SPAR (US:SGRP)2025-07-17 20:04PART I: FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements, management's discussion, and disclosures on market risk and internal controls for the quarter Item 1. Condensed Consolidated Financial Statements (Unaudited) The unaudited condensed consolidated financial statements for Q1 2025 reflect decreased net revenue and net income, primarily due to the strategic exit from international operations and a shift to a single North American segment Condensed Consolidated Statements of Operations and Comprehensive Income For the three months ended March 31, 2025, SPAR Group reported net revenue of $34.0 million, a sharp decline from $49.4 million in the prior-year period, with net income significantly lower at $0.46 million Q1 2025 vs Q1 2024 Statement of Operations Highlights (in thousands, except per share amounts) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Revenues | $34,041 | $49,396 | | Gross Profit | $7,275 | $9,712 | | Operating Income | $1,036 | $8,671 | | Gain on sale of business | - | $(7,157) | | Net Income Attributable to SPAR Group, Inc. | $462 | $6,627 | | Diluted EPS | $0.02 | $0.28 | - The significant decrease in operating income and net income year-over-year is largely attributable to a one-time gain on the sale of a business of $7.16 million recognized in Q1 2024, which was not present in Q1 20257 Condensed Consolidated Balance Sheets As of March 31, 2025, total assets increased to $70.2 million from $56.4 million at year-end 2024, driven by a significant rise in accounts receivable, while total liabilities also increased to $45.5 million Balance Sheet Summary (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $59,062 | $45,996 | | Accounts Receivable, net | $38,219 | $24,766 | | Total Assets | $70,164 | $56,431 | | Total Current Liabilities | $43,402 | $30,050 | | Lines of credit and short-term loans | $20,373 | $16,082 | | Total Liabilities | $45,458 | $32,125 | | Total Stockholders' Equity | $24,706 | $24,306 | Condensed Consolidated Statements of Cash Flows In Q1 2025, the company experienced a net cash outflow from operating activities of $4.0 million, a reversal from the $0.6 million inflow in Q1 2024, mainly due to a large increase in accounts receivable Cash Flow Summary for the Three Months Ended March 31 (in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(4,044) | $615 | | Net cash used in investing activities | $(525) | $(878) | | Net cash provided by financing activities | $4,290 | $6,344 | | Net change in cash and cash equivalents | $(279) | $5,910 | Notes to Condensed Consolidated Financial Statements The notes detail significant accounting policies and events, including the company's shift to a single reportable segment, debt facilities, and the termination of a 'going private' merger agreement - Following the exit from substantially all international operations in 2024, the company has changed its reporting structure to a single segment as of March 31, 2025, with the CEO as the Chief Operating Decision Maker (CODM) managing all activities on a consolidated basis24 - The company's revolving credit facility with North Mill Capital was extended to October 10, 2025, with an outstanding balance of approximately $20.4 million as of March 31, 20254446 - The company terminated its merger agreement with Highwire Capital on May 23, 2025, and is now actively pursuing a termination fee from Highwire Capital88 - During 2024, the company sold its joint venture interests in South Africa, China, Brazil, Japan, India, and Mexico, marking a strategic shift to focus on North American operations727374 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 31.1% decrease in Q1 2025 net revenues to the strategic exit from international markets, while gross profit margin improved from 19.7% to 21.4% Q1 2025 vs Q1 2024 Key Metrics | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Revenues | $34.0M | $49.4M | | Revenue Change | -31.1% | N/A | | Gross Profit Margin | 21.4% | 19.7% | | Cost of Revenues (% of Net Revenue) | 78.6% | 80.3% | - The decrease in net revenues, cost of revenues, and SG&A expenses is primarily due to the exit of operations in South Africa, Mexico, China, Japan, and India during 2024104106107 Adjusted EBITDA Reconciliation (in thousands) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Consolidated net income from continuing operations | $462 | $6,796 | | Consolidated EBITDA | $1,403 | $10,083 | | Adjusted EBITDA attributable to SPAR Group, Inc. | $1,496 | $2,466 | - The company believes that its sources of cash availability should be manageable and sufficient to support working capital and capital expenditure requirements over the next 12 months, contingent on the continuation of its existing credit facilities114 Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, SPAR Group, Inc. is not required to provide information for this item - As a smaller reporting company, SPAR Group, Inc. is not required to provide quantitative and qualitative disclosures about market risk118 Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of March 31, 2025, due to identified material weaknesses in internal control over financial reporting - Management concluded that disclosure controls and procedures were not effective as of the end of the period due to material weaknesses in internal control over financial reporting119 - Material weaknesses were identified in the financial statement close process, specifically regarding balance sheet reconciliations, and in controls over non-recurring transactions like the deconsolidation and sale of international businesses120121 - Remediation efforts include implementing a new ERP system, hiring an Assistant Controller, consolidating the finance team, and simplifying the organizational structure by divesting foreign operations122 PART II: OTHER INFORMATION This section covers legal proceedings, risk factors, and a list of exhibits filed with the quarterly report Item 1. Legal Proceedings The company is involved in various legal actions and administrative proceedings that arise in the normal course of business, which management does not expect to have a material adverse effect - The Company is party to various legal actions arising in the normal course of business, but management does not anticipate these to have a material adverse effect126 Item 1A. Risk Factors There have been no material changes to the company's risk factors since the filing of its 2024 Annual Report on Form 10-K/A - No material changes have occurred in the Company's risk factors since the 2024 Annual Report on Form 10-K/A128 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications pursuant to the Sarbanes-Oxley Act of 2002 and Inline XBRL documents - The report includes required CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act, as well as XBRL data files135