SPAR Group Q2 2026 Earnings Call: Complete Transcript

SPAR Group (NASDAQ:SGRP) released second-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below.

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Summary

SPAR Group Inc. returned to profitability in Q2 2026 for the first time since Q1 2025, with a 60% year-on-year growth in adjusted EBITDA and maintained gross margins above 22%.

Net revenues for the quarter totaled $36.9 million, down 4.5% year-over-year, due to lower volumes in the remodel business. However, the shift towards higher-margin merchandising services improved profitability.

The company revised its full-year 2026 outlook to emphasize merchandising growth, expecting net revenues between $130 million and $138 million, and gross margins of 21.5% to 23.5%.

Operational initiatives are showing results, with stable gross margins and SG&A expenses trending toward $20 million annually, indicating a focus on becoming a leaner, more efficient organization.

The company has begun trading on the OTCQB after a Nasdaq delisting, but maintains strategic focus on operational improvements and transparency.

Strategic partnerships, notably with ReposiTrak, are enhancing SPAR Group's technology platform and differentiating its market position.

Full Transcript

OPERATOR

Good day and welcome to the SPAR Group Second Quarter 2026 Financial Results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two.

Please note this event is being recorded. I would now like to turn the conference over to Philip Cooper from Three Part Advisors. Please go ahead.

Philip Cooper, Three Part Advisors

Thank you, operator, and good morning, everyone. We appreciate you joining us for SPAR Group Inc.'s conference call to review second quarter 2026 results. Joining me on the call today are SPAR's Chief Executive Officer, William Linnane, and the Company's Chief Financial Officer, Steve 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 on today's discussion that are not historical 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 publicly update or revise any forward-looking statements. Finally, the earnings press release we issued earlier today is posted on the Investor Relations section of our website at sparinc.com. A copy of the release was also included in an 8-K submitted to the SEC. Now I'd like to turn the call over to the Company's CEO, William Linnane.

William Linnane, CEO

Thank you, Philip, 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. The second quarter represented an important milestone in SPAR's transformation. We returned to profitability for the first time since the first quarter of 2025. We also delivered more than 60% year-on-year growth in adjusted EBITDA and maintained gross margins above 22%. These results reflect the progress we've made over the last 12 months to simplify the business, strengthen operating discipline, improve the quality of our revenue and focus on profitable growth.

While there was a revenue mix shift to higher-margin business which impacted overall growth in the quarter, we have focused our efforts on markets and accounts where we have the scale and expertise necessary to offer competitive rates to the customer and still earn a reasonable return on the investment. We maintained pricing and operational discipline, supporting a stronger profitability program. We have continued to prioritize recurring merchandising programs over lower-margin project work, and results are increasingly evident in both our earnings and cash-generating potential.

Importantly, the underlying health of the business continues to improve. Both our core U.S. merchandising business and our Canada operations generated sales growth in the quarter. Canada remains a strong performer, underscoring the strength and resilience of our diversified North America platform. At the same time, our operational initiatives are gaining traction. Gross margins have stabilized in the low 20% range and remain toward the upper end of our guidance.

We continue to believe there is a clear path toward achieving gross margins of approximately 25% over time. As our revenue mix improves, productivity initiatives mature and scale benefits increase, we are also making significant progress in building a leaner, more efficient organization. Our actions over the last year have reduced complexity, improved execution and positioned the business to drive greater operating leverage. As we grow, we continue to expect our underlying SG&A run-rate to trend toward approximately $20 million annually.

Looking ahead, I believe the business is in a fundamentally stronger position than it was a year ago. Our balance sheet has improved during the first half of the year, our operations are delivering greater consistency, and we have established a clear roadmap to enhance how SPAR executes, goes to market, leverages technology and delivers financial performance. Overall, we believe we're building a business with improving momentum, expanding operating leverage and increasing visibility into long-term value creation.

Finally, we began trading on the OTCQB in late July under the same ticker symbol SGRP, following the Nasdaq delisting notice. Notably, this does not change our strategy. Our focus remains on execution, operational improvement and maintaining transparency. I will discuss our strategic initiatives in a few moments after Steve covers our detailed financial results for Q2.

Steve Hennen, CFO

Thank you, William, and good morning, everyone. Second quarter 2026 net revenues totaled $36.9 million, down 4.5% year over year, primarily due to the lower volume in our remodel business. As William commented, we continue to shift the business to more recurring, margin-enhancing merchandising services. Gross profit for the second quarter was $8.4 million, or 22.8% of revenue, compared with $9.1 million, or 23.5% of revenue, in the prior-year quarter.

Higher, stabilized gross margins were driven by the intentional shift toward merchandising work that combines people-centric expertise with technology-based tools. Selling, general and administrative expenses for the quarter were $6.8 million, which included $543,000 in non-recurring or one-time costs. This compared to $7.9 million in the prior year. As William mentioned, after we anniversary certain restructuring actions next year, our underlying SG&A base cost will be approximately $20 million as we transform into a leaner, more efficient and effective business model.

Operating income for the quarter was $1.2 million, compared to operating income of $715,000 in the prior year. Second quarter GAAP net income attributable to SPAR Group was $409,000, or $0.02 per diluted share, compared to breakeven results in the prior quarter. Adjusted net income attributable to SPAR Group was $838,000, or $0.04 per diluted share, compared to adjusted net income of $151,000, or $0.01 per diluted share, in the prior-year period.

Consolidated adjusted EBITDA was $2.1 million in the quarter, up 63% from $1.3 million in the prior year. We believe our net margins are durable and sustainable, especially as the merchandising business becomes a larger percent of our business wins. Turning to our financial position, as of June 30, 2026, our balance sheet remains solid with positive working capital of $25.8 million excluding the balance owed on the line of credit and the current portion of long-term debt.

This includes $2.9 million in cash and cash equivalents. Net cash used by operating activities was $8.7 million for the quarter, primarily reflecting working capital timing associated with growth in the merchandising business. We are revising our full-year 2026 financial outlook to reflect our continued focus on growing the merchandising side of the business and current expectations for lower remodel activity this year. While this impacts revenue expectations, it supports our objective in improving earnings quality, profitability and long-term shareholder value: net revenues in the range of $130 million to $138 million compared to 2025 net revenues of $136 million for the U.S. and Canada; gross margins of 21.5% to 23.5% versus 2025 gross margin of 15.9% for the U.S. and Canada; and selling, general and administrative costs excluding unusual items of $21 million to $24 million versus 2025 of $32.2 million. With that, I will turn it back to William.

William Linnane, CEO

Thanks, Steve. Our outcome-based model is gaining traction, and a key differentiator of that strategy is our ability to combine technology, data and execution at scale. By pairing real-time insights with a flexible, accountable workforce, we help retailers improve inventory visibility, accelerate replenishment and respond more effectively during peak periods and labor shortages, and ultimately improve in-store performance and sales. This integrated approach strengthens client outcomes while creating durable, recurring revenue opportunities for SPAR.

Based on that foundation, we have made meaningful progress with ReposiTrak in developing a compelling scan-based trading, or SBT, proposition that we believe can create significant value for retailers and consumer brands. In parallel, we have begun replatforming our technology capabilities by leveraging ReposiTrak's deep retail technology expertise. Together, these initiatives are enhancing our go-to-market offering, improving scalability, strengthening our technology foundation and further differentiating SPAR in the marketplace.

Looking ahead, we have greater visibility of the operating model and strategic priorities than at any point in the past year. We are building a leaner, simpler organization with good financial footing. Our operations have stabilized and we have improved our profitability trajectory, expanding our service offering, modernized our technology and are driving sustainable long-term growth. Finally, we believe that our associates are at the heart of everything we do, and we will continue to build a winning culture by investing in their training, their development and their growth.

While our return to profitability in the second quarter is encouraging, we view it as the beginning of a much larger opportunity. Over nearly six decades, SPAR has helped retailers and brands to improve in-store execution and drive sales performance. We believe we are well positioned to build on that legacy. We are building a stronger, more efficient and more capable SPAR, one that is better positioned to serve our clients, create opportunities for associates and deliver long-term value for shareholders.

Steve and I would like to thank our employees for their dedication, passion and relentless focus on serving our customers every day. Their commitment has been instrumental in stabilizing the business, advancing our transformation and delivering the improved financial performance we reported this quarter. With that, operator, I would like to open the line for questions.

OPERATOR

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. 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 Guy Riegel with Engels and Snyder.

Please go ahead.