SPAR Group, Inc. Q4 FY2025 earnings call

Fiscal 2025 was a transformational year for SPARC. We finalized the work connected to the divestiture of our international joint ventures. Last week, we announced a strategic partnership with Repositrak. We rebuilt the leadership team from the ground up. We are focused on delivering continued revenue growth, deliberately targeting higher margin core merchandising business while building on new service offerings. Our partnership with Repositrak demonstrates how AI, data, people, and in-store action can work together seamlessly to solve a problem. We believe the future of retail execution lies in the intersection of human action and AI-enabled intelligence. Our roadmap over the past year has been disciplined and deliberate. Now we are laser focused on building a profitable business that generates free cash flow. We are deepening existing relationships and building new ones. We are investing in data integration, AI and technology partnerships, workforce intelligence, dynamic scheduling, automation, and margin expansion. We've strengthened our leadership bench, simplified the organization, stabilized Workday, our ERP, invested in workforce management and focused on training deployment and retention.

Fiscal 2025 net revenues totaled $136.1 million. During 2025, the company changed its reportable segments. On a comparable basis, full-year revenues of $136.1 million for the United States and Canada increased by 3.3% over 2024. U.S. net revenues increased 3.9% to $122.1 million, while Canadian sales were essentially flat at $14.1 million. Our gross profits year was $21.7 million or 15.9% of revenue compared with $33.6 million or 20.5% of revenue in 2024. Gross margin compression in 2025 was primarily due to shift towards the remodeling business. Full year selling general and administrative expenses were $32.2 million or 23.7% of revenues compared to $33.9 million or 20.7% of revenues in the prior year. We reported operating loss of $16.9 million for fiscal year 2025 compared to $700,000 of operating income in the prior fiscal period. Net loss attributable to Spar Group Inc. for 2025 was $24.6 million, or $1.04 per diluted share compared to a net loss of $3.2 million or $0.13 per share in 2024. Adjusted net loss attributable to Spar Group Inc. was $10.7 million or $0.45 per diluted share compared to $707,000 or $0.03 per diluted share in the prior period. Consolidated EBITDA for the fiscal 2025 year was a negative $16.5 million compared to $3.5 million in the prior year. Consolidated adjusted EBITDA was a negative $8.6 million compared to a positive $6.7 million in the prior year. Fiscal 2025 adjusted EBITDA Attributed to this, our group, Inc., was the same as consolidated with a negative $8.6 million compared to a positive $5.6 in the prior year. As of December 31, 2025, our balance sheet remains solid with positive working capital of $14.7 million. For the 12 months ending December 31, 2025, net cash used by operating activities was $18.4 million.

We expect top line revenue to be in the range of 143 million to 151 million and gross margins to improve to 20.5 percent to 22.5 percent primarily driven by our service mix. We believe that SPAR will win because we are uniquely positioned to serve as a critical operating layer for leading retailers and brands with national scale, deep execution DNA, and a large, highly flexible labor model. We've also invested in modern cloud and ERP infrastructure. Our proprietary Sparview platform is a mobile-first tool. We are increasingly utilizing AI platforms to detect issues. We are laser focused on building a profitable business that generates free cash flow. Growth underpins everything we do. Our plans include growth in each of our core areas. The only quarter we see kind of below that, potentially at the bottom end of that range, is the fourth quarter, which is typically our slowest quarter of the year.

Q: Hi, William. Hi, Steve. Thanks for taking the question. I know 2035 is a big transformational year. I think you guys have done a good job of laying that out. Just on Q4, though, can you give us any, just a little bit of color around both the revenue decline and I guess the resulting negative gross margin? Just help us understand how we are inflecting from that Q4 into what you've described for 2026.

A: Yeah, thanks Ross for your question. In terms of the shape of 2025, obviously Q3 was significant growth rate and we had some timing of projects in terms of how they landed in 2025 and how they landed in 2024. So that's part of the answer to 2025 Q4. I think you'll see a more stable growth rate as we go into 2026, and that's partly related to the focus back on to really growing merchandising as opposed to remodel business. Does that answer the question? I think so. So, almost like a little bit of an air pocket as you kind of wrapped up some projects and then, you know, as you get into 2026, sort of work through that and on to the sort of numbers you described, I guess. Yeah, that's correct. And we've purposely pivoted the business development and sales team to really focus on the merchandising going forward, given the margin gap. between the two business. So obviously we'll take the remodel work if it's profitable, but we want to focus this on where we see the head room for growth and where we think we can add technology with partners to improve margin over the long term. So yeah, that's correct. Okay, great. And that makes sense. And I think that you described that well. And then just in terms of expectations for the year, in no way am i trying to get to quarterly guidance i don't i don't think you should do that but just you know as we think about the um the ramp and the transformation should we expect you know a build up towards the first margin you described or um you know any seasonality i guess anything we should expect you know with respect to what we'll see in q1 q2 versus q3 q4 um A: Yeah, so this is Steve. When we provided the guidance that we released today, that is on an annual basis. Now, the only quarter that we see kind of below that, potentially at the bottom end of that range, is the fourth quarter, which is typically our slowest quarter of the year. And that's partly because within our gross margins, we have our field management costs, which is somewhat semi-fixed. But, you know, we've intentionally pivoted strongly to focus back on merchandising. So I think, you know, we'll post Q1 here in the next four to six weeks. And as Steve said, they're full year numbers, but you'll see the story laid out as we post that and then refine the guidance. Okay, so it's a pretty quick sort of, well, it's a pretty quick turnaround for Q1, as you noted. And then the business, you know, we should expect pretty clean numbers with respect to kind of all the transformation work you've done in 2025. Even early in 2026, we'll see kind of the profile of, you know, or the result of that work, I guess, is kind of what I'm hearing. That is correct, yes. Okay. Okay. That's great. And then the RepositTrack partnership, just to confirm, so is that, you know, that's quote-unquote live, that's something you're out now marketing and offering to potential customers?

A: That's correct. Yeah, meetings are actually in progress in terms of conversations. So, yes, it's live. And we're excited about it. It's the first of potentially some other announcements we'll make into the future, but it aligns to our strategy of where we can really add the most value, but also create a defensible model at a higher margin rate by having partners who can feed data about different parts of the market. Repositrak specifically have a strong... out-of-stock management tool, and they've got access to data across certain parts of the market that they're strong in. So, yeah, we're excited about the partnerships. Okay, great. Yeah, that sounds really exciting. Okay, thanks for taking the questions, guys, and congrats on all the progress with the business. Thank you. Thank you, Ross. As there are no further questions from investors, I would like to turn the conference back over to William Lenane for any closing remarks. Thank you. And thank you for continuing to follow our company. I look forward to providing our first quarter results and updating our strategic initiatives in a couple of months. Have a great day, everyone, and thank you again. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.