SPAR Group Inc (SGRP) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the SPAR Group, Inc. third-quarter financial results conference call. (Operator Instructions). I would now like to like to turn the conference over to our host, Mark McPartland. Please go ahead, sir.

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

If anyone in participating on the call this morning does not have a copy of the earnings release or 10-Q filing, please feel free to contact our offices at 914-669-0222.

Now 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. 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.

I would now like to turn the call over to Mr. Gary Raymond, CEO of SPAR Group, at this time and congratulate him and his team on yet another quarter of revenue growth, margin expansion and increased profitability. Gary.

Thank you, Mark, and thank you everyone for joining us today for 2010 third-quarter financial results conference call.

We are pleased with our financial results for the 2010 third-quarter and nine months, as reflected in our continued improvement in revenue, gross profit margins and profitability. Our revenues for the third quarter increased 7%, driven by a 39% increase in domestic revenues.

Gross margins improved by 2 percentage points to 31.5% from 29.5% last year. And our operating income improved 15% to $365,000 compared to $319,000 a year ago.

We continue to grow our business domestically, fueled by both organic growth and the successful integration of our previously announced acquisition. We are also very encouraged by the domestic customer and acquisition opportunities that are currently available to us.

We are focusing our resources on improving our international operations in all markets we currently serve. And we will continue to evaluate new opportunities and strategic relationships that will yield continued growth and profitability.

Internationally we have added stronger operational partners and expanded our sales efforts in key markets, especially in Asia, where we believe our subsidiaries will have a significant impact on international performance in the future.

This year we have made tremendous progress improving our operations both domestically and internationally, while improving our overall financial health.

For the nine months ended September 30, our domestic net revenues contributed an increase of $7.6 million or 40% over the previous nine-month period. This improvement was the result of organic growth, which contributed about 39% of the increase, as well as the NMS acquisition, which contributed about (technical difficulty) 61% of the growth.

NMS is a prime example of how our strategy of pursuing selective, strategic acquisitions can yield tremendous top and bottom line enhancements to our operations.

Our capacity for growth is very strong. As we have proven in recent months, our ability to integrate our acquisitions activities, while continuing to grow organically is a tribute to our employees, both domestically and abroad.

As we have stated in the past, the Company is actively evaluating acquisition candidates and is hopeful to close on another acquisition by the end of 2011. Separately, we will continue to focus on managing and improving our gross profit margin in every market we represent.

I would now like to turn the call over to Jim Segreto, our Chief Financial Officer, who will provide more details regarding our 2010 third-quarter and nine-month financial results. Jim.

Thank you, Gary. I would first like to point out some of the highlights from our third quarter ended September 30, 2010. On a consolidated basis our revenues for the third quarter increased 7% to $15.7 million compared to $14.7 million for the prior year.

Our gross profit increased 14% to $4.9 million compared to $4.3 million for last year. Our gross margins improved to 31.5% from 29.5% for the prior year. And our net income increased 107% to $325,000 or $0.02 per share compared to $157,000 or $0.01 per share for the prior year.

Our domestic operations yielded positive results as well -- an increase in revenue by 39% to $9.1 million compared to $6.5 million the prior year; an increase in gross profit of 41% to $3 million compared to $2.1 million the prior year; and an increase in gross profit margin of 33.6% compared to 33.2% last year.

As I have indicated above, our overall net revenues for the three months ended September 30, 2010 were $15.7 million compared to $14.7 million for the three months ended September 30, 2009, an increase of $1 million or 7%.

Domestic net revenues totaled $9.1 million for the three months ended September 30, 2010 compared to $6.5 million for the same period in 2009. The 39% increase in domestic revenue was a result of continued organic growth plus 49% in the Company's core businesses and plus 52% growth attributed to the December 2009 acquisition of National Marketing Services, NMS, in-store and in-home and other product assembly business.

Our international revenues totaled $6.6 million compared to $8.2 million for the same period in 2009. The 19% decrease in third-quarter 2010 international net revenues as compared to 2009 was due to the loss of some marginally profitable business that resulted in a decrease in revenue of $2.2 million in Japan. This shortfall was partially offset by revenue generated from the Canadian acquisition of the Wings & Ink business in April of 2010, which continues to show strength in our Canadian market.

Our net income for the third quarter of 2010 increased 107% to $325,000 or $0.02 per basic and diluted shares compared to net income of $157,000 or $0.01 per basic and diluted shares a year ago.

Domestically net income for the same period in 2010 totaled $552,000 compared to net income of $128,000 for the same period in 2009, an increase of over 330%.

Internationally net loss for the third quarter 2010 totaled $227,000 compared to a net income of $27,000 for the same period in 2009.

As Gary indicated earlier, management continues to pursue higher-margin business in key markets such as China and Japan, while centering our attention on improving our international operations in all markets we currently serve, as we continue to evaluate new opportunities and strategic relationships that will yield higher growth and profitability.

Our highlights for the nine months ended September 30, 2010 include the following. On a consolidated basis our revenues increased 2.4% to $44.4 million compared to $43.4 million in the prior nine-month period. Our gross profit increased 14.5% to $14.4 million compared to $12.6 million last year.

Our gross profit margin for the nine-month period improved to 32.5% from 29.1% for the prior-year period. And our net income increased to $973,000 or $0.05 per share compared to $198,000 or $0.01 per share, an increase of over 390% for the prior nine-month period.

Our domestic operations contributed a 40% increase in revenue to $26.5 million compared to $18.9 million for the prior nine months, and a 39% increase in gross profit to $9.2 million compared to $6.6 million the prior year.

Our international operations improved gross profit margins by 5 percentage points to 29% compared to 24% last year. As indicated, our overall consolidated net revenues for the nine months ended September 30, 2010 were $44.4 million compared to $43.4 million for the nine months ended September 30, 2009, an increase of $1 million or 2.4%.

Our domestic net revenues totaled $26.5 million in the nine months ended September 30, 2010 compared to $18.9 million for the same period in 2009. Domestic net revenues increased by $7.6 million or 40%, due in part to strong increases in organic growth in our existing domestic business of 39%, and an expansion of the Company's core business, along with the full integration of the NMS acquisition accounting for 61% growth year-over-year.

Our international net revenues totaled $17.9 million for the nine months ended September 30, 2010 compared to $24.5 million for the same period in 2009, a decrease of $6.6 million or 26.7%. The primary reasons for the decrease in 2010 international net revenues as compared to 2009 was the loss of marginally profitable sales businesses in Japan, a loss of a key client in India, partially offset by increased revenue from the business acquired in Canada from Wings & Ink.

Net income for the nine months ended September 30, 2010 was $973,000 or $0.05 per share compared to net income of $198,000 or $0.01 per -- for the corresponding period last year.

Net income for the nine months ended 2009 included other income of $300,000 resulting from a favorable judgment in a legal action, and $285,000 from a credit for prior legal expenses. Normalizing net income for that period in 2009 compared to 2010, the Company actually improved net income by $1.4 million for the nine months ended year-over-year.

Domestically net income for the same period in 2010 totaled $1.5 million compared to net income of $573,000 for the same period in 2009.

Internationally a net loss for the first nine months of 2010 totaled $558,000 compared to a net loss of $375,000 for the same period in 2009.

At September 30, 2010, the Company had working capital of $2.7 million as compared to working capital of $252,000 at December 31, 2009. Our total current assets and total assets were $15.1 million and $18.1 million, respectively. Our cash and cash equivalents totaled $857,000.

Our current ratio improved to 1.2 to 1 for the period. And our total liabilities and current liabilities were $12.3 million, with no long-term liabilities.

I would now like to turn the call back to Gary for closing remarks.

Okay, thank you, Jim. As Jim and I have already discussed, the SPAR Group has made tremendous progress improving our operations domestically and internationally, while improving our overall financial health and longevity of the Company. I firmly believe we have emerged as one of the strongest players in our industry domestically and aim to achieve similar performance in our current international markets.

The recent refinancing of our credit facility and overall strength of our balance sheet positions SPAR to execute on opportunities and outpace our competitors in every market we currently serve.

Thus far fourth-quarter demand for our services remain strong, as many of our large manufacturing and retail clients are requiring continued incremental services based on both consumer confidence and their future outlook.

The growth of our financial results and strong operating performance is a trend we see continuing throughout the remainder of the year and into 2011. We will continue to execute our growth strategies and improve our operating efficiencies moving forward in pursuit of building greater shareholder value.

This concludes our formal comments and presentation. So at this time we would like to open the call for questions. Operator, you're welcome to start the Q&A portion of the call.

(Operator Instructions). Chet Paulson, Paulson Investment Company.

What kind of assumption are you making on the overall economy?

What kind of assumption are we making? Can you be a little bit more specific?

I mean, are you looking for growth in your areas or retracement or just what your view of the economy is going forward.

Our view, frankly, has been pretty good. Almost for -- in our space almost for about a year now. We started seeing a lot of change in terms of the amount of different RFPs we were quoting on, the different activities that many either CPG companies or retailers were doing.

As you probably would expect, when a lot of these companies start feeling that their business is about to turn around a little bit, and a lot of them through the year prior to that one had not really spent a lot of money on a lot of different things with different things being cut back, they actually now are out there doing anything they can to grow their topline revenues, bring consumers back into the stores, and are looking to grow their business. So with that, they are making investments in their business to go do that, and of course, we participate in that.

So we have really seen it pick up as early as -- you know, October/November last year started it. We actually had a terrific year this calendar year thus far, particularly we saw a lot of activity late in the second quarter and into third quarter.

That's good to hear. Thank you.

(Operator Instructions). At this time there are no further questions. I would like to turn the call back over to Mr. Raymond for any closing comments.

Okay, thank you, operator. Once again, we would like to thank our shareholders and everyone who has participated in today's call.

We look forward to updating all of you with our year-end fourth-quarter 2010 results in the new year. If you have any further questions in the meantime, please feel free to contact either myself or the team from Alliance Advisors. Thank you.

Thank you. Ladies and gentlemen, this concludes the SPAR Group, Inc. third-quarter financial results conference call. Thank you for your participation. You may now disconnect.