Constant currency compares financial results between periods as if exchange rates had remained constant period-over-period. The Company defines the term “constant currency” to mean that financial data for a previously reported period is translated into U.S. dollars using the same foreign currency exchange rates that were used to translate financial data for the current period. Constant currency metrics should not be considered in isolation or as a substitute for reported results prepared in accordance with generally accepted accounting principles (“GAAP”) in the U.S. The Company’s management reviews and analyzes business results in constant currency and believes these results better represent the Company’s underlying business trends. Changes in foreign currency exchange rates generally impact only reported earnings.

Current wording

between periods as if exchange rates had remained constant period-over-period. The Company defines the term “constant currency” to mean that financial data for a previously reported period is translated into U.S. dollars using the same foreign currency exchange rates that were used to translate financial data for the current period. Constant currency metrics should not be considered in isolation or as a substitute for reported results prepared in accordance with generally accepted accounting principles (“GAAP”) in the U.S. The Company’s management reviews and analyzes business results in constant currency and believes these results better represent the Company’s underlying business trends. Changes in foreign currency exchange rates generally impact only reported earnings.

Previous wording

Changes in revenue, adjusted net revenue, SG&A and Non-Op, operating income (loss), net income (loss), and EBITDA (loss) include the effect of changes in foreign currency exchange rates. The tables below summarize the impact of foreign currency exchange adjustments on the Company’s operating results for the three and nine months ended September 30, 2024 and 2023.

Current wording

Changes in revenue, adjusted net revenue, SG&A and Non-Op, operating income (loss), net income (loss), and EBITDA (loss) include the effect of changes in foreign currency exchange rates. The tables below summarize the impact of foreign currency exchange adjustments on the Company’s operating results for the three months ended March 31, 2025 and 2024.

Previous wording

For the three months ended September 30, 2024, contracting revenue increased by $1.5 million, or 714%, while RPO revenue decreased by $1.1 million, or 16%, compared to the same period in 2023. The increase in contracting revenue was driven by new client wins, while the decline in RPO revenue reflected lower demand from existing clients.

Current wording

For the three months ended March 31, 2025, contracting revenue increased by $0.9 million, or 483%, while RPO revenue decreased by $0.1 million, or 1%, compared to the same period in 2024. The increase in contracting revenue was driven by new client wins, while the decline in RPO revenue reflected lower demand from existing clients.

Previous wording

For the three months ended September 30, 2024, RPO adjusted net revenue decreased by $0.5 million, or 8%, while contracting adjusted net revenue increased by $0.3 million, or 967%. The decrease in RPO adjusted net revenue was due to lower demand from existing clients, while the increase in contracting adjusted net revenue was due to new client wins. For the nine months ended September 30, 2024, RPO adjusted net revenue decreased by $5.6 million, or 23%, reflecting the lower demand from existing clients.

Current wording

For the three months ended March 31, 2025, contracting adjusted net revenue increased by $0.2 million, or 837%, while RPO adjusted net revenue decreased by $0.1 million, or 1%. The increase in contracting adjusted net revenue was due to new client wins, while the decrease in RPO adjusted net revenue was due to lower demand from existing clients.

Previous wording

For the three months ended September 30, 2024 and 2023, total adjusted net revenue as a percentage of revenue was 88%, compared to 96% for the same period in 2023. The decrease in total adjusted net revenue as a percentage of revenue was attributed to the lower mix of RPO to contracting revenue.

Current wording

For the three months ended March 31, 2025 and 2024, total adjusted net revenue as a percentage of revenue was 87%, compared to 97% for the same period in 2024. The decrease in total adjusted net revenue as a percentage of revenue was attributed to the lower mix of RPO to contracting revenue.

Previous wording

For the three months ended September 30, 2024, SG&A and Non-Op decreased $0.6 million, or 9%, compared to the same period in 2023, while SG&A and Non-Op as a percentage of revenue decreased from 97% to 83%. The decrease in SG&A and No-Op was principally due to lower staff costs. The decrease in SG&A and Non-Op as a percentage of revenue was primarily due to the decline in staff costs as a percentage of adjusted net revenue.

Current wording

For the three months ended March 31, 2025, SG&A and Non-Op decreased $0.5 million, or 8%, compared to the same period in 2024, while SG&A and Non-Op as a percentage of revenue decreased from 112% to 91%. The decrease in SG&A and No-Op and in SG&A and Non-Op as a percentage of revenue was principally due to lower staff costs as a percentage of revenue.

Previous wording

For the nine months ended September 30, 2024, operating loss was $0.7 million, compared to operating loss of $1.4 million in 2023, and EBITDA loss was $0.1 million, compared to EBITDA loss of $0.9 million in 2023.

Current wording

For the three months ended March 31, 2025, operating loss was $0.2 million, compared to operating loss of $1.2 million in 2024, and EBITDA loss was $0.1 million, compared to EBITDA loss of $0.9 million in 2024.

Previous wording

The increases in operating income and EBITDA for the three and nine months ended September 30, 2024, were due to the same factors noted above.

Current wording

The decreases in operating loss and EBITDA loss for three months ended March 31, 2025, were due to the same factors noted above.

Previous wording

For the three months ended September 30, 2024, contracting revenue decreased by $3.3 million, or 18%, while RPO revenue decreased $0.8 million, or 9%, compared to 2023, as discussed below.

Current wording

For the three months ended March 31, 2025, contracting revenue decreased by $2.4 million, or 16%, while RPO revenue increased $0.8 million, or 14%, compared to 2024, as discussed below.

Previous wording

In Australia, revenue decreased $6.1 million, or 25%, for the three months ended September 30, 2024, compared to the same period in 2023. The decrease was primarily driven by contracting revenue which declined by $3.6 million, or 21% driven by reduced demand from existing clients. RPO revenue declined by $2.4 million, or 35%, compared to 2023, also due to lower demand from existing clients.

Current wording

In Australia, revenue decreased $2.4 million, or 14%, for the three months ended March 31, 2025, compared to the same period in 2024. The decrease was primarily driven by a $2.8 million, or 21%, decline in contracting revenue, driven by reduced demand from existing clients. Partially offsetting this decline, RPO revenue increased by $0.4 million, or 12%, compared to 2024, due to higher demand from existing clients.

Previous wording

For the three months ended September 30, 2024, RPO adjusted net revenue declined by $0.7 million, or 9%, while contracting adjusted net revenue decreased $0.3 million or 32%, compared to the same period in 2023.

Current wording

In Australia, adjusted net revenue increased by $0.4 million, or 9%, for the three months ended March 31, 2025, compared to the same period in 2024. The increase was primarily driven by RPO adjusted net revenue, which increased by $0.5 million, or 13%, while contracting adjusted net revenue declined by $0.1 million, or 14%, compared to 2024.

Previous wording

In Asia, adjusted net revenue increased by $1.6 million, or 127%, for the three months ended September 30, 2024, compared to the same period in 2023. The increase in adjusted net revenue was primarily driven by the acquisition of Hudson

Current wording

In Asia, adjusted net revenue increased by $0.5 million, or 23%, for the three months ended March 31, 2025, compared to the same period in 2024.

Previous wording

Total adjusted net revenue as a percentage of revenue was 35% for the three months ended September 30, 2024, compared to 33% for the same period in 2023. The increase in total adjusted net revenue as a percentage of revenue was attributed to a greater mix of higher margin RPO revenue to contracting revenue.

Current wording

Total adjusted net revenue as a percentage of revenue was 38% for the three months ended March 31, 2025, compared to 31% for the same period in 2024. The increase in total adjusted net revenue as a percentage of revenue was attributed to a greater mix of higher margin RPO revenue to contracting revenue.

Previous wording

Operating Income and EBITDA - Asia Pacific

Current wording

Operating Income (Loss) and EBITDA - Asia Pacific

Previous wording

For the three months ended September 30, 2024, operating income was $0.5 million, compared to operating income of $2.3 million in 2023, and EBITDA was $0.3 million, or 1% of revenue, compared to EBITDA of $1.9 million, or 7% of revenue, in 2023. The decreases in operating income and EBITDA were principally due to the decline in adjusted net revenue, as described above.

Current wording

For the three months ended March 31, 2025, operating income was $0.4 million, compared to operating loss of $0.5 million in 2024, and EBITDA was $0.3 million, or 1% of revenue, compared to EBITDA loss of $0.6 million, or 3% of revenue, in 2024. The changes in operating income and EBITDA were principally driven by the increase in adjusted net revenue, as described above.

Previous wording

For the three months ended September 30, 2024, RPO revenue increased by $0.3 million or 7%, while contracting revenue increased by $0.2 million or 7%, compared to the same period in 2023, as further discussed below.

Current wording

For the three months ended March 31, 2025, RPO revenue decreased by $0.6 million or 16%, while contracting revenue increased by $0.2 million or 8%, compared to the same period in 2024, as further discussed below.

Previous wording

In the U.K., for the three months ended September 30, 2024, revenue decreased slightly, or 1%. The change was driven by a decrease in RPO revenue of $0.2 million, or 5%, due to lower demand from existing clients, which was mainly offset by an increase in contracting revenue of $0.2 million, or 7%, compared to the same period in 2023.

Current wording

In the U.K., for the three months ended March 31, 2025, revenue decreased by $0.6 million, or 10%, compared to the same period in 2024. The change was driven by a decrease in RPO revenue of $0.8 million, or 22%, due to lower client demand, which was partially offset by an increase in contracting revenue of $0.2 million, or 8%, compared to the same period in 2024.

Previous wording

In Continental Europe, total revenue was $1.7 million for the nine months ended September 30, 2024, an increase of $0.7 million, or 61%, compared to the same period in 2023. The increase was primarily due to new client wins.

Current wording

In Continental Europe, total revenue was $0.5 million for the three months ended March 31, 2025, an increase of 5% compared to the same period in 2024. The increase was due to higher demand from existing clients.

Previous wording

For the three months ended September 30, 2024, adjusted net revenue increased by $0.2 million, or 5%, primarily driven by an increase in RPO adjusted net revenue of $0.2 million, or 4%, while contracting adjusted net revenue increased slightly, or 63%, compared to the same period in 2023, as further discussed below.

Current wording

For the three months ended March 31, 2025, adjusted net revenue decreased by $0.7 million, or 19%, primarily driven by a decrease in RPO adjusted net revenue of $0.6 million, or 16%, and a decrease in contracting adjusted net revenue, which declined $0.1 million, or 62%, compared to the same period in 2024, as further discussed below.

Previous wording

In the U.K., total adjusted net revenue for the three months ended September 30, 2024 decreased by $0.3 million, or 8%, compared to 2023. The decrease was driven by RPO adjusted net revenue, which declined by $0.3 million, or 9%, compared to 2023.

Current wording

In the U.K., total adjusted net revenue for the three months ended March 31, 2025 decreased by $0.9 million, or 25%, compared to the same period in 2024. The decrease was driven by RPO adjusted net revenue, which declined by $0.7 million, or 22%, while contracting adjusted net revenue decreased $0.1 million, or 62%, compared to 2024.

Previous wording

For the three months ended September 30, 2024, SG&A and Non-Op decreased $0.1 million, or 3%, compared to the same period in 2023. The decrease in SG&A and Non-Op was primarily the result of lower consultant staff costs in the current year.

Current wording

For the three months ended March 31, 2025, SG&A and Non-Op increased $0.2 million, or 5%, compared to the same period in 2024. The increase in SG&A and Non-Op was primarily the result of higher corporate allocations and foreign currency exchange in the current year.

Previous wording

For the nine months ended September 30, 2024, SG&A and Non-Op as a percentage of revenue was 59%, compared to 58%, in 2023. The increase in SG&A and Non-Op as a percentage of revenue was primarily due to the revenue decline outpacing the decrease in SG&A and Non-op.

Current wording

For the three months ended March 31, 2025, SG&A and Non-Op as a percentage of revenue was 65%, compared to 58% in 2024. The increase in SG&A and Non-Op as a percentage of revenue was primarily due to the decrease in adjusted net revenue.

Previous wording

Operating (Loss) Income and EBITDA -Americas

Current wording

Operating (Loss) Income and EBITDA - EMEA

Previous wording

For the nine months ended September 30, 2024, operating income was $0.6 million, compared to operating income of $1.5 million for the same period in 2023, and EBITDA was $0.5 million, or 2% of revenue, compared to EBITDA of $1.0 million, or 5% of revenue, for the same period in 2023.

Current wording

For the three months ended March 31, 2025, operating loss was $0.5 million, compared to operating income of $0.3 million for the same period in 2024, and EBITDA loss was $0.6 million, or 11% of revenue, compared to EBITDA loss of $0.3 million, or 4% of revenue, for the same period in 2024.

Previous wording

Corporate expenses were $1.0 million for the three months ended September 30, 2024 as compared to $0.4 million for the same period in 2023, representing an increase of $0.6 million. The increase in corporate expenses was primarily due to higher stock-based compensation expenses and staff costs, as well as lower corporate allocations.

Current wording

Corporate expenses were $1.0 million for the three months ended March 31, 2025 as compared to $1.5 million for the same period in 2024, representing an decrease of $0.5 million. The decrease in corporate expenses was primarily due to higher professional fees and staff costs, as well as higher corporate allocations.

Previous wording

Depreciation and amortization expense was $0.4 million and $1.0 million for the three and nine months ended September 30, 2024, compared to $0.4 million and $1.1 million for the same periods in 2023, respectively.

Current wording

Depreciation and amortization expense was $0.3 million for the three months ended March 31, 2025, compared to $0.4 million for the same period in 2024.

Previous wording

Other expense was $0.2 million and $0.3 million for the three and nine months ended September 30, 2024, respectively, as compared to other expense of $0.4 million and $0.3 million for the same periods in 2023. The lower net expense for the three months ended September 30, 2024 was primarily due to one-time client administrative costs of $0.3 million in the prior year.

Current wording

Other expense was $0.1 million for the three months ended March 31, 2025, as compared to other expense of $0.0 million for the same period in 2024.

Previous wording

The provision for income taxes for the nine months ended September 30, 2024 was $0.5 million on $3.7 million of pre-tax income, compared to a provision for income tax of $1.1 million on $2.6 million of pre-tax income for the same period in 2023. The effective tax rates for the nine months ended September 30, 2024 and 2023 were negative 12% and positive 44%, respectively. For the nine months ended September 30, 2024, the effective tax rates differed from the U.S. Federal statutory rate of 21% primarily due to pretax losses for which no tax benefit can be recognized, foreign tax rate differences, and non-deductible expenses. For the nine months ended September 30, 2023, the effective tax rates differed from the U.S. Federal statutory rate of 21% primarily due to a discrete tax benefit recognized following the lapse of certain statutes of limitations related to Spain, recognition of a portion of a deferred tax asset in Canada, state income taxes, changes in valuation allowances in the U.S. and certain foreign jurisdictions which reduces or eliminates the effective tax rate on current year profits or losses, foreign tax rate differences, taxes on repatriations or deemed repatriation of foreign profits, and non-deductible expenses.

Current wording

The provision for income taxes for the three months ended March 31, 2025 was $0.0 million on $1.7 million of pre-tax loss, compared to a benefit from income tax of $0.1 million on $3.0 million of pre-tax loss for the same period in 2024. The effective tax rates for the three months ended March 31, 2025 and 2024 were negative 2% and positive 3%, respectively. For the three months ended March 31, 2025, the effective tax rates differed from the U.S. Federal statutory rate of 21% primarily due to pretax losses for which no tax benefit can be recognized, foreign tax rate differences, and non-deductible expenses. For the three months ended March 31, 2024, the effective tax rates differed from the U.S. Federal statutory rate of 21% primarily due to changes in valuation allowances in the U.S. and certain foreign jurisdictions which reduces or eliminates the effective tax rate on current year profits or losses, foreign tax rate differences and non-deductible expenses.

Previous wording

Net loss was $0.8 million for the three months ended September 30, 2024, compared to net income of $0.5 million for the three months ended September 30, 2023, a decrease in net income of $1.4 million. Basic and diluted loss per share were both $0.28 for the three months ended September 30, 2024, compared to basic and diluted earnings per share of $0.17 for the same period in 2023.

Current wording

Net loss was $1.8 million for the three months ended March 31, 2025, compared to net loss of $2.9 million for the three months ended March 31, 2024, a decrease in net loss of $1.1 million. Basic and diluted loss per share were both $0.59 for the three months ended March 31, 2025, compared to basic and diluted loss per share of $0.95 for the same period in 2024.

Previous wording

As of September 30, 2024, cash and cash equivalents and restricted cash totaled $16.5 million, compared to $23.2 million as of December 31, 2023. The following table summarizes the Company’s cash flow activities for the nine months ended September 30, 2024 and 2023:

Current wording

As of March 31, 2025, cash, cash equivalents, and restricted cash totaled $17.2 million, compared to $17.7 million as of December 31, 2024. The following table summarizes the Company’s cash flow activities for the three months ended March 31, 2025 and 2024:

Previous wording

For the nine months ended September 30, 2024, net cash used in operating activities was $4.8 million, compared to $3.0 million of net cash used in operating activities for the same period in 2023, resulting in a $1.8 million increase in net cash used. The increase in net cash used was principally driven by the Company’s lower net income in 2024, partially offset by more favorable working capital comparisons to the prior year.

Current wording

For the three months ended March 31, 2025, net cash used in operating activities was $0.8 million, compared to $1.8 million of net cash used in operating activities for the same period in 2024, resulting in a $1.0 million decrease in net cash used. The decrease in net cash used was principally driven by the Company’s lower net loss in 2025, partially offset by less favorable working capital comparisons to the prior year.