Executive Summary

Q1 2024 revenue was $68.7M, up 6.7% year-over-year, while diluted EPS of $0.28 was boosted by a $7.2M gain on sale; adjusted diluted EPS was $0.06, roughly flat year-over-year .
Gross margin compressed to 18.3% (vs. 22.0% a year ago and 22.9% in Q4), driven by mix shift to remodeling and South Africa wage-driven cost pressure; SG&A improved to 14.0% of revenue (vs. 16.2% a year ago) .
Americas revenue rose 12.5% with U.S. remodel growth +98% YoY and Canada +79%; management won >$35M of new business including a >$12M/year multiyear deal with a leading U.S. home improvement retailer .
Strategic simplification continued post-quarter: LOI to go private at $2.50/share and Brazil JV sale closed (~$12M proceeds), both key stock catalysts; resource plus JV consolidated and 1M shares repurchased from a founder .

What Went Well and What Went Wrong

What Went Well

U.S. remodel recovery and new logos: “Recovery of our U.S. remodel business accelerated… grew by 98%… 3 of our top 10 clients… are new… U.S. and Canada teams won more than $35 million in new business… including a multiyear deal valued at more than $12 million per year with one of the U.S.’ largest home improvement retailers.”
Operating expense discipline: SG&A fell to $9.6M (14.0% of revenue) from $10.5M (16.2%) YoY, reflecting efficiency gains amid restructuring .
Liquidity strengthened and portfolio focus: Total liquidity $21.0M; management acquired the remaining minority interest in the U.S. JV (Resource Plus) and repurchased 1M shares from a founder, supporting control and capital deployment flexibility .

What Went Wrong

Gross margin compression: GP margin fell to 18.3% from 22.0% YoY and 22.9% in Q4, driven by higher labor and travel in remodel mix and South Africa wage mandates, contract renegotiations, and added variable costs .
EMEA/APAC softness: EMEA revenue declined 14.7% and APAC fell 5.5% YoY, reflecting regional demand and cost pressures (South Africa notably weak) .
Adjusted EBITDA down YoY: Consolidated adjusted EBITDA was $3.4M vs. $4.2M prior year; adjusted EBITDA attributable to SGRP was $2.5M vs. $2.9M, signaling margin headwinds despite top-line growth .

Financial Results

Metric	Q3 2023	Q4 2023	Q1 2024
Revenue ($USD Millions)	$67.333	$65.099	$68.693
Gross Margin (%)	19.9%	22.9%	18.3%
SG&A ($USD Millions)	$11.284	$11.328	$9.616
SG&A (% of Revenue)	16.8%	17.4%	14.0%
Operating Income ($USD Millions)	$1.541	$2.711	$9.572
Diluted EPS ($)	$0.01	$0.09	$0.28
Adjusted Diluted EPS ($)	$0.02	$0.11	$0.06
Consolidated EBITDA ($USD Millions)	$2.089	$3.140	$10.083
Consolidated Adjusted EBITDA ($USD Millions)	$2.483	$3.750	$3.384
Adjusted EBITDA Attributable to SGRP ($USD Millions)	$1.506	$3.939	$2.466

Segment revenue and operating income:

Segment	Q3 2023 Revenue ($M)	Q4 2023 Revenue ($M)	Q1 2024 Revenue ($M)	Q3 2023 Op Inc ($M)	Q4 2023 Op Inc ($M)	Q1 2024 Op Inc ($M)
Americas	$53.796	$49.248	$54.655	$1.328	$1.347	$9.427
EMEA	$7.863	$8.803	$8.277	$0.431	$1.453	$0.361
APAC	$5.674	$7.048	$5.761	$(0.218)	$(0.089)	$(0.216)
Total	$67.333	$65.099	$68.693	$1.541	$2.711	$9.572

Key KPIs and balance sheet:

KPI	Q3 2023	Q4 2023	Q1 2024
Total Liquidity ($M)	$12.4	$19.3	$21.0
Cash & Equivalents ($M)	$7.960	$10.719	$16.629
Unused Availability ($M)	$4.4	$8.6	$4.4
Working Capital ($M)	$27.5	$27.5	$38.2
Cash From Operations ($M)	—	—	$0.615
Accounts Receivable ($M)	$65.650	$59.776	$68.728
Lines of Credit & Short-term Loans ($M)	$19.323	$17.530	$15.159

Estimate comparison:

Metric	Consensus (Q1 2024)	Actual (Q1 2024)	Delta
Revenue ($M)	Unavailable via S&P Global	$68.693	n/a
EPS ($)	Unavailable via S&P Global	$0.28	n/a
Adjusted EPS ($)	Unavailable via S&P Global	$0.06	n/a

Note: Wall Street consensus from S&P Global was unavailable at the time of request.

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Company Guidance	FY/Q2 & beyond	None provided	None provided	Maintained (no formal guidance)

Management reiterated they do not give forward-looking quarterly guidance; qualitative commentary pointed to continued remodel demand and margin recovery expectations later in the year .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3 2023)	Previous Mentions (Q4 2023)	Current Period (Q1 2024)	Trend
Remodel recovery	Remodel pushed out; beginning recovery; U.S. remodel +60% vs Q2; Canada remodel up >400% expected for 2023	Sequential recovery in U.S.; capital deployment resuming; retailers planning store growth	U.S. remodel +98% YoY; new clients; multi-year home improvement deal; expect sustained strength	Accelerating
Merchandising strength	U.S. +27% YoY; Canada +23%; Mexico +28%	U.S. merchandising +9% in Q4; distribution services strong	Strong demand in U.S./Canada; Americas +12.5% YoY	Sustained growth
Margins	Consolidated GM +150 bps YoY; merchandising higher margin than remodel	GM 22.8% in Q4; strong pricing/productivity	GM 18.3% due to remodel mix and South Africa wage/cost pressure; management expects recovery	Near-term compression; recovering later
Portfolio simplification	Board changes; evaluating strategic alternatives	Announced exits (Australia, China, NMS) and agreements to sell Brazil & South Africa; cash repatriation	LOI to go private; Brazil sale closed (~$12M); continuing simplification; Resource Plus JV consolidated	Intensifying
Capital allocation	—	Discussed large cash balance and options (organic, M&A, return)	Three buckets reiterated; preference to “go big” on accretive acquisitions; buybacks considered	Active planning
Technology/analytics	—	—	SPARview analytics highlighted to address shrink and inventory integrity	Growing focus
Regulatory/listing	Nasdaq minimum bid price deficiency letter disclosed	—	LOI to go private potentially addresses listing volatility	De-risking via transaction path

Management Commentary

“Our U.S. business… grew by 17%… and Canada grew by 79%… Recovery of our U.S. remodel business accelerated… grew by 98%… our U.S. and Canada teams won more than $35 million in new business… including a multiyear deal valued at more than $12 million per year…” — Michael Matacunas, CEO .
“The margin compression was due to a mix shift to the remodeling business… and lower gross margin in South Africa due to… variable expenses… [and] government imposed wage increases ahead of inflation… forcing margin reduction…” — Antonio Calisto Pato, CFO .
“We have a clear path to simplifying the business’ operating financial structure… I’m bullish about our future.” — Michael Matacunas .
“We captured the financial benefit of the South Africa sale of $7.2 million… resulting EBITDA is $10.1 million… net income… $6.6 million or $0.28…” — Michael Matacunas .

Q&A Highlights

Sequential revenue and divestiture impact: Despite divestitures, core U.S./Canada growth (+22% combined) drove sequential revenue up; South Africa and China exit in Q2, Brazil exit timing guided to be in Q2’s reported mix at that time .
Remodel demand drivers: Pent-up projects resumed, with major clients accelerating store transformations; new client wins expanding scope; management sees no sign of slowing for 2024 .
Brazil margin profile: Brazil is lower-margin than U.S./Canada; exit expected to benefit consolidated margin profile after close .
Capital allocation: Management prioritizes organic acceleration, accretive acquisitions (incl. larger deals), and returns (buybacks/dividends) concurrently; buyback already executed from a founder .

Estimates Context

S&P Global consensus estimates for Q1 2024 were unavailable at the time of request; therefore, we cannot assess beats/misses versus Wall Street expectations. Actual results provided above anchor analysis [Unavailable].
Implications: Without consensus, traders should focus on underlying drivers (remodel acceleration, margin compression causes, portfolio exits) and corporate actions (LOI to go private at $2.50/share; Brazil proceeds) for positioning .

Key Takeaways for Investors

Core growth is robust: Americas strength (U.S. remodel +98% YoY; Canada +79%) and >$35M new business wins underpin revenue trajectory despite exits; this supports near-term top-line resilience .
Margin recovery likely after portfolio clean-up: Gross margin pressure tied to remodel mix and South Africa should ease as Brazil/South Africa exits remove lower-margin drag; SG&A leverage already visible (14.0% vs. 16.2% YoY) .
Cash and control improved: Liquidity at $21M; Resource Plus JV consolidation and buyback enhance strategic flexibility for larger, accretive acquisitions and potential shareholder returns .
Transaction optionality: The $2.50/share LOI to go private provides a valuation anchor and potential de-risking path from listing volatility; monitor definitive agreement progress and fairness opinion .
Watch Q2 composition: With SA/China exits and Brazil closing in early June, Q2 mix will reflect fewer low-margin regions; look for margin stabilization and adjusted EBITDA improvement .
KPIs improving: Working capital grew to $38.2M; AR rose alongside revenue; lines of credit declined sequentially, signaling improving balance sheet posture .
Risks: Near-term margin volatility from remodel mix; regional demand softness (EMEA/APAC); execution on acquisition pipeline and integration; uncertainty until LOI becomes definitive .

SPAR Group, Inc. (SGRP)·Q1 2024 Earnings Summary