SPAR Group Q1 2026 Earnings Call Transcript

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May 12, 2026

Key Takeaways

  • Positive Sentiment: SPAR returned to positive EBITDA in Q1 and reported gross margin of 22.3%, which management said reflects its shift toward higher-margin recurring merchandising work.
  • Neutral Sentiment: Total first-quarter revenue fell 10.3% year over year to $30.5 million, largely because the company deliberately reduced lower-margin remodel activity.
  • Positive Sentiment: Core merchandising remained healthy, with U.S. merchandising revenue up 5% and Canada revenue up 3%, while SG&A was said to be $1.9 million below the normalized 2025 quarterly average.
  • Positive Sentiment: Management reiterated full-year 2026 guidance of $143 million-$151 million in revenue, 20.5%-22.5% gross margin, and $25.5 million-$26.5 million of SG&A excluding unusual items.
  • Negative Sentiment: The company ended the quarter with a GAAP net loss of $553,000 and used $3.9 million of cash from operating activities, while also saying it is not currently in compliance with NASDAQ book value requirements and plans to respond to the exchange.
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Earnings Conference Call
SPAR Group Q1 2026
00:00 / 00:00

There are 5 speakers on the call.

Speaker 1

Good day, and welcome to the SPAR Group First Quarter 2026 Financial Results Conference Call. I would now like to turn the conference over to Sandy Martin with Three Part Advisors. Please go ahead.

Speaker 2

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.

Speaker 2

I would also like to remind you that the statements made in today's discussion that are not historical facts, including statements, expectations, future events or future financial performance or 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.

Speaker 2

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 CEO, William Linnane.

Speaker 4

Thank you, Sandy, and good morning. 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 shareholders.

Speaker 4

SPAR today is a fundamentally different company than it was 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 or base 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 a 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.

Speaker 4

This margin performance demonstrates the benefits of a 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 up 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 the second half of 2025. We remain focused on achieving our medium-term target of approximately 25% gross margins over the next 18-24 months.

Speaker 4

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 our core merchandising business. This aligns our business and financial strategic objectives. Based on current trends, we expect the second 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's scope of work or agreements 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.

Speaker 4

It is the intelligent combination of both. Our partnership combines proprietary technology with our flexible workforce 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, stores 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?

Speaker 3

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 reoccurring 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.

Speaker 3

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 break even, with a small operating loss of $42,000, compared to operating income of $1 million in the prior year. First quarter GAAP net loss attributable to SPAR Group was $553,000 or $0.02 per diluted share, compared to net income of $462,000 or a positive $0.02 per diluted share in the prior year quarter. Adjusted net loss attributable to SPAR Group was $274,000 or $0.01 per diluted share, compared to adjusted net income of $528,000 or $0.02 per diluted share in the prior year period.

Speaker 3

Consolidated adjusted EBITDA was $737,000 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.

Speaker 3

With that, I will turn it back to William.

Speaker 4

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've 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 improve 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 who are constrained by outdated cost structures and business models. Technology is a critical enabler for this model.

Speaker 4

By layering intelligence onto execution, 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, reoccurring 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-focused 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, with an explicit goal of generating sustainable free cash flow.

Speaker 4

Growth underpins that objective and our plans call for expansion across each of our core areas. We are deepening relationships, expanding service scopes, and growing wallet 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 increase shareholder value over time. Today, we are reiterating our fiscal year 2026 guidance. We expect revenue in the range of $143 million-$151 million, gross margins of approximately 20.5%-22.5%, and SG&A, excluding unusual items, of $25.5 million-$26.5 million. At its core, SPAR has built a differentiated platform, real-time insights paired with a scalable, accountable workforce.

Speaker 4

This combination gives our clients speed, consistency, transparency, and national reach, and 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.

Speaker 1

We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Igor Novogradsev, that's with Laurus Capital. Please go ahead.

Operator

Hello, thank you for taking my question. I'm actually a former board member of the company years ago and an investor today, just wanted to give 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're confident about, and how much of it is projection, and how much of it is coming from your partnership from ReposiTrak?

Speaker 4

Hi, Igor. It's William here. Thank you for your remaining interest in the company and, yeah, thank you for your service in the past. In terms of the revenue at this point, a substantial amount is contracted given we're already five months into the year. We have some project work where we have a best forecast against, we're highly confident on that. We have a small element of uncommitted relative to the total revenue. Within that, uncommitted and future revenue, there's some of the revenue we believe we can drive via the ReposiTrak partnership. Obviously, that's gonna build over time as we get momentum on that. We're having some good discussions and more to come in relation to that. Does that answer your question?

Operator

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

Speaker 4

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

Operator

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

Speaker 4

It was broadly in line with revenue. Obviously, we've taken a pivot to focus on the higher margin merchandising business. We were pleased to get that back into growth. Some of the remodel revenue was connected with low margin accounts. We're broadly pleased with revenue. Obviously, you know, the higher revenue the better, but we believe we started pretty strongly. We're looking forward to Q2, which as you said, will be stronger on revenue. The balancing gear will play out as I described.

Operator

Okay. The other question I wanted to ask is you're currently not in compliance with NASDAQ listing requirements about the book net worth of the company or of the book value. Maybe you can talk about this, how you're planning to come into compliance.

Speaker 4

Yeah. We have a plan. We're working that through, and we're presenting that to the boards. We will be communicating to NASDAQ later in the week. We're pretty confident we have a robust plan. I don't wanna talk publicly to that until we communicate to NASDAQ on it and get their response. That's the current status.

Operator

We should expect update within the next few weeks. Let's see what you think, we should hear one way or another, right?

Speaker 4

That's correct. You hear one way or another, or you can appeal if you don't like the answer. The process will work its way through. We believe we have a robust plan. We'll see how that goes. You're correct.

Operator

Okay. I guess my last question, and a sort of theoretical question. Obviously, you were up for sale a few years, well, a couple of years ago. I know it didn't work out, but it was a considerably higher price than it is today. Right now you just did a big restructuring, and I understand it will take a little bit of time, but is considering a strategic sale still on the table, or you're not anticipating anything anytime soon?

Speaker 4

Well, I think as a public company, obviously anyone can, you know, buy shares or make an offer to try to get control. We're focused on the business in hand and delivering the numbers and the guidance, and we believe the share price will respond to that. We're not actively working through a strategic process and trying to, you know, get people to bid on the company. Yeah.

Operator

Okay. I don't have anything else. Thank you very much, William, and it's a pleasure speaking with you.

Speaker 4

Thanks, Igor. Appreciate the questions.

Speaker 1

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

Speaker 4

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

Speaker 1

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

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