Joining SEDOTY's September Small Cap Conference. My name is Michael Jay Mathison. I'm an analyst with the firm. Before we get started, just some housekeeping details. We really encourage questions. To ask a question, you'll see at the bottom of your screen, there's a little circle with three dots in it. It's called More. Hit that, and a Q&A box will pop up, and you just type in your questions there. We'll leave five or ten minutes at the end, and I'll just read out the questions that have come up during the presentation. With that, let me introduce Jeff Eberwein, the CEO of Hudson Global. Take it away, Jeff.
Thank you, Michael. Can you see the presentation deck?
We can.
Okay, great. All right. I look forward to getting your questions at the end. Thanks for joining us today. Thanks for your interest in Star Equity Holdings. Our vision and goal is to become known as the Berkshire Hathaway of microcaps. I know that sounds grandiose. Of course, there's only one Warren Buffett, but what makes Berkshire special is the combination of excellent businesses, excellent operating management teams, and of course, excellent capital allocation. We think the investment holding company structure we've created at Star will allow us to create significant shareholder value over time through strong organic growth at our wholly owned businesses, future acquisitions, share repurchases, and selective monetization over time of some of our non-cash generating assets. Now, for a little history and background, today's Star is an amalgamation of three microcaps, with the most recent being a merger between Hudson Global and Star Equity Holdings.
Hudson was the surviving legal entity, mainly because of its $240 million NOL, but we decided to keep the Star name. The merger was completed August 21, so just a few weeks ago. As you probably know, mutual funds tend to prefer pure plays. Hudson had two mutual funds who, at the beginning of the year, owned roughly 15% of our stock. It's about 30% total. When we announced this merger in May, both have been selling, which we think has impacted our stock price. One of these mutual funds got down to 8%, and we bought their entire block last week in a block trade. We've just recently shrunk our share count by 8%. The other mutual fund is less than 5% of our shares outstanding. We think this is less of an overhang than it was before.
In addition to that, the window opened recently for insiders, and we've had some significant insider buying. With the merger now closed, we think Star is very well positioned to deliver long-term value creation to our shareholders. Turning to 2026, which is going to be our first full year as a public company, the consensus estimates have us generating revenue of $250 million from our three operating companies, adjusted EBITDA of $15 million, and that's after all of our corporate costs, public company costs, and adjusted earnings per share of about $1.50. Turning to the presentation, our strategy going forward is focused on three areas, three pillars. One is organic growth at our three operating businesses. As I mentioned, the consensus estimate for 2026 is adjusted EBITDA of $15 million.
We think by the end of the decade, we'll be generating more like $40 million of EBITDA, and this doesn't include any acquisitions. This is just from our operating businesses. We think the drivers here are that several of our businesses are at cyclical low points. That's kind of point number one. Point number two is that all of our businesses are in growing industries, and we expect to increase our market share in these growing industries. That's one important item to note. Second is we are looking for acquisitions. Right now, we're predominantly focused on doing some bolt-ons for the three businesses that we're in. We'd like more size and scale. We'd like every business we're in to be generating at least $10 million of EBITDA. We're also open-minded to new verticals or new sister companies to our existing operating businesses.
These could be private companies, or they could be public companies. We'd love for you to own our common stock or our preferred stock, but we'd also love for you to keep in mind that we are looking for acquisitions. If you run across a private company or even a microcap that shouldn't be public, that might be a fit for Hudson Global, just ask that you keep us in mind, and we'll give it a look. In addition to that, some items you should know, in addition to our stocks on our capital allocation and our strategy, because we think our stock is so cheap, we're not inclined to issue any stock for acquisitions anytime soon. We will use cash, debt, preferred stock, and our preferred stock is not dilutive. It's perpetual.
It does trade on NASDAQ as a 10% cash dividend, and we think it's an effective and efficient currency to use in acquisitions. We have, we think, over $20 million of assets that aren't generating any EBITDA that we are expecting to monetize in the coming years. If you think about our market cap being less than $40 million, that's over 50% of our stock price of our market cap could be unleashed when these assets get converted to cash. It's a combination of real estate, where we're looking to do sale leaseback transactions, and stakes mainly in one private company that is owned by a PE firm, and we expect this company to be sold in the coming years. We will continue to opportunistically buy back our stock. We have a long history of buying back stock, and we evaluate acquisitions along with share repurchases.
As an amalgamator of businesses, as a multi-industry holding company, some people might have looked at our three businesses and said, "Gee, what's the logic of having these businesses together?" You could make the same case about any multi-industry holding company, with Berkshire Hathaway being the most famous one. Our businesses, even though they're in different industries, do have some common characteristics that are important to know, and we look for these characteristics when we look for acquisitions. One is that we like businesses that have low maintenance CapEx, asset-light business models. We like businesses that are in growing industries, where we have some company-specific growth opportunities within a growing industry. Another thing we look for are industries that are fragmented, because that means that there's a lot of acquisition opportunities for us to do.
We absolutely insist on having a good on-the-ground operating management team to run the businesses, and we incent them and structure compensation so that they feel like, act like owners. I've already talked about several items of our strategy, and one thing I'd like to turn to now is the valuation of our stock, which we think is significantly undervalued, which is why we've been buying stock. Both the company has been buying stock, as well as insiders have been buying stock. I already mentioned the consensus numbers for next year, over $250 million in revenue, $15 million of EBITDA, around $1.50 for earnings, and we have an NOL that's $240 million. When we look at our stock on the equity metrics, the way you would for a financial, say, or maybe a mutual fund, if you're going to look at net asset value, we're below book value.
We have a high free cash flow yield and our PE ratio of six. I know many other people like to look at more asset enterprise type of measures, like EV/EBITDA. We're low on that as well, EV/EBITDA of three times. That's based on the 2026 numbers. There are a lot of different ways to do this math. Given that our preferred stock trades at roughly 10 times EV/EBITDA, because it's got a 10% dividend yield and trades roughly around par, I would argue that inflates our EV/EBITDA multiple. If you were to take that out, and if you were to give us credit for the $20 million of assets that are going to be converted to cash, I would argue we have a negative enterprise value, granted that does ignore the preferred stock. We have about $27 million of preferred stock, as you can see on this slide here.
A question to ask is $250 million of revenue, and at the business level, $20 to $25 million of EBITDA, you know, gee, isn't that worth more than the $27 million of preferred stock? I know there's a lot of different ways to look at these measures, but even if you include the preferred stock in our cap table, don't give us any credit for assets that have value that aren't generating EBITDA. We have an extremely low multiple. Any questions on this, feel free to reach out to us. Turning to the opportunity set, I think this is an important slide, maybe the most important slide in our whole deck. There are 4,000 companies that are publicly traded that have EBITDA less than $30 million. I would argue most of these companies should not be public.
The cost of being public, the complexity of being public, have only risen over time. Most of these companies should be sold or should go private in some way, and some of them could be acquisition targets for Hudson Global. That's one area that's a hunting ground, if you will. Another area is private companies. We've done some positions here and have built up a decent amount of internal expertise on buying a private company. There are millions of private companies out there. Some, a few, might be a fit for Hudson Global. Many of them, we have found, don't have a succession plan.
Typically, you have a business that's started by a family, and they don't really think about succession planning or what they're going to do when they retire until they get to a certain age, and they start to think about it, and they don't have a real plan for how to exit. Importantly, we've built an internal M&A and investment team and due diligence team that looks a lot like what you would see at a private equity firm. One could think about Hudson Global as somewhat like a private equity firm, a publicly traded private equity firm where the portfolio is publicly traded. Just some examples of some transactions that we've done in recent years. One is one of our predecessor companies was Digerad Corp. That was a pure play healthcare business.
When we started amalgamating these businesses together, we came to the conclusion that the Digerad business might be more valuable to somebody else than to us. I already mentioned we'd like any business we're in to be $10 million of EBITDA, and Digerad was less than that. We did not see a path other than doing acquisitions to get it above $10 million of EBITDA. We merged it with a very similar business that happened to be owned by a PE firm. That company was called TTG Imaging. The new co is called Catalyst MedTech. In that transaction, there were no bankers. We went toe to toe with the PE firm, and our internal team did all the same work that you would see a PE firm do, and it felt like two PE firms doing a deal with each other.
In addition, over the last three years, we have acquired three private mom-and-pop type of companies: Big Like Lumber in 2023, Timber Technologies in 2024, and earlier this year, Alliance Drilling Tools. We have made investments in other microcaps that should not be public. This portfolio is now only $2 million. We have had a couple of monetizations recently, but we want to have all the tools in the toolkit. We are willing and able to invest in other microcaps and effectively put them in play. They could be acquisition targets for Hudson Global, or they could be acquired by a strategic. One of these was Superior Drilling Tools, which we owned a stake in. We were public that the company should sell itself. Ultimately, they did. They sold themselves to DTI, so that got monetized last year.
Earlier this year, Servitronics announced that they had hired an investment banking firm and announced that they were exploring strategic alternatives. A bidding war erupted over this microcap, and we turned a $1.5 million investment into $7 million, and that rolled through our results in Q2. Our M&A team consists of the Hudson Global management team, which you can see on slide nine. We have three internal research and financial analysts that help us do the due diligence and the analysis, and we also have an internal legal team. We believe that we are equipped to handle all the aspects of an M&A transaction from the very beginning to the very end.
On slide seven here, we talk about some of our acquisition criteria. We are looking for businesses that do have revenue, do have EBITDA, that come with a management team, or we can fold into one of our existing management teams, one of our existing businesses. We do have some common, I already mentioned the common characteristics that our existing businesses have. The three businesses we are in, which I will talk about in a minute, are building solutions, business services, and energy services. The number one priority right now is beefing up these sectors, looking for acquisitions in those three verticals. We've been asked not only what we're looking for in acquisitions, but what sectors we'd be interested in.
A few that we are interested in, where we are looking, these are lower priority than doing more bolt-ons for our existing segments, are transportation, logistics, anything that's industrial, manufacturing, materials we think fits with our skill set. The one thing we're pretty sure about is staying away from anything that's a startup, venture capital, pre-revenue, pre-EBITDA type of business. We think we wouldn't get credit for that. With having such a large net operating loss (NOL), we're really looking for businesses that generate a lot of income, a lot of cash flow. We've talked about how we're similar, but yet somewhat different than a private equity firm. Here we have our team, our board, and just a quick snapshot on our businesses. Our building solutions business, the common theme here is all these businesses are wood-based, building in a factory rather than on-site, which we think is gaining share.
It's got some secular growth characteristics. Some of the products that we manufacture, particularly in engineered wood products, are gaining share. They're cheaper, greener, and more efficient than more metal-based products. That's the theme in our building solutions division. We think the businesses in this division are poised for good growth. Over the next five years, we're expecting on average 10% revenue growth, and we think EBITDA will grow faster than that. We have a goal of keeping gross margins at 25% or higher for this division. This consists of three sister companies in this division. Our business services division is our biggest division. The interim goal is to get back to the profitability levels we had in 2022, where we were generating $100 million of gross profit and $20 million of EBITDA at the business level.
We were doing about 20% of our revenue at that time working for pre-revenue technology companies, and you can imagine that has declined precipitously. We did have a decline in revenue. What we're doing now is almost entirely with Fortune 500 companies, long-term contracts. When we do get back to that $100 million of gross profit level, we think it's going to be higher quality because it's going to be almost entirely with Fortune 500 companies, long-term contracts. This is a business that might be interesting for a PE firm, and we might explore partnering with a PE firm to really accelerate the growth of this business. Our most recent and smallest division is energy services. We think that there are other acquisitions to do in this sector.
We are focusing on businesses here that aren't capital intensive, mission-critical products and services, where it's just a small piece of the total cost of providing the service. That's what we're looking for in energy services, industrial services. I mentioned our investments division. This holds our real estate and our investments in public companies and private companies. Those are as a conclusion to my prepared remarks. Michael, why don't we open it up to Q&A?
Sure, that's terrific. Let's see, we had a question just pop up here from Ross Davison, essentially saying the type of M&A that you guys are targeting is a very competitive business. What makes Hudson Global likely to create value through this strategy?
Yeah, it's a really good question. We will only do an acquisition if it's a really attractive value. That's kind of number one. Number two, we can honestly say that we think it's more valuable inside of Hudson Global than not. When we think about the private companies, going back to some of these examples here, Big Lake Lumber wasn't even on the market. It was a mom-and-pop type of business that we acquired from two owners. One retired immediately, and the other one stayed on in more of a part-time role and will retire at some point. We just tucked that business into our existing business in the Minneapolis area. We were a very logical buyer of that. On the Timber Technologies business, the two founders there were looking to sell and retire and stay on for three years.
We have the structure and the management team to do that, given that we have existing businesses just an hour away. A similar story with Alliance Drilling Tools we acquired earlier this year. This was a collection that was owned by three people. Two of the founders wanted to retire, and one of the younger people who was a junior partner in the operation is now running the business. It was a win-win in that we structured the transaction mainly using our preferred stock, which was a security that the two partners retiring, the two owners retiring, thought was really, really helpful, really valuable to achieve their goals. Now the younger generation is running that business. That's something that we look for, a private company, often family-owned company, that isn't a good fit for a PE firm or doesn't want to sell to a PE firm.
They like Hudson Global, they like our structure, they like the fact that we're not looking to buy in year one and sell at some point down the road. We're more looking to buy and hold the way Berkshire Hathaway does. That's a fit. On the public companies, a lot of these microcaps aren't for sale. They should be sold, but they have entrenched incumbents, and that's where the activism comes in. If we think about what players out there are buying other public companies 100% and are willing to be an activist, willing to go hostile if needed, there's only a handful of people in the world who have those tools in the toolkit and who are willing to do that. Hope that answers the question.
Okay, great. Some questions here about your capital structure. Is there a target debt level that you have?
All of the debt that we have is at our opcos. It's down at the subsidiary level, with one exception. It's all with banks, and the cost of our debt capital is pretty low. It's in the 7% to 8% range. I would say we're comfortable with anything between one to two times EBITDA. If you think about our EBITDA for next year being $15 million, that's for the company as a whole. That would say maybe target debt is $15 million to $30 million. Actually, at the opco level, it's higher than that because the opcos aren't burdened with the public company costs and the corporate overhead. That's the way we think about bank debt. We do have preferred stock. Some people think about that like debt. We agree it's got some characteristics of debt, but it also has some characteristics of equity.
In fact, the IRS treats it as equity for M&A purposes. We can buy a business, buy another public company with our preferred stock. It is publicly traded, and that's not a taxable event to the sellers. The preferred stock's perpetual, doesn't really have any covenants in it. We look at it both ways. We look at our capital structure both ways, with the preferred as debt and with the preferred as equity. When we think about leverage, we really think about that bank debt, those external credit lenders.
Great. If we could turn to one of your operating businesses, the staffing business is still the largest, as you mentioned, net of the merger. You mentioned in your last earnings call that you were cautiously optimistic about a rebound in the hiring environment in the U.S. Everybody reads the headlines. There's a lot of worry about that. What's your take on that today?
We have seen overhiring coming out of COVID. Our business peaked in 2022, 2023, and that's not just the U.S., but globally. When we did have $100 million of gross profit, that was probably a cyclical peak, and we've had a slowdown in hiring since that time. Like I mentioned, about 20% of our top line was working for pre-IPO tech companies, and that is now at a de minimis level. You can see our revenue kind of bottomed around that $70 million. Our net revenue, our gross profit, bottomed around that $70 million. We're seeing a gradual return to normal. One statistic we look at at the Fortune 500 companies, which are the vast majority of our clients, is the attrition rate. You have a company, let's say that they have 20,000 employees globally.
If they have a 15% attrition rate, which is about average, that means they need to hire 3,000 people a year just to keep their headcount flat. That's basically an annuity stream for us because we do all that hiring. We do a lot of the pre-hiring work, a lot of the HR work. That attrition rate after COVID, like in that 2022 timeframe, got into the 20s. If normal is 15%, that attrition rate got as high as 22%, 23%. We saw some quarters last year where that attrition rate was 8%, 9%. Unheard of. We haven't seen attrition rates that low in 15 years. If that period coming out of COVID was called the great resignation, I would say that the period we've been through is called the great stay. Some other people have called it kind of the no hiring, no firing environment.
There's been a lot of truth to that. Our outlook is that we're gradually coming out of that. We're gradually returning to normal. We're seeing the Fortune 500 gradually increase their hiring, and we're seeing that attrition rate gradually return to more historic levels in the mid-teens.
Terrific. We have time for one more question. Kind of looking through everything that came in, you had that slide on your valuation. Of those methodologies, which one do you think makes the most sense for a diversified conglomerate like Hudson Global?
I would say the top ones here on slide four. Price to earnings, price to book. We do think now that we're done with the merger and we're hopefully done by 2026, it'll be the first full year as a combined company. We should be past all of the non-recurring items and transaction costs that we've had in 2025 getting to this point. We do expect to have positive earnings. That's what I would say: earnings, book value, free cash flow yield. That free cash flow yield is after CapEx, after preferred stock dividends. It's how much cash is available for the common shareholders, either for acquisitions that grow shareholder value, for dividends, for stock repurchases. Given our valuation, we're not looking to pay dividends on our common stock when we can buy back our stock at such a low level.
Okay, great. Just interpreting a question that came in here from Marshall Maxwell, who typed one in. Just how is the team blending? You, I think, have all worked together in the past, just thinking through net of the merger. Is everybody settled into their chairs?
Yes, yes, they are. If you go to our management team here, I'm CEO of the public company. Brian Coleman, who was CEO of the other company that we merged with, is COO. My skill set is heavily in finance strategy, and Brian is much more operations, spends a lot more time with the opco management teams. He's a great mentor to those management teams. Our CFO is now at a PE firm, which is telling, our former CFO. We've split the traditional CFO role into two people: Matt Diamond, who's our Chief Accounting Officer, and Sean Miles, who's our EVP of Finance. As I mentioned before, we have an in-house legal team led by Hannah Bible, and we've worked together and known each other for some time. The team and the board have gelled very well.
Excellent. Thank you for your presentation. We are out of time at this point. Thank you, everybody, for joining us. If I wasn't able to get to your question, please let your SEDOTY representative know. We'll run down the answers for you. Thank you again, everybody, for joining, and thanks to Hudson Global. Thanks, John.