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SG

SPAR Group, Inc. (SGRP)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 2024 delivered net revenues of $57.3M with diluted EPS of $0.15, driven by a $4.9M gain on business sales amid a continuing simplification strategy; gross margin was 19.2% versus 18.3% in Q1 2024 and 19.9% in Q2 2023 .
  • Americas revenue reached $54.0M (+3.8% YoY), with strong U.S. remodel and merchandising momentum and Canada up 14%; APAC declined and EMEA was nil due to divestitures and exits (China, South Africa, Brazil in-quarter impact), complicating headline comparisons .
  • Management highlighted a strategic pivot to a focused Americas-centric model, announced an exit from Japan, and reiterated the pending “go private” LOI with Highwire Capital ($2.50 per share proposal); no formal guidance provided and no Q&A on the call due to the process .
  • Liquidity improved to $33.4M, cash and equivalents at $21.7M, and working capital at $24.8M; AR fell to $38M post-divestitures, and the company repurchased 1M shares under its buyback program .
  • Narrative catalysts: continued divestiture-driven simplification and cash generation, strong U.S./Canada remodel trajectory, and the go-private process; results include non-GAAP adjustments and one-time gains that investors should normalize when assessing underlying trends .

What Went Well and What Went Wrong

What Went Well

  • Strong core Americas growth: U.S. revenue up 37% YoY, Canada up 14%, supported by remodel recovery (+88% YoY) and merchandising wins including a renewed $5M annual agreement and a new 4-year >$25M cross-border deal .
  • Sequential gross margin improvement to 19.2% (+100 bps vs Q1), aided by remodel/transformation activity; SG&A down $1.1M YoY despite strategic initiative costs .
  • Capital formation and simplification: $4.9M gain on Brazil JV sale; liquidity $33.4M with $21.7M cash; announced exit of Japan and closed divestitures in China and Brazil .

What Went Wrong

  • Reported revenue down YoY (-13% vs Q2 2023) and APAC/EMEA revenues contracted due to JV exits, creating tough headline comparisons despite underlying U.S./Canada strength .
  • Consolidated adjusted EBITDA declined to $1.9M (vs $2.6M prior year) and adjusted net income was ~$0.1M as one-time gains are excluded; mix shift to lower-margin remodel compressed gross margin YoY .
  • No formal guidance and no Q&A, limiting near-term visibility, with management citing the ongoing go-private process; China/South Africa/Brazil exits reduce reported breadth while strategic tail costs elevate SG&A % temporarily .

Financial Results

Headline and Profitability (YoY and Sequential)

MetricQ2 2023Q4 2023Q1 2024Q2 2024
Net Revenues ($USD Millions)$65.936 $65.099 $68.693 $57.290
Gross Profit ($USD Millions)$13.096 $14.876 $12.542 $10.993
Gross Margin (%)19.9% 22.8% 18.3% 19.2%
Operating Income ($USD Millions)$1.997 $2.711 $9.572 $5.893
Net Income attributable to SGRP ($USD Millions)$0.639 $2.137 $6.627 $3.627
Diluted EPS ($USD)$0.03 $0.09 $0.28 $0.15
Consolidated EBITDA ($USD Millions)$2.491 $3.140 $10.083 $6.371
Adjusted EBITDA attributable to SGRP ($USD Millions)$1.604 $3.939 $2.466 $1.380
Adjusted Net Income attributable to SGRP ($USD Millions)$0.696 $2.619 $1.335 $0.099

Notes:

  • Q1/Q2 2024 include gains on sale (Q1: $7.157M; Q2: $4.919M) impacting GAAP profitability; adjusted metrics remove special items per non-GAAP reconciliations .
  • Sequential GM up 100 bps in Q2; YoY GM down ~70 bps due to remodel mix .

Segment Revenue Breakdown

SegmentQ4 2023 ($M)Q1 2024 ($M)Q2 2024 ($M)
Americas$49.248 $54.655 $54.041
APAC$7.048 $5.761 $3.249
EMEA$8.803 $8.277 $0.000
Total$65.099 $68.693 $57.290

KPIs and Balance Sheet Highlights

KPIQ4 2023Q1 2024Q2 2024
Liquidity ($M)$19.3 $21.0 $33.4
Cash & Equivalents ($M)$10.7 $16.6 $21.7
Unused Availability ($M)$8.6 $4.4 $11.8
Working Capital ($M)$27.5 $38.2 $24.8
Accounts Receivable ($M)$59.8 $68.7 $38.0
Share Repurchase (Shares)—1,000,000 1,000,000
Gain on Sale of Business ($M)$0.408 loss $7.157 gain $4.919 gain

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY/Q2 2024Not providedNot providedMaintained (no formal guidance)
Gross MarginFY/Q2 2024Not providedCommentary only (mix pressure from remodel)N/A
SG&AFY/Q2 2024Not providedCommentary only (strategic initiative costs)N/A
Operating IncomeFY/Q2 2024Not providedNot providedMaintained (no formal guidance)
Tax RateFY/Q2 2024Not providedNot providedN/A
Segment GuidanceFY/Q2 2024Not providedNot providedN/A
DividendsFY/Q2 2024Not providedNot providedN/A

Management did not issue quantitative guidance and did not take Q&A due to the ongoing go‑private process .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2023, Q1 2024)Current Period (Q2 2024)Trend
Business simplification & JV exitsAnnounced exits (Australia, China, NMS); agreements to sell Brazil and South Africa; rationale: repatriate cash, simplify, focus on U.S./Canada Closed China and Brazil in Q2; announced exit of Japan; continued focus on U.S./Canada Continuing; accelerating
U.S. remodel & merchandising demandQ4: remodel recovery; Canada remodel +423% FY; strong U.S. merchandising growth Remodel +88% YoY; core U.S. up 37% YoY; merchandising expansion and new multi-year deals Strengthening
Margin dynamics (mix)Q4 margin +210 bps to 22.8%; FY 2023 +160 bps GM 19.2% (+100 bps seq); YoY compression vs 19.9% due to remodel mix Mixed: sequential up, YoY down
Macro/labor & third-party staffingLow unemployment, retailer staffing cuts, shift to syndicated labor; SPARview analytics cited Emphasis on flexibility and third-party labor ecosystem; SPAR’s scale + flexibility positioning Structural tailwind
Capital allocationDiscussed options: organic acceleration, accretive M&A, direct returns Liquidity up; buyback executed; no new specifics due to LOI/go‑private In-process; constrained by LOI
Go-private LOINot applicable in Q4; Q1: strategic alternatives ongoing $2.50/share LOI disclosed (June 5); Q2 call constrained; process ongoing Active

Management Commentary

  • “Our second quarter results reflect a focus on simplification and driving growth in the Americas, specifically the U.S. and Canada…continued to divest underperforming assets…one-time $4.9 million capital gain and increasing our cash to $22 million.”
  • “United States revenue was up 37% over last year…remodel business recovered faster than we expected and grew by 88% over last year in the second quarter.”
  • “Consolidated gross margin for the quarter was 19.2%…The remodel and transformation margins are lower than merchandising, so when this grows disproportionately, the consolidated margin is lower.”
  • “We will not be opening the line for questions today in light of our announced go private transaction that is in process.”
  • “We are announcing our exit of our business in Japan today…we continue to operate in the U.S., Canada, Mexico and India.”

Q&A Highlights

  • Q2 2024: Management did not take questions due to the pending go‑private process and stated no update beyond that the process remains underway .
  • Prior quarter context (Q1 2024): Discussion focused on sequential revenue resilience despite divestitures (core U.S./Canada growth offset exits), remodel recovery drivers, Brazil lower margin profile, and capital allocation priorities (organic acceleration, accretive M&A, and returns) .

Estimates Context

  • Wall Street consensus (S&P Global) for Q2 2024 was not available at time of analysis; we attempted retrieval but encountered an SPGI daily request limit. As a result, comparisons vs consensus EPS, revenue, and EBITDA cannot be provided in this recap. If desired, we will update this section when access is restored.
  • Implication: Investor assessment should normalize one-time gains and focus on adjusted profitability trends until consensus can be incorporated .

Key Takeaways for Investors

  • Core strength in U.S./Canada: Americas revenue grew with remodel acceleration and merchandising wins, supporting sequential margin improvement despite mix headwinds; underlying demand appears durable in 2H .
  • Normalization required: GAAP EPS/EBITDA benefited from $4.9M Q2 gain on sale; adjusted EBITDA attributable to SGRP was $1.38M—below prior year—reflecting mix and transition costs .
  • Balance sheet and liquidity improved: $33.4M liquidity, $21.7M cash, reduced AR to $38M post-divestitures, providing flexibility for capital allocation once strategic process completes .
  • Strategic simplification continues: Exits from China, Brazil (closed) and Japan (announced) streamline operations and may support margin profile over time (Brazil noted as lower-margin) .
  • Near-term visibility limited: No formal guidance and no Q&A due to the go‑private LOI; trading may be driven by deal developments and further divestiture steps rather than fundamentals alone .
  • Focus for modeling: Track Americas segment momentum, remodel mix versus merchandising margin, SG&A tail costs from exits, and adjusted profitability metrics to gauge trend inflection .
  • Potential catalysts: Definitive agreement progress on the LOI ($2.50/share proposal), incremental client wins in remodel/merchandising, and completion of remaining exits could re-rate the equity if the transaction does not proceed .