SPAR Group Inc (SGRP) 2010 Q2 法說會逐字稿

Welcome to the SPAR Group Incorporated's second-quarter financial results conference call. During today's presentation all parties will be in a listen-only mode and following the presentation the conference will be open for questions. (Operator Instructions). Now I'd like to hand the conference over to Mark McPartland with Alliance Advisors. Please go ahead.

Thank you, operator, and good morning, everyone. I'd like to thank everyone for joining us today for SPAR Group's 2010 second-quarter financial results conference call. Mr. Gary Raymond, Chief Executive Officer, and Mr. Jim Segreto, Chief Financial Officer of SPAR Group, will be your hosts on the call.

If anyone participating on the call this morning does not have a copy of the earnings release which was posted several weeks ago, or the 10-Q which was posted yesterday, for the second-quarterly period ended June 30, 2010, please feel free to contact our office at 914-669-0222.

Now we before we begin the call I'm going to review the Company's Safe Harbor statement. Statements in this conference call that are not descriptions of historical facts are forward-looking statements relating to future events and as such all forward-looking statements are made pursuant to the Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties and actual results may differ materially.

When used in this call the words anticipate, could, enable, estimate, intend, expect, believe, potential, will, should, project, and similar expressions as they relate to SPAR Group are such forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainties which may cause actual results to differ from those anticipated by SPAR Group at this time.

In addition, other risks are more fully described in SPAR Group's public filings with the US Securities and Exchange Commission which can be reviewed at www.SEC.gov. With that taken care of I'd now like to turn the call over to Mr. Gary Raymond, CEO of SPAR Group. Congratulations, Gary, to you and your team for strong revenue growth and margin expansion and increased profitability for the second quarter.

Thank you, Mark, and thank you, everyone, for joining us today for our 2010 second-quarter financial results conference call. Our financial results for the second quarter of 2010 improved in several key financial metrics including revenue, gross profit margin and profitability.

For the quarter our revenues grew nearly 16% from both strong organic growth and our acquisition efforts, gross margin improved to 33.4% from 30.9% and operating income was $775,000 versus $13,000 for the second quarter of 2009.

EBITDA for the second quarter of 2010 increased 261% to $1 million compared to $280,000 for the same period in 2009. In addition, for the six-month period of 2010, net income increased $648,000 from only $41,000 for the same period in 2009. If normalized for one-time gains realized in 2009 the current net income results give an improvement of over $1.2 million when compared to the first six-month period in 2009.

These financial improvements occurred primarily for two reasons. First, as I have stated in the past, it has been our goal operationally to improve our cost structure and enhance margin. In merely a year and a half since the first quarter of 2009 through the end of the second quarter of 2010 gross profit margin has improved from approximately 27% to 33.4%.

Additionally, EBITDA margin improved dramatically over the same period from less than 1% it's now 6.5%. We have successfully cut costs without hindering our performance and moved toward higher margin businesses both domestically and internationally.

Secondly, the acquisitions of National Marketing Services, or NMS, and Wings & Ink have significantly contributed to our strong results during the quarter. Both have exceeded our expectations and we believe our early success should continue into the future.

We continue to focus resources on our international business to incorporate many of the same operational improvements we have implemented in the US. As part of this strategy, our cost of revenue has decreased and gross profit margin has improved dramatically which was primarily due to a more profitable mix of product services in our key markets of Japan, China, Canada and Australia.

We have made tremendous progress to improve our operating efficiencies both domestically and internationally. I will give more details regarding recent events and our future prospects after Jim Segreto, our chief financial officer, provides more details regarding our 2010 second-quarter financial results. I'd now like to turn the call over to Jim.

Thank you, Gary. I would like to review or second-quarter results. Revenue for the quarter ended June 30, 2010 totaled $15.6 million, an increase of 16% when compared to $13.5 million for the second quarter ended June 30, 2009.

Domestic revenue for the same period in 2010 increased 47% to $9.9 million compared to $6.8 million for the same period in 2009. The increase in domestic revenue was mainly attributable to continued organic growth and the full integration of the NMS acquisition.

International revenues decreased 15% to $5.7 million for the three months ended June 30, 2010 compared to $6.7 million for the same period in 2009. The primary reason for the decrease in international revenue reflects the loss of the sales promotion business resulting from the change in ownership in the Japan subsidiary and management's decision to pursue higher margin business in key markets.

Continuing this effort, on July 26, 2010 we announced a new international partnership to renew our growth efforts in China with a new partner in this market, Shanghai Wedone Marketing Consulting. Our gross profit increased 25% to $5.2 million for the second quarter of 2010 compared to $4.2 million in the second quarter of 2009. These results yielded an improved margin of 33.4% for the second quarter of 2010 compared to 30.9% for the second quarter of 2009.

Domestically the gross profit margin was 34.4% for the same period in 2010 compared to 36.9% in 2009. Internationally although revenue was down, gross profit margins improved to 31.5% for the second quarter of 2010 compared to 24.9% for the same period in 2009 as the Company continues to focus on more profitable partnerships and jettison unprofitable relationships.

Net income for the second quarter of 2010 totaled $612,000 or $0.03 per basic and diluted shares compared to net income of $236,000 or $0.01 per share -- basic and diluted share a year ago. The second quarter of 2009 net income included other income of $285,000 resulting from a credit of prior legal expenses. Normalizing net income for that period in 2009 compared to 2010 the Company achieved net income of $612,000 compared to a net loss of $49,000 a year ago.

Domestically net income for the same period in 2010 totaled $842,000 compared to net income of $562,000 for the same period in 2009, an increase of 50%. Internationally the net loss for the second quarter of 2010 narrowed to $230,000 compared to a net loss of $328,000 for the same period in 2009, a 30% improvement year to year. The Company's operating income for the quarter improved to $775,000 compared to only $13,000 a year ago.

A review of our six-month results -- our revenue for the six months ended June 30, 2010 totaled $28.7 million compared to $28.6 million for the six months ended June 30, 2009. Domestic revenue for the same period in 2010 increased 41% to $17.5 million compared to $12.4 million for the same period in 2009. Revenue growth was generated by the Company's organic growth initiative and acquisition strategies as mentioned earlier.

International revenues decreased 31% to $11.3 million during the period of -- 2010 compared to $16.2 million during 2009. International revenue's decrease was due primarily to the loss of the sales promotion business in the Japan market.

Gross profits increased 15% to $9.5 million for the six months ended 2010 compared to $8.3 million for the same period in 2009. The results yield an improved gross profit -- gross margin of 33% compared to 28.9% in 2009. Domestically gross margin was 35.3% for the same period in 2010 compared to 36.1% in 2009. Internationally gross profit margin improved by six percentage points to 29.4% for the six months of 2010 compared to 23.3% for the same period in 2009.

Net income for the six months of 2010 totaled $648,000 or $0.03 per basic and diluted shares compared to net income of $41,000 or zero cents in 2009. The net income for the first half of 2009 included other income of $300,000 resulting from a favorable judgment in a legal action and the $285,000 credit of prior legal expenses. As Gary mentioned earlier, normalizing the net income for that 2009 period compared to 2010 the Company improved net income $1.2 million for the six-month period year over year.

Domestically net income for the same period in 2010 totaled $979,000 compared to $444,000 for the same period in 2009. Internationally the net loss for the first half of 2010 totaled $331,000 compared to a net loss of $403,000 for the same period in 2009. The Company's operating income for the six-month period improved to $814,000 compared to an operating loss of $119,000 a year ago.

On the balance sheet, total current assets and total assets were $15.3 million and $18 million respectively. Cash and cash equivalents totaled $952,000. The current ratio improved to 1.2 to 1 for the period ending June 30, 2010. Total liabilities and total current liabilities were $12.9 million with no long-term liabilities at June 30, 2010. And our equity was $4.8 million for the same period. Book value improved to $0.25 per share versus $0.21 at December 31, 2009.

A note on legal proceedings. As previously reported in our corporate filings on our Form 10-Q's and 10-K, the Company has been involved in a long-standing litigation with Safeway, Inc., which Safeway began in 2001. On August 2, 2010 Safeway tendered and SPAR Group accepted payment of approximately $1.9 million in full payment of the previously awarded judgments with accrued interest.

The Company previously reported the net $1.3 million judgment in accrued interest and other assets on the balance sheet. However, as of June 30, 2010 the Company is now recording these funds as current assets. I would like to now turn the call back to Gary for closing regards.

Okay, thank you, Jim. As I've already mentioned, during the second quarter we successfully implemented several key initiatives which allowed us to report strong financial improvements year-over-year.

More recently we continued to make the necessary steps to improve our overall business and position ourselves to continue to grow and ultimately increase shareholder value. I firmly believe our strategy is more refined and operations are more efficient than at any time in the last three to five years.

Earlier this month we completed a refinancing of our credit facility through a multi-bank group led by Sterling National Bank increasing our credit facility by $1.5 million to $6.5 million. This facility will offer our company working capital to grow organically and to continue to implement our acquisition strategy similar to the NMS and Wings & Ink transaction.

Sterling National Bank and its bank group provide us with a broad range of product offerings and a proven financial experience to meet the needs of our growing company. On the domestic side we are extremely pleased with our performance for the quarter and first six-month period as well as performance against our core domestic business and our NMS business.

On the international front we recently structured a new joint venture in China with our new partner, Shanghai Wedone Marketing Consulting. The new joint venture will be called SPAR Shanghai Marketing Management Company and our company will own 51% of the joint venture while Shanghai Wedone Marketing Consulting will own 49%.

The new company will provide merchandising and related marketing services to manufacturers and retailers throughout China and will service all Tier 1, Tier 2 and Tier 3 cities in China, equating to more than 150 cities throughout the country canvassing nearly three-quarters of the population. We see tremendous room for growth within the emerging markets we currently serve, especially in China and it's one of the most promising regions for our marketing and specialty merchandising services.

We have researched diligently to find a synergistic partner to maximize the value of our presence in China and we are pleased to reach an agreement with Shanghai Wedone as we believe they will be the optimal partner.

Our strategy internationally has been to partner with companies that would benefit from our enhanced technology and expertise and combine that with an experienced local management team. Each subsidiary uses the same powerful proprietary US-based technology allowing logistics, communication and reporting translated into their local language.

This strategy remains in line with our objective to increase topline growth while improving our gross margins and profits. We see tremendous expansion potential not only in China but in several other emerging market countries that we intend to implement this strategy.

In North America we continue to evaluate several acquisition opportunities with attractive valuations that we can rapidly integrate and fuel the growth of our business in a similar fashion to both the NMS and Wings & Ink acquisition. We remain focused on enhancing our margin by managing our cost and improving operating efficiencies as evidenced by the improved profitability and margin expansion of the 2010 second quarter and first six months period compared to those same periods in 2009.

For the remainder of 2010 we will continue to evaluate our operation, cost structure and business relationships worldwide to ensure that we are maximizing the value of our marketing and merchandising services business. This concludes our formal comments and presentation. At this time we'd like to open the call for questions. Operator, please start the Q&A portion of the call, please.

(Operator Instructions). Management, I'm showing no questions in the queue at this time. Please continue with any further remarks.

Okay, thank you, Operator. Once again we would like to thank our shareholders and anyone who has listened in on today's call. We look forward to updating all of you with our third-quarter 2010 results in November. And if you have any questions at all, please feel free to contact myself or the team from Alliance Advisors.

And, ladies and gentlemen, that does conclude the SPAR Group Incorporated's second-quarter financial results conference call. Thank you for your participation and you may now disconnect.