SPAR Group, Inc. (SGRP) Earnings

Management highlights

- Profitability Milestone * Returned to GAAP profitability in Q2 2026, the first profitable quarter since Q1 2025 * Delivered 63% year-over-year adjusted EBITDA growth and maintained gross margins above 22%, within the upper end of management's target range * Completed 12 months of transformation focused on business simplification, operating discipline, higher-quality revenue, and profitable growth - Business Strategy & Mix Shift * Prioritizes higher-margin recurring merchandising programs over lower-margin project/remodel work, with visible improvements in earnings and cash generation already * Focuses only on markets and accounts where SPAR has sufficient scale and expertise to offer competitive pricing while earning reasonable returns on investment, maintaining strict pricing and operational discipline * Core U.S. merchandising and Canada operations both achieved Q2 2026 sales growth, demonstrating the strength of the diversified North American platform - Operational Efficiency & Cost Reduction * Restructuring actions over the past year reduced organizational complexity and improved execution, positioning the business for greater operating leverage as it grows * SG&A expenses came in at $6.8 million for Q2 2026, down from $7.9 million in the prior year quarter, including $543,000 in one-time non-recurring costs * Expects long-term annual underlying SG&A run rate to trend toward approximately $20 million - Technology & Product Development * Developing a new SPT proposition in partnership with Repositrak, building on Repositrak's retail technology expertise to create added value for retail and brand clients * Currently re-platforming internal technology capabilities leveraging Repositrak's expertise to improve scalability, strengthen the technology foundation, and differentiate SPAR in the market * The outcome-based service model combines technology, real-time data, and scalable on-ground execution to help clients improve in-store performance, creating durable recurring revenue for SPAR - Organizational & Listing Updates * Completed relocation of SPAR's common stock listing to the OTCQB (ticker: SGRP) in late July 2026 following a NASDAQ delisting notice; the listing change did not alter SPAR's core strategy, which remains focused on execution, operational improvement, and investor transparency * Views associates as a core competitive advantage, and continues to invest in associate training, development, and culture building * Balance sheet health improved in the first half of 2026, with positive working capital of $25.8 million (excluding line of credit and current long-term debt) and $2.9 million in cash and cash equivalents as of Q2 end

Guidance

- Full-year 2026 gross margin is guided to be meaningfully higher than 2025's 15.9% for the combined U.S. and Canada operations, with the mix shift to higher-margin merchandising expected to continue driving margin improvement. Management targets a long-term gross margin of approximately 25% as mix shifts, productivity initiatives mature, and scale benefits accrue. - Full-year 2026 SG&A (excluding unusual items) is guided to $21 million to $24 million, a substantial reduction from 2025's $32.2 million. Management expects full-year 2026 SG&A to trend toward the lower end of the guided range by the end of 2026, with the annual run rate reaching ~$20 million in 2027 after recent restructuring actions are fully implemented. - Full-year 2026 revenue guidance was revised downward, reflecting the intentional reduction in low-margin remodel business activity, with no reduction expected for the higher-growth merchandising segment.

Segment performance

1. Core U.S. Merchandising Segment: Generated year-over-year sales growth in Q2 2026, as part of the company's intentional shift to higher-margin recurring work. It represents the company's largest recurring revenue base. 2. Canada Operations: Generated year-over-year sales growth in Q2 2026, and remains a strong, resilient performer within SPAR's diversified North American platform. It is largely focused on higher-margin merchandising work. 3. Remodel Business: Q2 2026 net revenue included a year-over-year volume decline, which drove the 4.5% overall consolidated net revenue drop. The decline is intentional, as SPAR exited unprofitable or low-margin remodel projects to prioritize higher-return work. Consolidated overall performance: Q2 2026 net revenues = $36.9 million (-4.5% YoY); gross profit = $8.4 million (22.8% of revenue); operating income = $1.2 million (+67.1% YoY); GAAP net income = $409,000; adjusted EBITDA = $2.1 million (+63% YoY).

Risks & headwinds

- Forward-looking statements (including guidance and strategic targets) are inherently uncertain, and actual results may differ materially from expectations due to unforeseen risks and factors outside of management's control, per the safe harbor disclosure. - There is an ongoing legal matter related to Robert Brown; management declined to provide details but stated it does not believe the matter is material to SPAR's ongoing operations. - The company's stock is no longer listed on the NASDAQ exchange, and now trades on the OTCQB market, which may impact stock liquidity and investor access. - Growth in the recurring merchandising business created timing-related working capital outflows in Q2 2026, with $8.7 million in net cash used by operating activities during the quarter.

Analyst Q&A

• Q: What was the rationale for SPAR choosing not to appeal the NASDAQ delisting and remain on the exchange? /

  A: Management noted that compliance costs for NASDAQ listing are disproportionate to SPAR's current company size, and the OTCQB is a suitable alternative market for SPAR to operate. Ultimately the outcome reflected the shareholder decision, and SPAR had limited grounds to appeal the delisting, so moving to OTCQB was the best next step. The company's overall strategy did not change following the listing transfer.

• Q: The lower full-year revenue guidance is tied to lower expected activity — is this decline limited to the remodel business, or are there losses in the core merchandising segment? /

  A: The merchandising segment (including the largely merchandising-focused Canada business) delivered year-over-year growth in both Q2 2026 and the first half of 2026. All of the expected revenue decline is purely from the intentional reduction in remodel business, as SPAR exited low-margin remodel projects that required disproportionate working capital relative to returns. This pullback is intentional to protect gross margins and enable operating leverage as the organization becomes leaner.

• Q: Can you confirm that you expect long-term annual SG&A costs to reach ~$20 million? /

  A: Management confirmed that SPAR is actively trending toward an annual underlying SG&A run rate of ~$20 million. The 2026 full-year guided range of $21 million to $24 million includes remaining transition costs from restructuring, and management expects SG&A to trend toward the lower end of the 2026 range by the end of 2026, hitting the ~$20 million run rate as the business moves into 2027.

• Q: What is the purpose of the monthly IT agreement with Repositrak that costs $151,500 per month? /

  A: Repositrak is an experienced retail technology company, and SPAR is partnering with them to re-platform SPAR's core technology capabilities. Management expects this technology re-platforming to deliver significant benefits to SPAR's service offerings and scalability.