SPAR Group, Inc.(SGRP)Q1 2026 法說會逐字稿

Welcome to the SPAR Group First Quarter 2026 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

I would now like to turn the conference over to Sandra Martin with 3-Part Advisors. Please go ahead. Thank you, operator, and good morning, everyone. We appreciate you joining us for SPAR Group, Inc.'s conference call to review its first quarter 2026 results. Joining me on the call today are SPAR's Chief Executive Officer, William Linnane, and the company's Chief Financial Officer, Steven Hennen. This call is also being webcast and can be accessed through the audio link on the Events and Presentations page of the Investor Relations section at investors.sparinc.com. The information recorded on this call speaks only as of today, so please be advised that any time-sensitive information may no longer be accurate as of the date of any replay or transcript reading. I would also like to remind you that the statements made in today's discussion that are not facts, including statements, expectations, future events, or future financial performance, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements by their nature are uncertain and outside of the company's control. Actual results may differ materially from those expressed or implied. Please refer to today's earnings press release for our disclosures on forward-looking statements. These factors and other risks and uncertainties are described in detail in the company's filings with the Securities and Exchange Commission. Management may also refer to non-GAAP financial measures and reconciliations to the nearest GAAP measures can be found at the end of our earnings release. SPAR Group assumes no obligation to update or revise any forward-looking statements publicly. Finally, the earnings press release we issued earlier is posted on the Investor Relations section of our website at sparinc.com; a release copy was also included in an 8-K submitted to the SEC.

Now I would like to turn the call over to the company's CEO, William Linnane. Thank you, Sandra, and good morning. And thank you for your interest in SPAR Group and for joining us today. After our prepared remarks, we will open the line for questions. Before turning to our strategy and results, I want to address an important development. Earlier this month, we reached a settlement agreement with Bob Brown, one of the original co‑founders and former CEO of SPAR. This resolution formally closes a chapter in the company's history and allows us to move forward with full alignment, constructive engagement and a singular focus on creating shareholder value. We appreciate Bob's decision to support SPAR's current direction and to move beyond legacy matters that do not reflect the progress of today's company. With this behind us, the entire organization is solely focused on execution, client success, and long-term value creation for our shareholders.

But today we are a fundamentally different company than we were just a few years ago. We are a North American-focused, best-in-class retail service platform with deep expertise in core merchandising and on-demand execution. We serve leading retailers and consumer packaged goods companies across the United States and Canada. Our differentiated model combines highly skilled people with technology-driven tools to deliver real-time, measurable outcomes. Importantly, we are not constrained by legacy labor hour-based models. We are outcome-focused, data-informed, and built to move at the speed of today's retail. The work our team completed in 2025 laid the foundation for renewed SPAR: a leaner, more disciplined, margin-focused organization designed to scale with operating leverage. Turning to our first quarter results: we delivered several important milestones. We returned to positive EBITDA. We achieved gross margins of 22.3%, reflecting the strength of our evolving business model.

This margin performance demonstrates the benefits of our shift towards higher-margin recurring merchandising revenue supported by our technology-enabled workforce. Notwithstanding a 10% revenue decline in the quarter, this represents an inflection point driven by our deliberate reduction of lower-margin project-based remodel work. We continue to see progress in our core merchandising business with U.S. merchandising revenue growing 5% and Canada returning to growth with a 3% increase. SG&A was delivered at $1.9 million below the normalized average quarter of 2025, demonstrating the significant restructuring benefit of the work done in 2025. We remain focused on achieving our medium-term target of approximately 25% gross margins over the next 18 to 24 months. Our financial strategy is clear: drive up gross margins, control SG&A, and grow the top line via recurring revenue streams, all by relentlessly focusing on core merchandising business.

This aligns our business and financial strategic objectives. Based on current trends, we expect the quarter to be substantially stronger on a sequential basis as momentum continues to build. Our growth strategy is deliberate and focused. We are prioritizing higher-margin core merchandising programs while simultaneously expanding new service offerings that leverage the infrastructure we already have in place. Each incremental client scope of work or agreement improves the economics of our fixed cost base, supporting margin expansion over time. This is a model designed for profitable growth, not growth for growth's sake. In March, we announced a partnership with ReposiTrak, which underscores our belief that the future of retail execution is not technology alone, nor labor alone. It is the intelligent combination of both. Our partnership combines proprietary technology with our flexible work platform to enhance inventory accuracy, reduce out-of-stocks, and improve on-shelf sales.

AI and advanced analytics can identify problems, but people still need to execute solutions at the shelf edge in real time across thousands of locations. This is where SPAR excels. Retailers and brands do not need more dashboards. They need issues resolved, standards maintained, and sales protected. Our platform identifies exactly where action is needed, and SPAR's national on-demand workforce takes the action. We help keep shelves full, doors organized, and products visually merchandised without adding incremental store labor costs. At a time when retailers are under intense pressure to protect revenue and reduce operational complexity, this capability matters more than ever. After Steve covers our detailed financial results, I will share additional thoughts. Steve?

Thank you, William, and good morning, everyone. First-quarter 2026 net revenues totaled $30.5 million, down 10.3% year-over-year. Breaking out net revenue further, U.S. merchandising revenue grew 5% year-over-year and Canada revenue increased 3%. U.S. remodel work declined in the quarter as we continued our deliberate shift toward higher-margin recurring merchandising services. Gross profit for the first quarter was $6.8 million, or 22.3% of revenue, compared to $7.3 million, or 21.4% of revenue, in the prior-year quarter. Higher gross margins were driven by the intentional shift towards merchandising work that combines people-centric expertise with technology-based tools. Selling, general and administrative expenses for the quarter were $6.2 million compared to $5.9 million in the prior year. On a normalized basis, removing out-of-period accrual adjustments, SG&A declined $1.9 million versus the 2025 quarterly average and we see further reduction opportunities ahead.

Operating results were essentially breakeven with a small operating loss of $42 thousand compared to operating income of $1.0 million in the prior year. First-quarter GAAP net loss attributable to SPAR Group was $553 thousand, or $0.02 per diluted share, compared to net income of $462 thousand, or $0.02 per diluted share, in the prior year quarter. Adjusted net loss attributable to SPAR Group was $274 thousand, or $0.01 per diluted share, compared to adjusted net income of $528 thousand, or $0.02 per diluted share, in the prior-year period. Consolidated adjusted EBITDA was $737 thousand in the quarter. While this represents a decline from $1.5 million in the prior year, it reflects the intentional revenue mix transition away from lower-margin remodel activity and certain out-of-period accruals that were reflected in our SG&A costs last year. We view the underlying margin trajectory as encouraging and remain on track with our full-year outlook.

Turning to our financial position, as of March 31, 2026, our balance sheet remains solid with positive working capital of $18 million, excluding the balance owed on the line of credit and the current portion of the long-term debt. This includes $4.3 million in cash and cash equivalents. Net cash used by operating activities was $3.9 million for the quarter, primarily reflecting working capital timing associated with growth in our merchandising business. With that, I will turn it back to William.

Thank you, Steve. We are encouraged by the quality of our business development pipeline. Recent wins with blue-chip retailers and CPG partners validate the strategic changes we have made to our go-to-market approach. We intentionally redesigned that strategy, prioritizing recurring higher-margin core merchandising supported by people-centric domain expertise and technology-enabled partnerships. That improves economics for both our clients and for SPAR. Our model is designed to function as a highly efficient and flexible service that can address critical needs when retailers or brands require support, without burdening store teams or adding fixed labor costs. That flexibility delivers strong return on investment for clients and positions SPAR favorably relative to legacy providers that are constrained by outdated cost structures and business models. Technology is a critical enabler for this model.

By layering intelligence onto execution, we can achieve better inventory visibility, faster and more accurate restocking, and support during peak seasons or labor shortages. Retailers can act faster and smarter at scale. This approach is an integrated approach, and this is how we will build a durable recurring revenue stream and create competitive separation in the market. We continue to believe the market opportunity is significant. Our solutions are applicable across all retail formats: grocery, dollar, convenience, club, mass, and specialty stores across the U.S. and Canada. The need for cost-effective execution partners has never been more immediate, and we are actively deploying and evaluating additional technology and AI-based tools to further enhance our offering. From a financial point of view, our priorities are clear. We are building a leaner, profit-focused business starting this quarter with positive EBITDA and with an explicit goal of generating sustainable free cash flow.

Growth underpins that objective, and our plans call for expansion across each of our core areas. We are deepening relationships, expanding service scope, and growing wallet share with existing clients. We also see meaningful cost reduction opportunities this year as we implement further efficiencies across the business. Together, these actions position us to deliver sustainable, profitable growth and increased shareholder value over time. We are reiterating our fiscal year 2026 guidance. We expect revenue in the range of $143 million to $151 million, gross margins of approximately 20.5% to 22.5%, and SG&A, excluding unusual items, of $25.5 million to $26.5 million. At its core, SPAR has built a differentiated platform: real-time insights paired with a scalable, accountable workforce. This combination gives our clients speed, consistency, transparency, and national reach. It gives us a business we believe can compound value over time.

Retailers and brands are demanding partners who can execute at their own pace, commit to outcomes, and scale without friction. That is the company we are building. We believe SPAR is well positioned for the opportunities ahead. Steve and I would like to thank our employees for their continued commitment, hard work and dedication, and the board for their continued support. With that, operator, I would like to open the line for questions.

If you are using a speakerphone, please stand by momentarily to assemble our roster. The first question comes from Igor Novgorodtsev with Lara's Capital. Please go ahead.

Hello, and thank you for taking my question. I am actually a former board member of the company years ago, and an investor today. So just wanted to make a brief introduction. I know the company well. Could you tell me a little bit about the remaining revenue for this year? How much of it is already committed contracts, which you are confident about, and how much of it is projection, and how much of it is to come from your partnership with ReposiTrak?

Hi, Igor. This is William. Thank you for your continued interest in the company and for your past service. In terms of the revenue at this point, a substantial amount is contracted given we are already five months into the year. We have some project work in our best forecast, but we are highly confident on that. And then we have a small element of uncommitted revenue relative to the total. Within that uncommitted and future revenue, there is some revenue we believe we can drive via the ReposiTrak partnership, but obviously, that will build over time as we get momentum on that. We are having some good discussions and expect more to come in relation to that. Does that answer your question?

Somewhat. If you can just delve a little bit more. So it seems that if you look at your guidance at $37 million to $40 million for the remaining quarters according to your guidance, Q4 is traditionally weak, would I assume, knowing your business. So the strongest are going to be next quarter, Q2 and Q3. Am I reading it correctly?

Yes, that is correct. Q2 and Q3 are historically the strongest quarters in the U.S. and Canada business, which is now the group.

Okay. How do you think your quarter did versus revenue-wise versus what you expected in revenue? Is that what you kind of expected? Or was it a little bit low or something that was deferred?

So it was broadly in line with our expectations on revenue. We have taken a pivot to focus on the higher-margin merchandising business, so we were pleased to get that back into growth. Some of the remodel revenue was connected with low-margin accounts, so we are probably pleased with the revenue performance. Obviously, higher revenue would be better, but we believe we started the year pretty strongly. We are looking forward to Q2, which, as you said, will be stronger on revenue. The balance of the year will play out as I described.

The other question I wanted to ask: you are currently not in compliance with NASDAQ listing requirements about certain financial metrics of the company. Maybe you can talk about how you are planning to come into compliance.

Yes. We have a plan there; we are working that through and we will present it to the board. We will be communicating to NASDAQ later in the week. We are pretty confident we have a robust plan. I do not want to comment publicly to that in detail until we communicate to NASDAQ and get their response, but that is the current status.

But we should expect an update within the next few weeks? Should we hear one way or the other, right?

Yes, that is correct. You will hear one way or another, or you can appeal if you do not like the answer. But the process will work its way through. We believe we have a robust plan, so we will see how that goes.

Okay. And I guess my last question, a sort of theoretical question: obviously, you were up for sale a couple of years ago and that did not work out. It was at a considerably higher price than it is today. Right now, you just did a big restructuring and it will take a little bit of time. But is consideration of a strategic sale still on the table, or are you not anticipating anything anytime soon?

I think as a public company, obviously, anyone can buy shares or make an offer trying to get control. But we are focused on the business at hand and delivering numbers and the guidance, and we believe the share price will respond to that. So we are not actively working through a strategic process trying to solicit bids for the company.

I do not have anything else, and thank you very much, William. It is a pleasure speaking with you.

Thanks, Igor. Appreciate the questions.

This concludes our question-and-answer session. I would like to turn the conference back over to William Linnane for any closing remarks.

Thank you. Thank you for joining the call. Thank you for continuing to follow our company. I look forward to providing our second quarter results and updating you on strategic initiatives in a couple of months. Hope you have a great day. Take care. Thanks.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.