Q1 2022 SPAR Group Inc Earnings Call

[music].

Good day.

Good day and welcome to the Sparger first quarter 2022 financial results conference call. All participants will be in a list of

Welcome to the Spar group first quarter 2022 financial results Conference call.

All participants will be in a listen only mode.

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I would like to turn the conference over to Sandy Martin. Please go ahead now. Thank you operator and good morning everyone. We appreciate you joining us for the SPAR Group in conference call to review first quarter results for 2022. Joining me on the call today are SPAR's Chief Executive Officer, Mike Metacunus, and the company's Chief Financial Officer, Faye Dvreeze.

I'd now like to turn the conference over to Sandy Martin. Please go ahead ma'am.

Thank you operator, and good morning, everyone. We appreciate you joining us for the Spar Group, Inc Conference call to review first quarter results for 2022.

Joining me on the call today are spars, Chief Executive Officer, Mike Medica in Us and the company's Chief Financial Officer say degrees.

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.spartink.com.

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 Dot Spar, Inc. Dot com.

Information recorded on this call speaks only as of today, May 16, 2022. So please be advised that any time sensitive information may no longer be accurate as of the date of any replay or transcript reading.

Information recorded on this call speaks only as of today May 16, 2022. 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 historical facts, including statements or expectations or 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.

I would also like to remind you that the statements made in today's discussion that are not historical facts, including statements or expectations or 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 the earnings press release that was issued today for our disclosures on forward-looking statements.

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 the earnings press release that was issued today for our disclosures on forward looking statements. These factors and other risks and uncertainties.

These factors and other risks and uncertainties are described in detail in the company's filings with the Securities and Exchange Commission.

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 the reconciliation to the nearest GAAP measures can be found at the end of earnings release.

Management May also refer to non-GAAP financial measures and the 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.

Bar group assumes no obligation to publicly update or revise any forward looking states.

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 has also been included in an 8K submitted to the SEC. And now I would like to turn the call over to the company's CEO , Mike Matakounis. Mike? Thank you, Sam.

On the Investor Relations section of our web website at spire, Inc. Dot com a copy of the release has also been included in an 8-K submitted to the SEC and now I would like to turn the call over to the company's CEO , Mike Medica in Us Mike.

Thank you Sandy and good morning, everyone I.

I am pleased to share with you our first quarter results and comment on progress against our transformation.

I am pleased to share with you our first quarter results and comment on progress against our transformation plan.

First, I would like to welcome our existing investors and prospective investors to the call. I remain excited about our future and appreciate your interest in our business.

First I would like to welcome our existing investors and prospective investors to the call I remain excited about our future and appreciate your interest in our business.

As we reported our results this morning, you will note that we have changed our segment reporting to better reflect our business and global operations.

As we reported our results. This morning, you will note that we have changed our segment reporting to better reflect our business and global operations. Historically the company has presented domestic versus international results, what I considered our growth strategy and how our clients buy services I decided to change our segment reporting to Americas.

Historically, the company has presented domestic versus international results.

When I considered our growth strategy and how our clients buy services, I decided to change our segment reporting to Americas, Europe , Middle East and Africa shortened to EMEA and Asia Pacific also shortened to APES.

Europe , Middle East and Africa shortened to EMEA and Asia Pacific also shortened to APAC.

Our America segment includes Canada, the United States, Mexico, and Brazil. The AMEA segment is comprised of our business in South Africa.

Our Americas segment includes Canada, the United States, Mexico and Brazil.

The EMEA segment is comprised of our business in South Africa and.

And finally, our Asia Pacific segment, also known as APAC, is comprised of Japan, China, Australia, and India. Again, this segment...

And finally, our Asia Pacific segment also known as APAC is comprised of Japan, China, Australia and India.

Again, this segmentation is a better reflection of how our clients buy services and enables us to win broader global opportunities.

of our clients by services and enables us to

With this said, this morning, we announced our results for the first quarter, 2022.

With this said this morning, we announced our results for the first quarter 2022.

Total revenue for the first quarter was 59 million compared to 61 million in 2021. This reflects a decrease of approximately 3% from the same period last year.

Total revenue for the first quarter was 59 million compared to $61 million in 2021.

This reflects a decrease of approximately 3% from the same period last year.

Our America segment revenue was 43 million against the 45 million prior year. This is a 4.9 percent decrease in revenue. Our EMEA segment revenue is 9.2 million against 7.7 million the same period last year. This reflects a 19.5 percent increase in revenue year.

Our Americas segment revenue was $43 million against the 45 million. Prior year. This is a four 9% decrease in revenue.

Our EMEA segment revenue was $9 2 million against $7 7 million in the same period last year. This reflects a 19, 5% increase in revenue year over year.

Our APAC segment revenue was 6.8 million, down 18.1% year over year. As a reminder for those who are new investors, we are looking forward to seeing you again soon.

Our APAC segment revenue was $6 8 million down 18, 1% year over year.

As a reminder, for those who are new investors just for first quarter last year was an unusually strong quarter due to pent up demand on the tail of the pandemic.

First quarter last year was an unusually strong quarter to depend up demand on the tale of the pandemic.

While our first quarter total revenue is down 3%, we perform well against our internal plan and we are off to a good start for 2020.

While our first quarter total revenue was down 3%, we performed well against our internal plan and we are off to a good start for 2022.

Our gross profit was 20.1% of revenue, flat to last year for the same period, but up 240 basis points over our fourth quarter percent.

Our gross profit was 21% of revenue flat to last year for the same period, but up 240 basis points over our fourth quarter percentage. This.

The quarter over quarter improvement in gross profit is the result of renegotiated terms in our internal efforts to drive a

The quarter over quarter improvement in gross profit as a result of renegotiated terms in our internal efforts to drive efficiencies. Our initiatives are beginning to show progress and we are on track to achieve our longer term goal of higher margins and profits.

Our initiatives are beginning to show progress, and we are on track to achieve our longer-term goal of higher margins of profit.

Operating income for the first quarter is $2.1 million, and net income is $674,000 resulting in an earnings per share of $0.03.

Operating income for the first quarter is $2 1 billion.

And net income of 674000, resulting in an earnings per share of <unk> <unk>.

To provide more insight to a performance, I would like to comment on three topics, our US business, China, and the role global inflation plays in the global economy.

Provide more insight to our performance I would like to comment on three topics, our U S business, China and the role of global inflation plays in our business.

Our business in the United States serves both consumer package goods and retail companies. Our CPG clients include companies such as PNG, Kimberley Clark, Colgate Hallmark, MJ holding Reynolds and more.

Our business in the United States serves both the consumer packaged goods and retail companies are CPG clients include companies, such as P&G, Kimberly Clark Colgate Hallmark, MJ, holding Reynolds and more.

Our retail clients include companies such as Walmart, Target, CVS, Dollar General, Family Dollar, Meyer and many more.

Our retail clients include companies, such as Walmart target Cvs dollar General family dollar buyer and many more.

As a reminder.

We provide merchandising and brand marketing services for these clients across 48 contiguous states in the U.S.

We provide merchandising and brand marketing services for these clients across 48 contiguous states in the U S. We.

We are in stores every day revitalizing the store, merchandising the shelves, and making certain our clients present an exciting and compelling merchandising environment.

We are in stores everyday revitalized in store merchandising, the shelves and making sure our clients present and exciting and compelling merchandising environment.

Many of the investors I talk with ask about the impact of U.S. labor rate increases in our business. And now, with the low unemployment rate in the States, the impact this may have on our performance.

Many of the investors I talk with ask about the impact of U S labor rate increases in our business and now with the low unemployment rate in the states. The impact this may have on our performance.

First, on the labor rates, we have factor the impact of these increases in our business and taken out costs to ensure we drive profitability. We believe the changes in future rates are largely known and therefore we have a plan to accommodate this in the future. Our plans include a combination of technology to drive process efficiency and growth of higher margin services that add incremental value to our clients.

First on the labor rates, we have factored the impact of these increases in our business and taken out cost to ensure we drive profitability. We believe the changes in future rates are largely known and therefore, we have a plan to accommodate this in the future.

Our plans include a combination of technology to drive process efficiency and growth of higher margin services that add incremental value to our clients.

Second is our business relies on hiring and retaining many, many people in the US. I'm constantly watching the unemployment rate and reviewing our recruiting results week.

Second is our business relies on hiring and retaining many many people in the U S. I am constantly watching the unemployment rate in reviewing our recruiting results weekly.

We have recently changed the software and digital platform we use to recruit and the initial results are promised.

We have recently changed the software and digital platform, we used to recruit and the initial results are promising.

We have been able to successfully recruit over the first quarter and I have every reason to believe we will be able to recruit going forward.

We have been able to successfully recruit over the first quarter and I have every reason to believe we will be able to recruit going forward.

I'm proud of our team driving US business and confident their efforts will continue to produce results.

I'm proud of our team drove newest business and confident their efforts will continue to produce results.

China is a relatively small piece of our business, but we were impacted by the lockdown in Shanghai that began in March.

China is a relatively small piece of our business, but we were impacted by the lockdown in Shanghai that began in...

While some parts of the world have begun to return to a more typical economy, China is in excess.

Well some parts of the world have begun to return to a more typical economy, China is an exception.

I'm in constant contact with our leadership in China and monitoring the health of our team.

In constant contact with our leadership in China and monitoring the health of our team there.

The revenue impact on our business in the first quarter was approximately $400,000 US dollars, yet minimal to our bottom line. While I estimate the continuation of the lockdowns will have a top line impact, the net effect will be small. We are continuing to monitor the situation carefully.

The revenue impact on our business in the first quarter was approximately 400000 U S dollars, yet minimal to our bottom line.

I estimate the continuation of the Lockdowns will have a top line impact the net effect will be small we are continuing to monitor the situation carefully.

As reported, global inflation in the first quarter is approximately six...

As reported global inflation in the first quarter is approximately 6% as a business operating in nine countries. We watch this closely along with the implied impact on labor and our clients for spar, we did not see a material impact on our business related to the rise in prices in the first quarter in fact, our business grew faster relative to.

As a business operating in nine countries, we watch this closely along with the implied impact on labor and our clients.

For SPAR, we did not see a material impact on our business related to the rise in prices in the first quarter. In fact, our business grew faster relative to prior year than the revenue of many of our clients, which I view as an indicator that we are taking market share from our competitors.

Prior year, then the revenue with many of our clients, which have used an indicator that we are taking market share from our competitors.

In talking with our clients directly, I know they are managing their budgets closely and many are now turning to SPAR to take over their field services and provide a shared resource to drive efficiency in their business.

And talking with our clients directly I know they are managing their budgets closely and many are now turning to spar take over their field services and provide a shared resource to drive efficiency in their business. The constant pricing pressure provides us an opportunity to deliver the merchandising and marketing services, they need to drive topline, while enabling them to save direct.

constant pricing pressure provides us an opportunity to deliver the merchandising and marketing services they need to drive top line while enabling them to save direct

Ross.

As we watch all of these issues and work with our clients to drive results, we are also constantly looking for opportunities to simplify and accelerate the business, to keep focus and driving value for our shareholders, clients and associates.

As we watch all of these issues and work with our clients to drive results. We are also constantly looking for opportunities to simplify and accelerate the business to keep focus on driving value for our shareholders clients and associates.

In the first quarter, we began efforts to simplify and streamline our internal reporting and back office support.

In the first quarter, we began efforts to simplify and streamline our internal reporting and back office support.

We also began moving our software technology that we believe is the most functionally robust in the market to an enhanced cloud platform to enable our growth and support our transformation.

We also began moving our software technology that we believe is the most functionally robust in the market to an enhanced cloud platform to enable our growth and support our transformation plan to.

To buy with the partnerships we announced in the first quarter with RepSlee, Clearbox Retail, and parallel dots we are committed to as one business partner recently commented be the most progressive company in this marketplace that thinks ahead of the market innovates and brings ideas.

Combined with the partnerships, we announced in the first quarter with rapidly clear box retail in parallel that we are committed to is one business partner recently commented.

The most progressive company in this marketplace thinks ahead of the market innovate and brings ideas.

Looking forward, we have much to do. Our team has energized, focused, and committed. We are piloting ideas, developing more partnerships and programs across countries. We're expanding our relationships across borders and we are on our way, transform support to a global software services company that can provide end-to-end merchandising, marketing, and distribution services for consumer goods and retail companies, every product, everywhere, every day.

Looking forward, we have much to do our team is energized focused and committed we are piloting ideas developing more partnerships and programs across countries, we're expanding our relationships across borders and we are on our way transform sport to a global software and services company that can provide end to end merchandising marketing and distribution services.

Consumer goods and retail companies every product everywhere every day.

Now I will turn the call over to Fade Degrees, our chief financial officer, to review our first quarter financial results. Then I will come...

Now I will turn the call over to Fay debris <unk>, our Chief Financial Officer to review, our first quarter financial results.

Then I will come back with a few closing comments.

Thank you, my name is Good Morning, everyone. As Mike mentioned, we have historically operated under two divisions, domestic and international.

Thank you my into mining everyone as Mike mentioned, we have historically operated under a two division domestic and international and domestic divisions was comprised of all operations within the United States and the <unk>.

The domestic division was comprised of all operations within the United States, and the international division was a consolidation of all operations and joint ventures outside of the United States.

International Division with a consolidation of all operations and joint ventures outside of the United States to better align the business structure with the company's global growth strategy and elaboration regional footprint. The company effective January 1st 2022 operates under three divisions.

To better align the business structure with the company's global growth strategy and leverage in regional footprint, the company, effective January 1, 2022, operates under three divisions, Ameritas, APEC, and AMIA.

Yes.

APAC and EMEA.

The Americas Division is comprised of the United States, Canada, Mexico, and Brazil. APAC is comprised of China, Japan, Australia, and India. And AMIA is comprised of South Africa.

The Americas Division is comprised of the United States, Canada, Mexico, and Brazil, APAC is comprised of China, Japan, Australia, and India and EMEA.

It's comprised of South Africa.

First quarter of 2022 net revenues total 59 million comprise of 43 million from America's 9 million from Amir and 7 million from April .

First quarter of 2022 net revenues totaled 59 million comprised of 43 million from America, nine Neill Bellamy EM and <unk>.

7 million from APAC.

Compared to the prior year quarter, total revenues decreased by 3.4%. America's decrease over the prior year by 4.9%. Amia increased by 19.5% and APAC decreased by 18.1% from the prior year quarter.

We entered the play quarter total revenue decreased by three 4% America decrease over the prior year by four 9%.

<unk> increased by 19, 5% in APAC decreased by 18, 1% from the prior year quarter.

The total decrease in net revenues was primarily due to a 2021 change in the labor law in the Americas, more specifically Mexico. The impact of COVID-19 lockdowns in APAC, offset partially by revenues from an acquisition in the mere the anniversaries in July 2020.

The total decreased net revenues was primarily due to a 2021 change in the labor Law, India Merit.

Specifically, Mexico, the impact of COVID-19, Lockdowns in APAC.

Partially by revenues.

<unk> in EMEA that anniversaries into late 2022.

Gross profit was $11.8 million or 20.1% of revenues, compared to $12.3 million or 20.1% of revenues in the prior year quarter.

<unk> profit was $11 8 million or 21% of revenues.

<unk> to $12 3 million for 21% of revenues in the prior year quarter.

Gross profit margins were positively impacted by realization of gross profit improvement initiative in the MIA, offset by unfavorable profit margin mix in America and Asia.

Gross profit margins were positively impacted by realization of gross profit improvement initiatives in EMEA.

Offset by unfavorable profit margin mix in Americas and APAC.

Delling, general, and administrative expenses were 9.3 million or 15.7% of revenues compared to 9 million or 14.7% of revenues in the prior year course.

Selling general and administrative expenses were $9 3 million or 15, 7% of revenue.

Compared to 9 million or 14, 7% of revenues in the prior year quarter.

The increase from the prior year quarter was primarily in an effort to normalize operation post-pandemic versus same-period prior year, as well as continued investments in the growth of the business.

The increase from the prior year quarter was primarily in an effort to normalized operation posted there versus same period prior year as well as continued investments in the growth of the business.

partially offset by a one-time favorable adjustment from the majority stackholder change of control agreement of crew in 2021 and realized in January of 2020.

I shall be offset by a one time favorable adjustment from the majority stockholder a change of control agreements accrual in 2021 and realized in January of 2022.

Operating income was $2.1 million versus $2.7 million from the prior year quarter. The decrease from the prior year quarter was due to items mentioned earlier.

Operating income was $2 1 million versus $2 7 million from the prior year quarter. The decrease from the prior year quarter was due to items mentioned earlier.

As Mike mentioned, we shifted back to profitability in the first quarter when the income attributable to Spark Group Think of $674,000. A $3,000 per share compared to $917,000 or $4,000 per share in the year of gold quarter. Consolidated adjust EBITDA in the 2022 first quarter was $2.4 million compared to $3.5 million in the prior year.

As Mike mentioned, we shifted back to profitability in the first quarter with net income attributable to Spar Group, Inc, or <unk>.

674000, or three cents per share compared to 917000 or four cents per share in the year ago quarter.

Consolidated adjusted EBITDA in the 2022 first quarter was $2 4 million compared to $3 five mainly in the prior year.

Adjust EBITDA attributable to spot grouping in the 2022 first quarter was 1.5 million compared to 2.3 million in the prior year. You can find the gap to non-gap reconciliation of management's financial measure for adjusting net income attributable to spot group and adjust EBITDA at the end of today's earnings release.

Adjusted EBITDA attributable to the Spar Group, Inc. In the 2022 first quarter was $1 5 million compared to $2 3 million in the prior year you can find the GAAP to non-GAAP reconciliations of management's financial measure for adjusted net income attributable to spar group and the <unk>.

Just the EBITDA.

And in today's earnings release.

Turning now to Spark Growth's financial position, cash flow, and balance sheet at the end of first quarter. The company's total worldwide liquidity at the end of first quarter was $18 million, with $14 million in cash, cash equivalents, and restricted cash, and $4 million of unusable ability as of March 31, 2020.

Turning now to spot gross financial position cash flow and balance sheet at the end of first quarter.

The company's total worldwide liquidity at the end of first quarter. It was 18 million with 14 million in cash cash equivalents and restricted cash and 4 million of end use availability as of March 31 2022.

For the three months ended March 31st, 2022, Net Cash using operating activities was 3 million and capital expenditures, including capitalized software, was 478,000. The company had positive networking capital of 24.9 million at March 31st, 2022. With that, I would like to...

For the three months ended March 31, 2022, net cash using operating activities was 3 million and capital expenditures, including capitalized software was 478000. The company had positive net working capital of $24 9 million.

March 31 2022.

With that I would like to turn it back to Mike.

Thank you thing given.

Thank you, Faye. Given the recent volatility in the markets, we believe investors will be searching for growth at a reasonable price. And we believe that SPARS investment thesis provides investors with a compelling investment thesis to consider. In summary, we provide a solid foundation with over 250 million of revenue from an international blue chip client base, a global footprint of comprehensive merchandise.

Given the recent volatility in the markets, we believe investors will be searching for growth at a reasonable price.

And we believe that spar is investment thesis provides investors with a compelling investment thesis to consider in summary.

We provide a solid foundation with over $250 million of revenue from an international Blue Chip client base, our global footprint with comprehensive merchandising and marketing services services that leverage our proprietary software tools that we are continuing to invest in two.

services that leverage our proprietary software tools that we are continuing to invest.

2022 and longer term initiatives to drive top line growth and margins expansion and a proven leadership team with a history of transformation.

2022, and longer term initiatives to drive topline growth and margin expansion and a proven leadership team with a history of transformation success. We truly believe that we are transforming this company from a tactical resources and execution to a strategic higher margin next generation global software and services business.

We truly believe that we are transforming this company from a tactical resource and execution to a strategic higher margin next generation global software and services.

Our customers constantly ask us to do more, be innovative and port it with them to change the market.

Our customers constantly ask us to do more be innovative and partner with them to change the market.

Lastly, I want to thank our associates across all nine countries for their outstanding work in the first quarter. I am proud of this team and company.

Lastly, I want to thank our associates across all nine countries for their outstanding work in the first quarter I'm proud of this team and company.

2022 will be a terrific year for sport and I'm excited to be leading this group.

2022 will be a terrific year for sport and I'm excited to be leading this group.

With that.

We want to thank you for your interest in our company and for listening to our earnings conference call today. And we look forward to providing an update on our progress when we report second quarter results.

I want to thank you for your interest in our company and for listening to our earnings conference call today, and we look forward to providing an update on our progress when we report second quarter results.

And ladies and gentlemen, this includes today's conference call. Well, thank you all for attending today's presentation. You may now disconnect and have a wonderful day.

This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect and have a wonderful day.