Quarter Revenues Down 3%, up 1% on a Constant Currency, with Continued Expansion of Gross Margins and Improved Cash
AUBURN HILLS, Mich., Aug. 14, 2023 (GLOBE NEWSWIRE) -- SPAR Group, Inc. ( SGRP) (“SPAR”, “SPAR Group” or the “Company”), a leading global provider of merchandising, marketing, and distribution services today reported financial and operating results for the three and six months ended June 30, 2023.
Mike Matacunas, the Company’s President and Chief Executive Officer, commented, “Although consolidated net revenues in the quarter were softer due to U.S. client store remodels that moved out in the calendar, our U.S. merchandising services business had another strong quarter with 16% growth, our Brazil business was up 18%, Canada up 48% and Mexico up 9%. Year to date revenue is up 3%, margin up 140 basis points and EBITDA is up 13%. Consolidated Adjusted EBITDA for the second quarter was $2.6 million or 3.9% of sales, and we generated cash from operating activities of $6.7 million for the first six months of the year. We ended the quarter with $19.8 million of total liquidity, including $10.9 million of cash and cash equivalents, and we continue to maintain a strong balance sheet.
“The Company has been exploring strategic alternatives since late last year. We are maintaining strength and resilience in our financial and liquidity positions, and although sales softened somewhat this quarter, our gross margins expanded through our internal initiatives, pricing and diversified services. We continue to maintain positive, long-term relationships with blue chip consumer goods and retail companies. We do not have an update today on the review of our strategic alternatives; however, we are committed to growing the business, serving our clients and supporting our employees and joint venture partners,” concluded Matacunas.
Second Quarter 2023 Financial Results
Net revenues were $65.9 million, comprised of $52.1 million from Americas (79.0%) and $8.2 million from EMEA (12.4%), and $5.7 million from APAC (8.6%). Total net revenue decreased by 2.7%, up 0.8% on a constant currency basis, and Americas revenues declined over the prior year by 2.2%, EMEA declined by 10.3%, and APAC increased by 5.0% from the prior year quarter.
Gross profit was $13.1 million, or 19.9% of revenues, compared to $12.9 million, or 19.1% of revenues, in the prior year quarter. This 80-basis point improvement in gross profit margins was due to a number of planned initiatives, which included improved contract terms and pricing, system enhancements and other cost containments, as well as services mix shifts in the quarter.
Selling, general and administrative (SG&A) expenses were $10.6 million, or 16.1% of revenues (15.9% of revenues excluding non-recurring costs associated with reviewing strategic alternatives), compared to $10.1 million, or 14.9% of revenues, in the prior year quarter. Non-recurring costs associated with reviewing strategic alternatives were $111 thousand during the second quarter.
Operating income was $2.0 million, down 15.3%, versus operating income of $2.4 million from the prior year quarter.
Net income attributable to SPAR Group, Inc. was $639 thousand, or $0.03 per share, compared to net income attributable to SPAR Group Inc. of $1.1 million, or $0.05 per share, in the year-ago quarter. Non-GAAP net income attributable to SPAR Group, Inc. (1) in the quarter was $696 thousand, or $0.03 per share, compared to $1.3 million, or $0.06 per share, in the year-ago quarter.
Consolidated Adjusted EBITDA (1) in the 2023 quarter was $2.6 million, compared to Adjusted EBITDA of $3.0 million in the prior year. Adjusted EBITDA attributable to SPAR Group, Inc. (1) in the 2023 quarter was $1.6 million, compared to Adjusted EBITDA of $2.1 million in the prior year.
(1) Adjusted non-GAAP Net income attributable to SPAR Group, Inc. and Adjusted Diluted earnings per share attributable to SPAR Group, Inc., and Adjusted EBITDA are non-GAAP financial measures as defined and reconciled below.
First Six Months 2023 Financial Results
Net revenues were $130.3 million, comprised of $100.7 million from Americas (77.3%) and $17.9 million from EMEA (13.7%), and $11.8 million from APAC (9.0%). Total net revenue increased by 2.8%, up 6.2% on a constant currency basis, and Americas revenues increased over the prior year by 4.6%, EMEA decreased by 2.4%, and APAC decreased by 3.7% from the prior year period.
Gross profit was $27.2 million, or 20.9% of revenues, compared to $24.8 million, or 19.5% of revenues, in the prior year period. This 140-basis point improvement in gross profit margins was due to a number of planned initiatives, which included improved contract terms and pricing, system enhancements and other cost containments.
Selling, general and administrative (SG&A) expenses were $21.1 million, or 16.2% of revenues (15.8% of revenues excluding non-recurring costs associated with reviewing strategic alternatives), compared to $19.3 million, or 15.3% of revenues, in the prior year period. Non-recurring costs associated with reviewing strategic alternatives were $428 thousand during the first half of 2023.
Operating income was $5.1 million, up 16.3%, versus operating income of $4.4 million from the prior year period.
Net income attributable to SPAR Group, Inc. was $1.5 million, or $0.06 per share, compared to net income attributable to SPAR Group Inc. of $1.8 million, or $0.08 per share, in the half-year period a year ago. Non-GAAP net income attributable to SPAR Group, Inc. (2) in the period was $1.9 million, or $0.08 per share, compared to $1.8 million, or $0.07 per share, in the year-ago period.
Consolidated Adjusted EBITDA (2) in the 2023 period was $6.7 million, compared to Adjusted EBITDA of $5.4 million in the prior year. Adjusted EBITDA attributable to SPAR Group, Inc. (1) in the 2023 period was $4.5 million, compared to $3.6 million in the prior year.
(2) Adjusted non-GAAP Net income attributable to SPAR Group, Inc. and Adjusted Diluted earnings per share attributable to SPAR Group, Inc., and Adjusted EBITDA are non-GAAP financial measures as defined and reconciled below.
Financial Position as of June 30, 2023
The Company’s total worldwide liquidity at the end of the first half was $19.8 million, with $10.9 million in cash, cash equivalents and restricted cash and $8.9 million of unused availability as of June 30, 2023. For the six months ended June 30, 2023, net cash provided by operating activities was $6.7 million and was primarily due to working capital changes. The Company ended the six months with positive net working capital of $27.2 million at June 30, 2023.
Conference Call
The Company will conduct a conference call today at 10:00 a.m. Eastern Time to discuss financial and operating results for the second quarter and six months ended June 30, 2023. To access the call, live by phone, dial 1-833-630-1542 (Domestic), 1-412-317-1821 (International) and ask for the SPAR Group call at least 10 minutes prior to the start time. A telephonic replay will be available through August 21, 2023, by calling 1-877-344-7529 using passcode ID 7834005#. A webcast of the call will also be available live and for later replay on the Company’s Investor Relations website at https://investors.sparinc.com/events-and-presentations.
About SPAR Group, Inc.
SPAR Group is a leading global merchandising and marketing services company, providing a broad range of services to retailers, manufacturers, and distributors around the world. With more than 50 years of experience, 25,000+ merchandising specialists around the world, an average of 200,000+ store visits a week and long-term relationships with some of the world’s leading manufacturers and retail businesses, we provide specialized capabilities across more than nine countries. Our unique combination of scale, merchandising and marketing expertise, combined with our unwavering commitment to excellence, separate us from the competition. For more information, please visit the SPAR Group’s website at http://www.sparinc.com.
Cautionary Note Regarding Forward-Looking Statements
This Press Release contains, and the above referenced recorded comments, will contain “forward-looking statements” within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, made by, or respecting, SPAR Group, Inc. (“SGRP”) and its subsidiaries (together with SGRP, “SPAR”, “SPAR Group” or the “Company”), filed in a Quarterly Report on Form 10-Q by SGRP with the Securities and Exchange Commission (the “SEC”) expected to be filed on or about August 14, 2023. There also are forward-looking statements contained in SGRP’s Annual Report on Form 10-K for its fiscal year ended December 31, 2022, as filed with the SEC on April 17, 2023, and SGRP’s First Amendment to Annual Report on Form 10-K/A for the year ended December 31, 2022, as filed with the SEC on May 1, 2023 (as so amended, the “Annual Report”), , and the SGRP’s Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports and statements as and when filed with the SEC (including the Quarterly Report, the Annual Report and the Proxy Statement, the Information Statement, the Second Special Meeting Proxy/Information Statement, each a “SEC Report”). “Forward-looking statements” are defined in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and other applicable federal and state securities laws, rules and regulations, as amended (together with the Securities Act and Exchange Act, the “Securities Laws”).
The forward-looking statements made by the Company in this Press Release may include (without limitation) any expectations, guidance or other information respecting the pursuit or achievement of the Company’s corporate strategic objectives. The Company’s forward-looking statements also include, in particular and without limitation, those made in “Business”, “Risk Factors”, “Legal Proceedings”, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Annual Report. You can identify forward-looking statements in such information by the Company’s use of terms such as “may”, “will”, “expect”, “intend”, “believe”, “estimate”, “anticipate”, “continue”, “plan”, “project” or similar words or variations or negatives of those words.
You should carefully consider (and not place undue reliance on) the Company’s forward-looking statements, risk factors and the other risks, cautions and information made, contained or noted in or incorporated by reference into this Press Release, the Annual Report, the Proxy Statement and the other applicable SEC Reports that could cause the Company’s actual performance or condition (including its assets, business, clients, capital, cash flow, credit, expenses, financial condition, income, liabilities, liquidity, locations, marketing, operations, performance, prospects, sales, strategies, taxation or other achievement, results, risks, trends or condition) to differ materially from the performance or condition planned, intended, anticipated, estimated or otherwise expected by the Company (collectively, “expectations”) and described in the information in the Company’s forward-looking and other statements, whether expressed or implied. Although the Company believes them to be reasonable, those expectations involve known and unknown risks, uncertainties, and other unpredictable factors (many of which are beyond the Company’s control) that could cause those expectations to fail to occur or be realized or such actual performance or condition to be materially and adversely different from the Company’s expectations. In addition, new risks and uncertainties arise from time to time, and it is impossible for the Company to predict these matters or how they may arise or affect the Company. Accordingly, the Company cannot assure you that its expectations will be achieved in whole or in part, that the Company has identified all potential risks, or that the Company can successfully avoid or mitigate such risks in whole or in part, any of which could be significant and materially adverse to the Company and the value of your investment in SGRP’s Common Stock.
You should also carefully review the risk factors described in the Annual Report (See Item 1A – Risk Factors) and any other risks, cautions or information made, contained or noted in or incorporated by reference into the Annual Report, the Proxy Statement or other applicable SEC Report. All forward-looking and other statements or information attributable to the Company or persons acting on its behalf are expressly subject to and qualified by all such risk factors and other risks, cautions and information.
The Company does not intend or promise, and the Company expressly disclaims any obligation, to publicly update or revise any forward-looking statements, risk factors or other risks, cautions or information (in whole or in part), whether as a result of new information, risks or uncertainties, future events or recognition or otherwise, except as and to the extent required by applicable law.
Investor Relations Contact:
Three Part Advisors, LLC
Sandy Martin / Phillip Kupper
Tel: 214-616-2207 or 817-778-8339
- Financial Statements Follow –
| SPAR Group, Inc. and Subsidiaries | ||||||||||||||
| Condensed Consolidated Statements of Income | ||||||||||||||
| (unaudited) | ||||||||||||||
| (In thousands, except per share data) | ||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||
| June 30 | June 30 | |||||||||||||
| 2023 | 2022 | 2022 | 2021 | |||||||||||
| Net revenues | $ | 65,936 | $ | 67,799 | $ | 130,316 | $ | 126,794 | ||||||
| Related party - cost of revenues | 1,682 | 2,521 | 3,179 | 4,666 | ||||||||||
| Cost of revenues | 51,158 | 52,330 | 99,903 | 97,348 | ||||||||||
| Gross profit | 13,096 | 12,948 | 27,234 | 24,780 | ||||||||||
| Selling, general and administrative expense | 10,605 | 10,084 | 21,061 | 19,338 | ||||||||||
| Depreciation and amortization | 494 | 507 | 1,026 | 1,017 | ||||||||||
| Operating income | 1,997 | 2,357 | 5,147 | 4,425 | ||||||||||
| Interest expense, net | 478 | 178 | 868 | 328 | ||||||||||
| Other income, net | (125 | ) | (149 | ) | (183 | ) | (237 | ) | ||||||
| Income before income tax expense | 1,644 | 2,328 | 4,462 | 4,334 | ||||||||||
| Income tax expense | 538 | 715 | 1,579 | 1,266 | ||||||||||
| Net income | 1,106 | 1,613 | 2,883 | 3,068 | ||||||||||
| Net income attributable to non-controlling interest | (467 | ) | (464 | ) | (1,378 | ) | (1,247 | ) | ||||||
| Net income attributable to SPAR Group, Inc. | $ | 639 | $ | 1,149 | $ | 1,505 | $ | 1,821 | ||||||
| Basic income per common share attributable to SPAR Group, Inc. | 0.03 | 0.05 | 0.06 | 0.08 | ||||||||||
| Diluted income per common share attributable to SPAR Group, Inc. | $ | 0.03 | $ | 0.05 | $ | 0.06 | $ | 0.08 | ||||||
| Weighted-average common shares outstanding– basic | 23,250 | 21,808 | 23,182 | 21,696 | ||||||||||
| Weighted-average common shares outstanding – diluted | 23,392 | 21,935 | 23,337 | 21,831 | ||||||||||
| SPAR Group, Inc. and Subsidiaries | ||||||||
| Condensed Consolidated Balance Sheets | ||||||||
| (unaudited) | ||||||||
| (In thousands, except share and per share data) | ||||||||
| June 30, 2023 | December 31, 2022 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 10,916 | $ | 9,345 | ||||
| Accounts receivable, net | 63,018 | 63,714 | ||||||
| Prepaid expenses and other current assets | 4,779 | 7,861 | ||||||
| Total current assets | 78,713 | 80,920 | ||||||
| Property and equipment, net | 3,172 | 3,261 | ||||||
| Operating lease right-of-use assets | 1,856 | 969 | ||||||
| Goodwill | 1,715 | 1,708 | ||||||
| Intangible assets, net | 1,501 | 2,040 | ||||||
| Deferred income taxes, net | 4,100 | 3,766 | ||||||
| Other assets | 2,019 | 1,934 | ||||||
| Total assets | $ | 93,076 | $ | 94,598 | ||||
| Liabilities and stockholders' equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 9,334 | $ | 10,588 | ||||
| Accrued expenses and other current liabilities | 19,965 | 20,261 | ||||||
| Due to affiliates | 3,079 | 2,964 | ||||||
| Customer incentives and deposits | 2,327 | 2,399 | ||||||
| Lines of credit and short-term loans | 15,906 | 17,980 | ||||||
| Current portion of operating lease liabilities | 877 | 363 | ||||||
| Total current liabilities | 51,488 | 54,555 | ||||||
| Operating lease liabilities, net of current portion | 978 | 606 | ||||||
| Long-term debt | 1,033 | 1,376 | ||||||
| Total liabilities | 53,499 | 56,537 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders' equity: | ||||||||
| Series B convertible preferred stock, $0.01 par value per share: 2,000,000 shares authorized as of June 30, 2023 and December 31, 2022; 2,000,000 shares issued as of June 30, 2023 and December 31, 2022; 721,420 shares and 854,753 shares outstanding as of June 30, 2023 and December 31, 2022, respectively | 7 | 9 | ||||||
| Common stock, $0.01 par value per share: 47,000,000 shares authorized as of June 30, 2023 and December 31, 2022; 23,438,222 and 23,059,138 shares issued as of June 30, 2023 and December 31, 2022, respectively; 23,232,739 shares and 22,853,653 shares outstanding as of June 30, 2023 and December 31, 2022, respectively | 233 | 229 | ||||||
| Treasury stock, at cost, 205,485 shares and 205,485 shares as of June 30, 2023 and December 31, 2022, respectively | (285 | ) | (285 | ) | ||||
