Q1 2024 SPAR Group Inc Earnings Call
Speaker Change: [music].
Operator: Good morning and welcome to the SPAR Group first quarter 2024 results. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Sandy Martin, one of our three-part advisors. Please go ahead.
Good morning, and welcome to the Spar group first quarter 'twenty 'twenty four results all participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad.
Speaker Change: After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Sandy Martin three part advisors.
Sandy Martin: <unk>. Please go ahead.
Sandy Martin: Thank you, Operator, and good morning, everyone. We appreciate you joining us on SPAR Group, Inc.'s conference call to review the first quarter 2024 results. Joining me on the call today are SPAR's Chief Executive Officer, Mike Matacunas, and the company's Chief Financial Officer, Antonio Calisto-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.sparing.com. 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: Thank you operator, and good morning, everyone. We appreciate you joining us for Spar Group, Inc. Conference call to review the first quarter 2024 results. Joining me on the call today are sparse Chief Executive Officer, Mike Medical centers, and the company's Chief Financial Officer Antonio Policed Ocado.
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. Forward-looking statements, by their nature, are uncertain and outside of the company's control. Consequently, actual results may differ materially from those expressed or implied.
Speaker Change: 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 Docs barring dotcom.
Speaker Change: 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.
Speaker Change: I would also like to remind you that the statements made in today's discussion that are not historical facts, including statements of 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.
Speaker Change: 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: Please refer to today's earnings press release for our disclosures regarding forward-looking statements. These factors and other risks and uncertainties are described in detail in the company's filings with the Securities and Exchange Commission. 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 of our website at sparing.com. A release copy was also included in an A filing submitted to the SEC. Now, I would like to turn the call over to the company's CEO, Mike Matacunas.
Speaker Change: Range Commission 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 of our.
Speaker Change: Our website, it's barring dot Com are released coffee was also included in an 8-K submitted to the SEC now I would like to turn the call over to the company's CEO Mike Maddox.
Michael R. Matacunas: Thank you, Sandy, and good morning. I am pleased to share our first quarter results and continued progress on SPAR's strategic transformation. At the end of our prepared remarks today, we will open the line for questions from analysts and institutional investors. For the first quarter of 2024, our consolidated revenue increased 6.7%. SG&A was down nearly 850,000, or 220 basis points of favorability as a percentage of revenue. However, we captured the financial benefit of the South Africa sale of 7.2 million.
Sandy Martin: Thank you Sandy and good morning.
Michael R. Matacunas: The resulting EBITDA is 10.1 million, and net income attributable to SPAR for the quarter is 6.6 million, or 28 cents earnings per share. This is compared to 4 cents of earnings per share last year for the same period.
Mike Maddox: I am pleased to share our first quarter results and continued progress on spars strategic transformation.
Speaker Change: At the end of our prepared remarks today, we will open the line for questions from analysts and institutional investors.
Speaker Change: For the first quarter 2020 for our consolidated revenue increased six 7% S.
Speaker Change: SG&A was down nearly 850000 or 220 basis points of favorability as a percentage of revenue.
Speaker Change: Captured the financial benefit of the South Africa sale of $7 2 million and the resulting EBITDA is $10 1 million and net income attributable to spar for the quarter was $6 6 million or 28 cents earnings per share. This.
Speaker Change: This is compared to four cents of earnings per share last year for the same period.
Speaker Change: In addition, and subsequent event to the quarter, we announced the buyback of 1 million shares from one of our largest shareholders and our founder and acquired the balance of our resource plus U S joint venture, giving us full value for our shareholders.
Speaker Change: S business.
Michael R. Matacunas: In addition, in subsequent events to the quarter, we announced the buyback of 1 million shares from one of our largest shareholders and a founder and acquired the balance of our Resource Plus US joint venture, giving us full value for our shareholders in the US business. We'll also hear from Antonio in a few minutes that our cash position at the end of the first quarter was strong, and our balance sheet is in excellent shape.
Speaker Change: You'll also hear from Antonio in a few minutes that our cash position at the end of the first quarter was strong and our balance sheet is in excellent shape.
Michael R. Matacunas: Within the consolidated results, our U.S. business, which is the combination of our own business in the first quarter plus our Resource Plus joint venture, grew by 17% compared to the same period last year, and Canada grew by 79%. As I noted in the last few calls, we expected the remodel business to recover, and it did not disappoint. The recovery of our US remodel business accelerated in the first quarter and grew by 98% against the same quarter last year.
Speaker Change: Within our consolidated results our U S business, which is the combination of our own business in the first quarter, plus our resource plus joint venture grew by 17%.
Speaker Change: During the same period last year in Canada grew by 79%.
Speaker Change: As I noted in the last few calls we expected the remodel business to recover and it did not disappoint.
The recovery of our U S remodel business accelerated in the first quarter and grew by 98% against the same quarter last year.
Michael R. Matacunas: Perhaps as exciting for us related to the U.S. growth is that three of our top ten clients in the U.S. for the quarter are new clients to our business, one of them moving us deeper into the grocery site. While we were busy delivering the quarter, we also won business for future success. Our U.S. and Canada teams won more than $35 million in new business in the first quarter, including a multi-year deal valued at more than $12 million per year for one of the U.S.'s largest home improvement retailers.
Speaker Change: Perhaps is exciting for us related to the U S growth is that three of our top 10 clients in the U S for the quarter.
Speaker Change: Our new clients to our business one of them moving us deeper into the grocery segment.
Speaker Change: While we were busy delivering the quarter. We also won business for future success, our U S and Canada teams won more than $35 million in new business in the first quarter, including a multiyear deal valued at more than $12 million per year.
Speaker Change: U S is largest home improvement retailers.
Michael R. Matacunas: The one metric that is lower compared to the prior year is gross margin. However, I see this as a single quarter event and expect the margin to recover to recent levels over the balance of the year. One of the most significant weights on the gross margin in the quarter was the performance of South Africa. The South Africa business delivered a 910 basis point drop in gross margin. South African revenue was also down year over year.
Speaker Change: The one metric that is lower compared to the prior year is gross margin.
Speaker Change: I see this as a single quarter event and expect the margin to recover to recent levels over the balance of the year.
Speaker Change: One of the most significant weight from the gross margin in the quarter was the performance in South Africa.
Speaker Change: South Africa business delivered a 910 basis point drop in gross margin.
Speaker Change: South African revenue was also down year over year in our view, we exited the business at the right time to preserve long term value for our shareholders.
Michael R. Matacunas: In our view, we exited the business at the right time to preserve long-term value for our shareholders. While we still operate businesses in Japan, Mexico, and India, the demand for our services in the U.S. and Canada is strong. We have more work to capitalize on all of the opportunities in front of us, but I remain confident that we're set up for success. After Antonio covers more detailed financial results, I will share additional thoughts and insights about the business. Antonio
Speaker Change: Well, we still operate businesses in Japan, Mexico, and India, the demand for our services in the U S and Canada is strong.
Speaker Change: We have more work to capitalize on all of the opportunity in front of us, but I remain confident that we're set up for success.
Speaker Change: After Antonio covers more detailed financial results I will share additional thoughts and insights about the business Antonio.
Antonio Calisto Pato: Thank you, Mike, and good morning, everyone. First quarter 2024 net revenues totaled $68.7 million, an increase of 6.7% on Q1 2023 reported numbers. Net revenues included $54.7 million of revenue from the Americas, $8.3 million from EMEA, and $5.8 million from EasyPay.
Antonio: Thank you Mike.
Good morning, everyone.
Antonio: But Florida plenty plenty for net revenues totaled $68 $7 million.
Antonio: An increase of six 7% on Q1, 'twenty two 'twenty three reported numbers.
Net revenues included $54 $7 million of revenue from the Americas.
Antonio: $8.3 million from EMEA and.
Antonio: And the $5 $8 million from Asia Pacific.
Antonio Calisto Pato: Reported revenues by segment for Q1 versus the prior year grew by 12.5% for the Americas, while EMEA declined by 14.7%, and APAC declined by 5.5%. As Mike mentioned earlier, our Americas segment reflects strong remodeling and merchandising revenues. And we have continued to see a sequential recovery in the U.S. client story models that started in 2023 and has continued into 2024.
Antonio: Reported revenues by segment for Q1 versus the prior year grew by 12, 5% for the Americas.
While EMEA declined by 14, 7% in APAC declined by five 5%.
Speaker Change: As Mike mentioned earlier, our Americas segment reflects strong remodeling and merchandising revenues.
Michael R. Matacunas: And we have continued to see a sequential recovery in the U S clients store Remodels that started in 2023 and has continued into 2024.
Antonio Calisto Pato: Merchandising services were strong but declined against the prior year in our U.S.-owned business and Canada. The first quarter's gross profit was $12.5 million, or 18.3% of revenues, compared to $14.1 million, or 22% of revenues in the prior year quarter. The margin compression was due to a mixed shift to the remodeling business, which has higher labor and travel costs and lower gross margin in South Africa due to additional variable expenses in the cost of sales, and government-imposed wage increases ahead of inflation at a time when the economy is under pressure, which forced margin reduction in contract renegotiation.
Michael R. Matacunas: Merchandising services were strong but declined against the prior year in our U S alone business in Canada.
Michael R. Matacunas: The first quarter's gross profit was $12 $5 million or 18, 3% of revenues compared to $14 $1 million or 22% of revenues in the prior year quarter.
Speaker Change: The margin compression was due to a mix shift to the remodeling business, which has higher labor and travel cost and lower gross margin in South Africa due to additional variable expenses and the cost of sales.
Speaker Change: Government imposed wage increases ahead of inflation at a time when the economy is under pressure.
Speaker Change: Which forced margin reduction in contract renegotiations.
Antonio Calisto Pato: The first quarter selling general and administrative expenses totaled $9.6 million, or 14% of revenues compared to $10.5 million, or 16.2% of revenues in the prior year. SCNA costs included non-recurring strategic alternative costs of $330,000 during the 2024 period. Operating income totaled $9.6 million, which included gains on the sale of JVs of $7.2 million in the quarter, compared to operating income of $3.2 million in the prior year period. Net income attributable to SPAR Group Inc. for the Q1 was $6.6 million or $0.28 per diluted share, compared to a net income of $866,000 or $0.04 per diluted share in the year-ago quarter.
Speaker Change: The first quarter, selling general and administrative expenses totaled $9 $6 million or 14% of revenues compared to $10 $5 million or 16, 2% of revenues in the prior year.
Speaker Change: SG&A costs included nonrecurring strategic alternative cost of $330000 during the 'twenty 'twenty four period.
Speaker Change: <unk> income totaled $9 $6 million, which included gains on the sale of G fees of $7 $2 million in the quarter.
Compared to operating income of $3 $2 million in the prior year period.
Speaker Change: Net income attributable to Spar Group, Inc. For the Q1 was $6 $6 million or 28 cents per diluted share.
Speaker Change: Compared to a net income of $866000 or four cents per diluted share in the year ago quarter.
Antonio Calisto Pato: Adjusted net income attributable to SPAR Group Inc. in the quarter was $1.3 million or $0.06 per diluted share compared to $1.3 million or $0.05 per diluted share in the year-ago quarter. Consolidated EBITDA in the 2024 first quarter was $10.1 million, compared to $3.7 million in the prior year quarter. In the 2024 first quarter, consolidated EBITDA included gains on the sale of JVs in the amount of $7.2 million, and consolidated adjusted EBITDA in the 2024 first quarter was $3.4 million compared to $4.2 million in the prior year.
Speaker Change: Adjusted net income attributable to spar group, Inc. In the quarter with $1.3 million or six cents per diluted share compared to $1.3 million or five cents per diluted share in the year ago quarter.
Speaker Change: Consolidated EBITDA in the 'twenty 'twenty into 'twenty 'twenty, four first quarter was $10 $1 million compared to $3 $7 million in the prior year quarter.
Speaker Change: 'twenty 'twenty four first quarter consolidated EBITDA included gains on the sale of G fees and the amount of $7 $2 million.
Speaker Change: And consolidated adjusted EBITDA in the 'twenty 'twenty, four first quarter with $3 $4 million compared to $4 $2 million in the prior year.
Speaker Change: Q1, adjusted EBITDA attributable to Spar Group, Inc, was $2 $5 million compared to $2 $9 million in the prior year quarter.
Antonio Calisto Pato: Q1 adjusted EBITDA attributable to SPAR Group Inc. was $2.5 million compared to $2.9 million in the prior year quarter. Now, turning to the company's financial position as of March 31st, 2020. The company's balance sheet remains strong, and total worldwide liquidity at quarter end was $21 million, with $16.6 million in cash and cash equivalents and $4.4 million of unused availability at quarter end. The company's cash from operating activities was $615,000 in the quarter, and the net increase in cash was $5.9 million. The company's net working capital as of March 31st was $38.2 million, and the accounts receivable balance was $68.7 million.
Michael R. Matacunas: With that, I would like to turn it back to Mike.
Speaker Change: Now turning to the company's financial position as of March 31st 2024.
Speaker Change: The company's balance sheet remains strong.
Speaker Change: Total worldwide liquidity at quarter end was $21 million with $16 $6 million in cash and cash equivalents and $4 $4 million of unused availability at quarter end.
Speaker Change: The company's cash from operating activities was 615000 in the quarter and the net increase in cash was $5 $9 million.
Speaker Change: The company's net working capital as of March 31st with $38 $2 million and the accounts receivable balance was $68 $7 million.
With that I would.
Speaker Change: I'd like to turn it back to Mike.
Michael R. Matacunas: Thank you, Antonio. If you have been a shareholder in SPAR or followed the business for a number of years, you will undoubtedly have noticed the change. It's a different business from just a few years ago. I hope you can sense the momentum and boldness of this team.
Michael R. Matacunas: Thank you Antonio.
Speaker Change: If you have been a shareholder in spar or followed the business for a number of years you had undoubtedly noticed the change.
Speaker Change: Different business from just a few years ago I.
Speaker Change: I hope you can sense, the momentum and boldness in this team in fact, our mantra for 'twenty 'twenty four is Sculpsure Bowl.
Michael R. Matacunas: In fact, our mantra for 2024 is to go for bold, as we aspire to inspire while we perspire. Unlike other businesses, some of the macroeconomic trends have put a wind in their sails; a low unemployment rate, growing retail staffing challenges, shrink, the expansion of online, and stabilizing interest rates provide us with opportunities as we support some of the world's greatest brands and retailers. Low unemployment means labor is more expensive for our clients, and our ability to provide flexible, syndicated merchandise on a national scale differentiates us.
Speaker Change: As we aspire to inspire while we perspire.
Speaker Change: Unlike other businesses some of the macroeconomic trends had put a wind to our back.
Speaker Change: Low unemployment rates growing retail staffing challenges shrink expansion of online and stabilizing interest rates, providing us with.
Speaker Change: Opportunities as we support some of the world's greatest brands and retailers.
Speaker Change: Low unemployment I mean labor is more expensive for our clients and our ability to provide flexible syndicated merchandise on a national scale differentiate.
Michael R. Matacunas: The challenges with shrink that almost all large retailers have experienced in the last 12 months require more touches in the store to manage the product and reduce shrink. It also requires better analysis of product performance and inventory integrity.
Speaker Change: The challenges with shrink that almost all large retailers have experienced in the last 12 months require more touches in the store to manage the product and reduce shrink. It also requires better analysis of product performance and inventory integrity again more opportunity for syndicated merchandisers to drive results for our clients.
Michael R. Matacunas: Again, more opportunity for syndicated merchandisers to drive results for our clients while targeting the areas of challenge. And for analytics, more value created from our SPARview software. The expansion of online shopping requires retailers to constantly rethink the store footprint, layout, function, and experience.
Speaker Change: Targeting the areas of challenge and for analytics more value created from our spahr of your software.
Speaker Change: The expansion of online requires retail is to constantly rethink the store footprint layout function and experience a remodel business is one of the largest in the country supporting transformation for our clients.
Michael R. Matacunas: Our remodel business is one of the largest in the country, supporting transformation for our clients. These are multi-year initiatives for retailers who need to touch a store every few years to maintain its currency and relevance to the ever-demanding consumer. Capitalizing on these macro trends required us to simplify and focus. In the last six months, we've announced the exit of Australia, China, national merchandising services, South Africa, and Brazil. While we expect these newly independent businesses to continue to operate, this has greatly reduced the complexity of our business.
Speaker Change: These are multiyear initiatives for retailers, who need to touch the store every few years.
Speaker Change: To maintain its currency and relevance to the ever demanding consumer.
Speaker Change: Capitalize on these macro trends required us to simplify and focus the <unk>.
Speaker Change: Last six months, we've announced the exit of Australia, China National Merchandising services, South Africa, and Brazil, while we expect these newly independent businesses to continue to operate this has greatly reduced the complexity of our business.
Michael R. Matacunas: One of the most important changes for me that enabled this change was the reconstitution of SPAR's board last fall. The board is now comprised of Jim Gillis as chairman, Linda Houston, John Boddy, Bill Bartels, and myself.
Spar: One of the most important changes for me that enable this change was the reconstitution of spar his board last fall.
Spar: Board is now comprised of Jim Gillis as chairman Linda.
Linda Houston: Linda Houston.
Speaker Change: Bodie Billboards tells and myself each new director is a proven C suite executives.
Michael R. Matacunas: Each new director is a proven C-suite executive, advisor, experienced board member, and passionate about results and shareholder value creation. This is a board about action and results looking forward. Now, let me comment on the review of strategic alternatives that we announced in the fall of 2020. We are examining every part of our business and source of value. We consider buying, selling, rolling up, divesting, merging, small, large, services, technology, and many other alternatives.
Speaker Change: Bizer experienced board member and passionate about results and shareholder value creation. This is a board about action and results.
Speaker Change: Looking forward.
Speaker Change: Now let me comment on the review of strategic alternatives that we announced in the fall of 2022.
Speaker Change: But the first few months.
Speaker Change: And in every part of our business and source of value, we consider buying selling rolling up divesting merging small large services technology and many other alternatives we have.
Michael R. Matacunas: We exhaustively evaluated alternatives to unlike value for our shareholder. However, the feedback and our own determination were that the business was overly complex for its size, and the financial value was difficult to repatriate. As the international businesses grew, so did the repatriation challenges. While the U.S. business carried the expense of operating globally, based on the math, the joint venture minority partners were keeping a disproportionate amount of the cash in value. This had to be so.
Speaker Change: Exhaustively evaluating alternatives to unlock value for our shareholders.
Speaker Change: The feedback and our own determination, whether the business was overly complex for its size and the financial value was difficult to repatriate.
Speaker Change: As the international businesses grew so did the repatriation challenges while the U S business carry the expensive operating globally based on the math joint venture minority partners, we're keeping a disproportionate amount of the cash and value this had to be considered.
Michael R. Matacunas: At the same time, the global leadership team that is based in the U.S. had to wear two hats to drive the international joint ventures and deliver the U.S. and Canada performance. While it's hard to quantify the impact of this distraction, it is real. The last several quarters of US and Canada performance underscore how great this business can be with the right folks. Factoring in complexity and distraction, we evaluated the potential impact on clients if we exited these international markets and focused on the U.S. and Canada.
Speaker Change: At the same time, the global leadership team that is based in the U S had to wear two hats.
Speaker Change: You have to drive the international joint ventures, and deliver the U S and Canada performance.
Speaker Change: Well, it's hard to quantify the impact of this distraction. It is real the last several quarters of U S and Canada performance underscore how great. This business can be with the right focus.
Factoring in complexity and distraction, we evaluated the potential impact on clients. If we exited these international markets and focused on the U S and Canada to.
Michael R. Matacunas: To be clear, we've never changed our core business of merchandising, remodeling, and distribution. The core of our business has always been in the U.S. and Canada. The question in front of us was, ironically, how complicated it would be to simplify.
Speaker Change: To be clear, we've never changed our core business of merchandising remodeling and distribution.
Speaker Change: Core of our business has always been in the U S and Canada question in front of US was ironically, how complicated it would be simplified.
Michael R. Matacunas: The answer was easy to find. Since beginning the exits, we have lost zero clients. In fact, our largest clients have embraced this news with appreciation and support. What seemed like a potential risk has turned out to be an asset. As we sit here today, more than 18 months after the announcement to explore strategic alternatives, we have a clear path to simplifying the business's operating financial structure. The new SPAR will maintain its core business but have the focus and energy to deliver on it.
Speaker Change: The answer was easy to fight since beginning the exits we have long zero clients.
Speaker Change: Opportunities in fact, our largest clients have embraced this news with appreciation and support which seemed like a potential risk has turned out to be inaccurate.
Speaker Change: As we sit here today more than 18 months after announcement to explore strategic alternatives, we have a clear path to simplifying the businesses operating financial structure. The new spar will maintain its core business, but have the focus and energy to deliver on it.
Michael R. Matacunas: For those who have been investors or following SPAR for the last few years, thank you for your support and faith in me and this team. This is exactly the right time to be here, and I'm bullish about our future. Finally, I want to express my appreciation and admiration for the team at SPAR that gets up every morning and is so committed to client results. This client-centric mindset with a passion for results can't be beat. I'm proud of our first quarter results, more to come. This is a great time to be SPAR. With that, I would like to open the line for questions, Operator.
Speaker Change: For those who have been investors are falling spot for the last few years. Thank you for your support and faith in me and this team.
Speaker Change: This is exactly the right time to be here and I'm bullish about our future.
Speaker Change: Finally, I want to express my appreciation and admiration for the team at spar. It gets up every morning, and it's so committed to client results. This client centric mindset with a passion for results can't be beat.
Speaker Change: I'm proud of our first quarter results more to come this is a great time to be spar with that.
Speaker Change: I like to open the line for questions operator.
Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Theodore O'Neill from Litchfield Hills Research. Please go ahead.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if you're using a speakerphone. Please pick up your handset before pressing the keys.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from Theodore O'neill from Litchfield Hills Research. Please go ahead.
Michael R. Matacunas: Thanks and congratulations on a great quarter, Michael. The question I have for you is basically looking into next quarter, and I know you're not going to be giving guidance for that, but I'm trying to understand what happened with revenue this quarter because you sell all these different businesses. Obviously, there's some stub amount of revenue that goes into the first quarter you just reported, but I expected revenue to actually be down sequentially, but instead, it was up sequentially. So maybe you can walk us through some of the give and take in the quarter so I can understand what part of this revenue won't necessarily be in the next quarter.
Theodore O'Neill: Ah Thanks, and congratulations on the.
Michael R. Matacunas: Great quarter Mike.
Michael R. Matacunas: Yeah good.
Question I have for you is you know trying to looking into basically looking to next quarter and I know, you're not going to be giving guidance for that but I'm trying to understand what happened in this quarter with revenue.
Michael R. Matacunas: Because.
Speaker Change: We sell all of these you sell these different businesses, obviously theres some stub amount of revenue that goes into the first quarter, you just reported but I expected revenue to be actually be down sequentially. Instead. It was up sequentially. So maybe you can walk us through some of the give and take in the in the quarter. So I can understand what part of this revenue won't necessary.
Speaker Change: Be in the next quarter.
Michael R. Matacunas: First of all, good morning to you. I appreciate the question. You're right, it is one of these years, I think, that per revenue, as we sort of announce and then exit individual businesses, it'll probably be harder to sort of calculate. And you're also right, we don't give forward-looking guidance. Having said that...
First of all good morning to you I appreciate the question you're.
Speaker Change: You're right. It is one of these years I think that for the revenue as we sort of announce and then exit these individual businesses, it'll probably be harder to sort of calculate and you're also right. We don't give forward looking guidance, having said that.
Michael R. Matacunas: The best way to think about it at the moment is that the core of our business is really growing; the US and Canada combined are up 22% to where I broke them apart in my notes and in comments earlier that the US business at 17, and Canada at 79 are holding up and then accelerating the overall top. Even with foreign exchange rate impacts, even with the issues in South Africa, we had in the first quarter a 6.7% or approximately 7% revenue growth.
Speaker Change: The best way to think about it at the moment is at the core of our business is really growing.
Speaker Change: In the U S and Canada combined are up 22% to where I broke them apart in my notes.
Speaker Change: In comments earlier that the U S.
Speaker Change: 17, and candidate 79 is holding up and then accelerating the overall top line.
Speaker Change: Even with foreign exchange rate impact, even with the issues in South Africa, we had in the first quarter, we put up a six 7% or approximately 7% revenue growth going forward.
Michael R. Matacunas: Going forward, you know that you'll see and can interpret from our comments that South Africa and China won't be in the second quarter. But we've also announced an exit from Brazil, and Brazil will be in the second quarter right at this point, because we haven't announced the formal closing of Brazil. So not that that helps you given it's a moving target, but the answer to where this revenue is coming from is the core of our business. And I'm really excited about how these clients are reacting to it. I appreciate the question.
Speaker Change: You know that you'll see and can interpret from your comments that South Africa, and China won't be in second quarter.
Speaker Change: But we've also announced the exit of Brazil in Brazil will be in the second quarter rent at this point, because we haven't announced the formal closing of Brazil. At this point so not that that helps you with given it's a moving target but the answer is what is this revenue coming from is the core of our business and.
Speaker Change: Really excited about how these clients are reacting to it I appreciate the question.
Michael R. Matacunas: Okay, and then a follow-up to that, then, excuse me, is, so you mentioned in your prepared remarks that you're seeing the remodeling business coming back, recovering quicker than you expected. What's going on with your customers in the U.S. and Canada that's causing that to happen? Some of it was pent up, your call last...
Speaker Change: Okay, and then a follow up to that then.
Speaker Change: Excuse me is so you you mentioned in your prepared remarks that you're seeing are the remodeling business comes back recovering quicker than you expected, what's what's going on with your customers in the U S and Canada, that's causing that to happen.
Michael R. Matacunas: Some of it was pent up. You recall last year in the second quarter, we commented at the end of the quarter and on the earnings call that there was a group that sort of paused and pushed things out on the transformation or investments they were making in their stores to try to repurpose them or make them better for the customer. And that began, we saw signs of that in the fourth quarter. I noted a couple of weeks ago that that was coming back, but it came out hot, where people are ready to spend and get ahead of these things. So there are a couple of big clients that are doing more than we even expected. That's why I commented it came out even better than we thought as part of it.
Speaker Change: But some of it was pent up your call last year in the second quarter.
Speaker Change: Commented at the end of the quarter in the earnings call that you know there was a people instead of past and pushed things out on the transformation of investments they were making their stores or try to repurpose them or make them better for the customer.
Speaker Change: And that began we saw signs of that in the fourth quarter. I noted a couple of weeks ago that that was coming back but it came out hot.
Speaker Change: Where people were ready to spend and get ahead of these things. So there are a couple of big clients that are doing more than even we expected that's where I commented it's come out even better than we thought that's part of it and I see no I see no indication that's going to slow down now for.
Michael R. Matacunas: And I see no indication that it's going to slow down for the balance of the year. We continue to get more and more opportunities. The thing that's also helped us is we've won more and more clients in this space, and not only are the ones that we've had in the past doing more, but the ones that we've recently won over the last six months are expanding even what they're doing. So I expect this to be a really great year for remodeled business in total.
Speaker Change: For the balance of the year, we continue to get more and more opportunity. There I think that's also helped US as we've won more and more clients in this space.
Speaker Change: Not only the ones that we've had in the past or doing more but the ones that we've recently won over the last six months or expanding given what they're doing so I expect this to be a really great year.
Speaker Change: The remodel business in total.
Okay. Thanks very much.
Speaker Change: Once again, if you have a question please.
Operator: Once again, if you have a question..., please press star, then one, on a touch-tone phone. Again, it is star, then one to ask a question. The next question comes from Sebastian Kroc, a private investor. Please go ahead.
Speaker Change: Please press star.
Speaker Change: Then one on.
Speaker Change: On a touchtone phone.
Speaker Change: Again it is star then one to ask a question.
Speaker Change: The next question comes from Sebastian Crock with private Investor. Please go ahead.
Sebastian Crock: Hi, Thanks for taking my questions I have two questions first you touched a little bit on the economies of the South African business, which are kind of was a drag on gross margin regarding the Brazilian joint venture, which still will account for the the numbers in Q2.
Operator: Hi, thanks for taking my questions. I have two questions.
Michael R. Matacunas: First, you touched a little bit on the economies of the South African business, which kind of was a drag on gross margin. Regarding the Brazilian joint venture, which will still account for the numbers in Q2, are the margins in Brazil similar to those in Canada and in the U.S.? Or maybe ask it another way, if we lose the Brazilian business, what kind of margin profile are we looking at? Kind of similar, lower, or higher?
Speaker Change: Other margins in Brazil, similar to those in and in Canada and in the U S or maybe asking a different way if if we lose the Brazilian business.
Speaker Change: What kind of margin profile or are we looking at kind of similar lower or higher.
Michael R. Matacunas: Now, Sebastian, I appreciate the question. Good morning.
Speaker Change: So Betsy I appreciate the question.
Speaker Change: Morning.
Speaker Change: The answer is the Brazilian gross margins are lower.
Michael R. Matacunas: The answer is that Brazilian gross margins are lower. And South Africa, as I noted, obviously had a very challenging quarter and had a challenging fourth quarter, you may recall, in my comments from last quarter. So we certainly, I believe, exited at the right time for long-term and even short-term value for the shareholders. But Brazil is a lower margin business. So as that is exiting, we complete the close of that. I would expect you'll see the benefit of that.
Speaker Change: And South Africa as I noted, obviously at a very challenging quarter and had a challenging fourth quarter. You may recall in my comments from last quarter or.
Speaker Change: So we certainly I believe exited at the right time for a long term and even short term, but for the shareholders, but Brazil is a lower margin business.
Speaker Change: So as that has exited we complete the close of that I would expect you'll see the benefit of that.
Michael R. Matacunas: Perfect, thank you very much. And the second question is around capital allocation. I think if you're a Brazilian business, if you close that, you will probably have more than 25 million in cash, and it was greatly appreciated to see you buying back stock from the old founder. What is your thought process around capital allocation and, especially, if you're considering acquisitions, bigger acquisitions, smaller token acquisitions, maybe could you give some comments on that? Yeah, certainly.
Speaker Change: Perfect. Thank you very much and the second question is around capital allocation.
Speaker Change: I think if your Brazilian business. If you close that you will probably have a more than 25 million in cash and AR was greatly appreciated to see you buying back stock.
Speaker Change: From the old founder.
Speaker Change: What is your thought process around capital allocation, and especially if you're considering acquisitions would be looked at.
Speaker Change: Big acquisitions smaller tuck in acquisitions, maybe could you give some some comments on that.
Michael R. Matacunas: Yeah, certainly. I always think of the CAPA allocation in three buckets. The first is to support or accelerate organic growth. The third is to find, and in this order of Sebastian, by the way, the second is to find accretive acquisitions that expand our capability, move us into new categories, add new services that our current clients can find value in, etc. And the third, of course, is to return it directly to our shareholders through a number of ways, like a share buyback or dividends, special dividends, those kinds of things. And so, in light of that, you see we're effectively doing all of these things at the same time.
Speaker Change: Yeah, certainly I think of the capital allocation always in three buckets. The first is to support or accelerate organic growth.
Speaker Change: Third is defined and in the sort of Sebastian by the way with.
Speaker Change: The second is to find accretive acquisitions that expand our capability moving into new categories and new services that are current clients can find value in et cetera. In the third of course is to return it directly to our shareholders to a number of ways like a share buyback or dividends special dividends those kind of things.
Speaker Change: And so in light of that do you see where we're effectively doing all of these things at the same time. We are concerned we are looking at share repurchase we're absolutely looking at acquisition opportunities and.
Michael R. Matacunas: We are looking at share repurchase opportunities. We're absolutely looking at acquisition opportunities. And I think the only comment I can share, Sebastian, is that, from my experience of having done a couple of dozen acquisitions and transactions of different types, the big ones are no easier than the little ones, meaning the little ones are just as hard. So I would rather go big as opposed to small. But that doesn't necessarily mean that it's the best thing out there for us. So we're looking at everything. We've got a whole portfolio of things that, if we think it excites our clients and then expands our business and is accretive, we're taking a serious look at it.
Speaker Change: The only comment I can sure Sebastian is that are you know from my experience having done a couple of dozen acquisitions and transactions are different types. The big ones are no easier than the little ones meeting the little ones are just as hard.
Speaker Change: So I would rather go big as opposed to small but that doesn't mean that's necessarily the.
Speaker Change: The best thing out there for us. So we're looking at everything we've got a whole portfolio of things that if we think it excites our clients and then expands our business and is accretive now we're taking a serious look at it.
Speaker Change: Thank you very much.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Mike <unk> for any closing remarks.
Operator: This concludes our question and answer session. I would like to turn the conference back over to Mike Matacunas for any closing remarks.
Michael R. Matacunas: I appreciate it, Drew. Thank you, just in general, for your interest in SPAR, for everyone listening to and participating on the earnings conference call today. I really look forward to providing an update on our progress with the second quarter results in August.
Michael R. Matacunas: I appreciate it.
Speaker Change: Thank you just in general for your interest in spark for everyone listening to and participating on the earnings conference call today, I am I really look forward to providing an update of our progress.
Operator: Thank you very much. Have a good morning. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Michael R. Matacunas: With the second quarter results in August. Thank you very much have a good morning.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Yeah.
Speaker Change: [music].
Operator: BF-WATCH TV 2021