Q4 2023 SPAR Group Inc Earnings Call
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Hello, and welcome to the Spar group fourth quarter and full year 2020 financial results Conference call all participants will be in listen only mode.
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As a reminder, this conference is being recorded.
I would note the hand the call the Sandy Martin with three part advisors spending. Please go ahead.
Sandy Martin: Thank you operator, and good morning, everyone. We appreciate you joining us for the Spar Group, Inc. Conference call to review the 2023 fourth quarter and full year results. Joining me on the call today are sparse Chief Executive Officer, Mike Medica in Us and the company's Chief Financial Officer Antonio Police.
Sandy Martin: Oh Pato.
This call is also being webcast and can be accessed through the audio link on the events and presentations page of the Investor Relations section at investors Dot sparring dotcom.
Sandy Martin: The information recorded on this call speaks only as of today. So please be advised that any time sensitive information may no longer be accurate as of the date of any replay or transcript reading.
Sandy Martin: I would also like to remind you that the statements made in today's discussion that are not historical facts, including statements expectations future events or future financial performance are forward looking statements made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Sandy Martin: Forward looking statements by their nature are uncertain and outside of the company's control actual results may differ materially from those expressed or implied please refer to today's earnings press release for our disclosures on forward looking statements. These factors and other risks and uncertainties are described in detail in the company's filings with the securities and exchange.
Sandy Martin: <unk> Commission.
Sandy Martin: Management May also refer to non-GAAP financial measures and reconciliations to the nearest GAAP measures can be found at the end of our earnings release Spar group assumes no obligation to update or revise any forward looking statements publicly finally, the earnings press release, we issued earlier today is posted on the Investor Relations section.
Sandy Martin: <unk> of our website at sparring Dot Com or released coffee was also included in an 8-K submitted to the SEC and now I would like to turn the call over to the company's CEO, Mike Medica in Us Mike.
Michael R. Matacunas: Thank you Sandy and good morning, everyone.
Michael R. Matacunas: To share our fourth quarter and full year results.
At the end of our prepared remarks today, we will open the line for questions from analysts and institutional investors.
Michael R. Matacunas: On a consolidated basis, our fourth quarter revenue was $65 1 billion up 7% over the prior year.
Michael R. Matacunas: Our gross profit rose by 11%, reflecting a 210 basis point improvement in profit percentage.
Michael R. Matacunas: EBITDA for the quarter was $3 1 million compared to a $250000 loss for the same period last year.
Michael R. Matacunas: Our consolidated net income for the quarter was 795000.
Michael R. Matacunas: Compared to a loss of 1.84 million last year.
Michael R. Matacunas: In the same quarter in.
Michael R. Matacunas: In short revenue was up margins were up EBITDA was up in net income bottom line was up materially.
Michael R. Matacunas: But the core of our revenue performance for the quarter was our U S owned merchandising business that increased revenue, 9%, our Canada business was up 66% and our small business in Japan that increased top line by 8%.
Michael R. Matacunas: This growth was offset by a decline in Brazil, South Africa, and our U S joint ventures.
Michael R. Matacunas: Come in more on joint ventures later in this call.
Michael R. Matacunas: Within the United States, our remodel business began to recover nicely in our distribution services business had an excellent quarter.
Michael R. Matacunas: <unk> services to one of the country's largest most successful big box retailers and a large sortation center.
Michael R. Matacunas: Combined with our growth in merchandising in the U S. I'm pleased with how quickly we pivoted and responded to client project delays in the fourth quarter and delivered strong top and bottom line results.
Michael R. Matacunas: Well I am pleased with the revenue the compelling story of the fourth quarter as our profitability net results and cash improvements.
Michael R. Matacunas: We increased gross profit dollars by 11% with a 210 basis point improvement in gross profit percentage on a conservative basis, we achieved gross margins of 22, 8% by focusing on terms rates and productivity.
Michael R. Matacunas: This is a 430 basis points higher for the fourth quarter than two years ago. The fourth quarter of 2021. This well many of our competitors have experienced declining margins.
Michael R. Matacunas: Our consolidated EBITDA was four 8% of revenue were $3 1 million for the quarter. This included a one time net loss on the sale of our joint ventures.
Michael R. Matacunas: $408000.
Michael R. Matacunas: Year over year, EBITDA improved by 61% adjusting last year's numbers for the one time goodwill impairment and this year for the one time loss on sale I am pleased with these results.
Michael R. Matacunas: Net income attributable to spar for the fourth quarter was $2, one 3 million or three 3% of revenue again I am pleased with the results and I want to thank my team and our team members across all parts of our business for a great quarter.
Long results.
Michael R. Matacunas: For the full year, our revenue was $262 7 million up <unk>, 6%. While this is modest topline consolidated growth.
Michael R. Matacunas: <unk> in our core business are compelling.
Michael R. Matacunas: Our U S merchandising division revenue was $52 5 million up 20% over 2022.
I shared the continued double digit growth of our merchandising business over the prior quarterly calls and I'm really pleased with our full year performance, we develop more work with brands and grocery specialty discount to drive these numbers.
Michael R. Matacunas: In addition, our distribution assembly and installation business was up more than 50% and our Canadian business topline was up 52% in U S dollars.
Michael R. Matacunas: Especially in Canada, the launch of our remodel business in 2022 has delivered outstanding results, our Canada remodel business is up 423% for the year and we believe there is much more to come in this market.
Michael R. Matacunas: Our headwinds and revenue growth came from Australia, Japan, Mexico, India, South Africa, and China. Each of these international businesses declined in revenue.
Michael R. Matacunas: Our gross profit dollars for the full year were up eight 8% and our gross profit margin was up 160 basis points over 2022.
Michael R. Matacunas: I've stated before this is purposeful work and I continue to be pleased with those results.
Michael R. Matacunas: Our consolidated EBITDA for 2023 was $11 4 million compared to $7 4 million last year.
We're at 54% improvement and finally, our net income attributable to spar for 2023 was $3 $9 million.
Michael R. Matacunas: <unk> two a $732000 loss last year.
After Antonio covers more detailed financial results I will come back and share additional thoughts and insights about the business.
Michael R. Matacunas: That I will turn the call over to Antonio to review our results.
Antonio Calisto Pato: Thank you, Mike and good morning, everyone.
Antonio Calisto Pato: Fourth quarter 2023, net revenues totaled $65 $1 million.
Antonio Calisto Pato: An increase of one 7% over Q4 2022 reported numbers.
Antonio Calisto Pato: Net revenues included $49 $2 million of revenue from the Americas.
$8 $8 million from EMEA.
Antonio Calisto Pato: Seven $1 million from Asia Pacific.
Antonio Calisto Pato: Reported revenues by segment for Q4 versus prior year.
Grew by one 4% for the Americas.
Five 9% for APAC.
Antonio Calisto Pato: And declined by six 3% for EMEA.
Antonio Calisto Pato: As Mike mentioned earlier, our Americas segment reflect strong merchandising revenues.
Antonio Calisto Pato: And we saw a sequential recovery in the U S clients store Remodels F 'twenty to 'twenty three progressed.
Antonio Calisto Pato: Similar to the second and third quarters, we continued to see strong sales momentum for the fourth quarter related to merchandising services.
Antonio Calisto Pato: With one business in Canada.
Antonio Calisto Pato: Yeah.
Antonio Calisto Pato: Fourth quarter gross profit was $14 9 million or 22, 8% of revenues compared to $13 4 million or 21.
Antonio Calisto Pato: 7% of revenues in the prior year quarter.
Antonio Calisto Pato: These 210 basis points improvement from the prior year was based on improved contract terms and pricing system enhancements and the containment and service mix shift in the quarter.
Antonio Calisto Pato: Selling general and administrative expenses for the fourth quarter totaled $11 $3 million or 17, 4% of revenues compared to $11 $2 million or 17, 3% of revenue in the prior year quarter.
Antonio Calisto Pato: SG&A costs included nonrecurring legal costs.
Antonio Calisto Pato: $149000 during the fourth quarter.
Antonio Calisto Pato: The fourth quarter operating income was $2 $7 million.
Antonio Calisto Pato: To an operating loss of $760000 in the prior year quarter.
Antonio Calisto Pato: Net income attributable to Spar Group, Inc. For Q4 was $2 $1 million or nine cents per diluted share compared to a net loss of $2 $5 million or 11 cents per share in the year ago quarter.
Antonio Calisto Pato: Adjusted net income attributable to Spar group, Inc. In the quarter was $2 $6 million or 11 cents per diluted share comp.
Antonio Calisto Pato: Compared to $420000 or <unk> <unk> per share in the year ago quarter.
Consolidated adjusted EBITDA in the 2023 fourth quarter with $3 $7 million compared to $3 $5 million in the prior year.
Q4, adjusted EBITDA attributable to the Spar Group, Inc was $3 $9 million up from $2 $3 million in the prior year quarter.
Antonio Calisto Pato: For the full year 2023.
Antonio Calisto Pato: Sales were $262 $7 million with gross profit of $55 million or 21, 1%.
Sales, an increase of 160 basis points over 2020 to them.
Antonio Calisto Pato: Operating income was $9 $4 million up 75%.
Antonio Calisto Pato: Excluding the 2022 noncash goodwill impairment charge. The 2023 operating income increase was 19, 8% versus the prior year.
Antonio Calisto Pato: Net income attributable to spar for the year was $3 $9 million.
Antonio Calisto Pato: 17 cents per share or 16 cents per diluted share.
Antonio Calisto Pato: On an adjusted basis non-GAAP net income attributable to spar for 2023 was $5 $1 million or 21 cents per diluted share up significantly from nine cents per share in the year ago period.
Finally, 2023 adjusted EBIT.
Antonio Calisto Pato: Attributable to starting 2023 was $9 $9 million.
Antonio Calisto Pato: 62% from 2022.
Antonio Calisto Pato: Now turning to the company's financial position as of December 31, 2023.
Antonio Calisto Pato: The company's balance sheet remains strong and total worldwide liquidity at quarter end was $19 $3 million.
Antonio Calisto Pato: $10 $7 million in cash cash equivalents and restricted cash.
Antonio Calisto Pato: $8 $6 million of unused availability at year end.
Antonio Calisto Pato: The Companys net working capital as of December 31 was $27 $5 million.
And the accounts receivable balance was $69 $8 million.
Antonio Calisto Pato: We continue to make progress with improvements in our base sales outstanding each quarter.
Antonio Calisto Pato: With that I would like to turn it back to Mike.
Michael R. Matacunas: Thank you Antonio.
Michael R. Matacunas: As we look at our business there are a number of macro trends that are shaping our industry and opening up opportunities.
Michael R. Matacunas: This is especially true in the U S and for those familiar with global market influences.
Michael R. Matacunas: The U S. Typically leads and other countries follow albeit at different paces I wanted to spend a few minutes on what is changing the landscape.
Michael R. Matacunas: According to the National retail Federation retail sales for 2023 were up five 6% in.
Michael R. Matacunas: The world of retail anything over 3% to 4% provides a retail sales material opportunity.
Michael R. Matacunas: This number as an indicator of the product is turning faster than.
Michael R. Matacunas: And there's more work for spar.
Michael R. Matacunas: As a reminder, we are the last person or the types of product placement on the shelf before the customer buys.
We're also changing promotional materials adjusting clip strips resetting and capture more higher sales means more work for us when sales are up retailers and brands need more of our services.
Michael R. Matacunas: Second unemployment was three 9% in February for the United States. When unemployment is low this means businesses must compete for labor and it's typically drives up prices for retailers and brands that have their own field services organization. This quickly.
Michael R. Matacunas: Become a critical financial challenge for spar, we solve it with thousands of individuals' trained in position to help.
Michael R. Matacunas: We can dedicate people or we can provide syndicated services.
Michael R. Matacunas: Retailers and brands, who are struggling with labor, we can offer shared resources at a lower cost while maintaining service levels.
Michael R. Matacunas: You may have noticed less and less employees in your local retail stores a report from Yahoo, Finance and February noted that retailers he cut more than 5300 jobs just in the first five weeks of 2024.
Michael R. Matacunas: Economy is changing more part time more transactional and our model is well placed to capitalize on this shift to variable resourcing and value added services.
Michael R. Matacunas: Third the economy seems to have digested the 525 basis point interest increases from the Federal reserve since March 2022.
Michael R. Matacunas: From my Vantage point this slowed the deployment of capital in the first half of 2023, while our clients and prospects monitored this by the second half of 2023 deploy.
Michael R. Matacunas: The deployment of capital related to what we do it's begun to return to normal rates.
They have seen the announcements from target that they plan to open 300 more stores in the next decade Walmart a night in January of this year, an ambitious five year store plant all of these planning to open more stores in the U S. This year et cetera.
Based on the demand for a remodel services in both the U S and Canada the capital appears to be flowing again.
Michael R. Matacunas: Normal if not accelerated rates.
Michael R. Matacunas: In total the macro trends and shifts in the economy is moving toward spar.
None: It's exciting for us.
None: The other topic I want to comment on is the divestitures, we've announced in the last few months.
None: We're not selling our 51% interest in Australia, China and National merchandising services in the United States and today, we are announcing our agreement to sell the company's joint venture positions in Brazil, and South Africa, which should close sometime during the second fiscal quarter of the year.
None: Divestitures simplify our portfolio of financial structure and operating model. The simplification provides more focus on our core business is growing by double digits and our ability to capitalize on the shifting macro trends.
None: And working through the strategic alternatives analysis for the last 18 months it became clear.
None: The structure of our organization was why didn't stand versus narrow and deep.
None: Growing through JV partnerships as a complex.
It is complex and the process repatriating, our cashes, even more complex.
None: In order to create long term value for our shareholders. We have to simplify the organization harvest start cashew further growth and use our brand equity and marketing dollars on a strategy to best utilize that utilizes our people process and technology.
None: We're confident that simplifying the operations and financial support will allow us to accelerate our growth and generate significantly more cash flow for our shareholders.
None: Lastly, I want to thank all the employees and associates of spar, our board of directors, our clients and our business partners for their contributions council partnership and passion for the business.
None: I'm grateful to lead this outstanding group of people and I look forward to building shareholder value generating revenue profitability and incremental cash flow of visits is a great time to be score.
None: With that I would like to open the line for questions operator.
None: Thank you very much.
None: We'll now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.
None: To withdraw your question. Please press Star then two.
We will pause momentarily to assemble a roster.
None: Oh, Thank you very much and congratulations on a great quarter.
None:
None: Yep.
None: So my my first question, Mike a couple part question on the South Africa, Brazil, NMS, Australia, and China can you give us the approximate percentage of revenues of that represented those represented in 2023.
None: And it says in your press release this transaction will raise cash levels.
None: <unk> cash on top of what you already have we're looking at it maybe being $30 million in the next couple of months and.
None: That would exceed your current market cap I was wondering if theres any plans for a dividend or a stock buyback with that.
None: Yeah. Good morning, Thanks for the question in two parts one the first.
None: As a contribution of revenue the businesses that we've divested from we're in the process of divesting from the sort of in the neighborhood of 25% to 30%.
None: Total revenue.
And a smaller percentage of actual EBITDA and bottom line sort of impact directly to the shareholders.
None: Maybe a context the way to think about these divestitures is as we look out the windshield of the car as opposed to the rearview mirror.
None: We look at sort of the road in front of us for the U S and Canadian Canada, and some other markets is really wide open.
None: And so when we looked at what will might be holding us back and how we could potentially capitalize on some of the value for our shareholders. These.
None: These businesses look like good businesses, but we can do more with capital and pocket investments potentially accretive acquisitions or other investments potentially do with giving you directly back to the shareholders to your second question CEO. The board and I are discussing a number of options. You know there are always three or four categories.
None: When you had a material amount of cash in our business. The first is to look for organic growth.
None: You can do things that accelerate the growth of the business that you have today. The second is to look for accretive opportunities that expand what you can offer do more for clients that are also then delivered direct results quarter by quarter in the third.
None: Alternative ways to then give that cash directly back to the shareholders. All of those are being looked at by the board nothing to announce this morning, but.
None: But you're right we will be in short.
None: Sitting on a large amount of capital, which I think is exciting because it gives us a number of choices for our future.
None: I appreciate that to you.
None: Okay and on margins our margins were much stronger than expected and I'm wondering is this a new normal and if there was a contribution.
None: In a particular geographic area or or industry that made that.
None: Positive in this quarter.
None: No. Some of it was mix in other words, our merchandising business, which continues to grow really really quickly in the U S is our most profitable business and that affects the margins each quarter as it gets bigger and bigger and bigger.
And as we've shared over last year, our remodel business was slowing in the second quarter, but began to come back, but not yet enough to offset some of that so it wasn't anything one off in the quarter and the margin number. It's continued focus on the terms and also on the bank set of productivity. So how much work we can do for each dollar that we do.
None: Get from clients. It we'll make sure we're being as effective as possible for them.
None: It's it's hard to say the quarter margins were so strong I.
None: I am looking at this year expecting remodels to grow quite quickly given the capital that seems to be.
None: Available to us from the clients and the demand that's coming into the Q1 for us. So I think we're in a good place I'm not sure after two years of 430 basis points.
None: There's another 400 basis points, we'll keep focused on it but we're sort of at a normal at this point I think.
None: Okay. My last question is what's what's driving the strong demand in Canada.
None: Well a couple of things one when.
None: When we took remodel business, where there are two things one our merchandising business is growing as well.
None: And that was a shift a couple of brands in Canada large global brands had field merchandising organizations and determined in 2022 and into early 2023 that they wanted a third party partner to take over that work for them and we were very successful and used our relationships in the United States to win that work.
None: <unk> grew our merchandising business and we're going to have another strong year in merchandising business I believe this year.
None: But the second point is Remodels in Canada, there's a lot of store growth going on in Canada, certainly not at the scale of the United States given the market in Canada.
None: But as we sort of raised their hand, and said we know how to do this and we want to be part of this.
None: You may recall I've discussed in the past we had a pilot program in late 'twenty two.
None: It became very successful for us and we had a few clients that quickly came to us into a lot of work yet and.
None: And we're finding ourselves to be one of the preferred providers for remodel services in Canada now and that's why I commented I think theres a lot of room in front of US for this business given there were very few other players that we can see in the market of our scale and I think that gives us a good opportunity.
None: Okay. Thanks very much.
Thank you. This concludes our question and answer session.
Moderator: I would now like to turn the call back over to make that a kinase for any closing remarks.
Mike Tanaka: Operator, thank you very much just broadly speaking I just want to thank everyone, who listened and participated in the call.
Today, I look forward to providing an update for the first quarter coming in the next few months and I'm going from here. So thank you again everyone.
None: The conference has now concluded. Thank you for your participation you may now disconnect your lines.
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None: Okay.
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