SPAR Group, Inc. Q3 FY2022 earnings call

• Total revenue for Q3 was $70 million, 4% YoY growth (7% constant currency).
• Americas segment had record revenue of $53.7M, up 7.8% YoY, with U.S. revenue at $32.5M (+13%). Core merchandising services grew 15.5%, resets/remodels up 62%. Brazil joint venture had 13.3% revenue growth and 15.3% EBIT growth.
• EMEA segment revenue $8.9M, down 7.3% YoY but up 8.3% constant currency, EBIT up 14.7% reported, 41% organic.
• APAC segment revenue $7.1M, down 9.8% YoY but up 0.4% constant currency, impacted by pandemic lockdowns in China and Japan.
• Gross margin was 18.4% in Q3 vs 18.7% prior year. Operating income was $1.7M vs $2.7M prior year.
• SG&A expenses increased due to marketing, non-capital IT, consulting, and strategic alternatives fees.
• Company is exploring strategic alternatives to maximize shareholder value, with pipeline of deals across U.S., Brazil, South Africa, and Mexico.

Total revenue for the third quarter was $70 million, up 4% year-over-year (7% constant currency). The company has three segments: Americas, EMEA, and APAC. Americas segment reported record revenue of $53.7 million, a 7.8% increase year-over-year, with organic growth of 8.1%. The U.S. within Americas grew 13% to $32.5 million. Core merchandising services grew 15.5%, and resets/remodels business was up 62%. Brazil joint venture had 13.3% revenue growth and 15.3% EBIT growth. EMEA segment had revenue of $8.9 million, down 7.3% year-over-year but up 8.3% constant currency, with EBIT up 14.7% reported and 41% organic. APAC segment had revenue of $7.1 million, down 9.8% year-over-year but up 0.4% constant currency, impacted by pandemic lockdowns in China and Japan.

• Bullish on new contracts and extensions in Americas, Brazil, U.S., and Canada.
• Expect SG&A related to strategic alternatives to continue but likely less impactful in Q4.
• Upcoming deals signed in Q3 will start materializing in 2023.
• Continued focus on growing top-line, improving gross profits, and creating operating leverage.

• Foreign exchange impacts affecting international segments.
• Pandemic-related lockdowns in China and Japan impacting APAC segment revenue and EBIT.
• China's zero-tolerance policy potentially having long-term impact on business.

Q: About revenue in the Americas, are there market share gains or comparisons to COVID periods?

A: A bit of both; new contracts and extensions, taking share from competitors.

Q: Any inflationary impacts or COVID lockdowns in China affecting day-to-day business?

A: COVID lockdowns in China and continued impact in Japan, but APAC is a small part of the bottom-line.

Q: Will SG&A increases continue into Q4?

A: Some of the strategic alternative-related fees will continue in Q4 but were more material in Q3.

Q: How does revenue from multibillion dollar deals work overtime?

A: Agreements are for 1-3 years, revenue earned quarter-by-quarter, with upcoming deals in 2023 starting to materialize