SPAR Group, Inc. Q3 FY2023 earnings call

• Merchandising services showed growth in multiple regions. - Distribution services launched 24 months ago and is building momentum, up 10x in Q3 2023 vs prior year. - Remodel services are beginning to recover, with U.S. up 60% from Q2 to Q3 and Canada expected to have significant growth in 2023. - Gross margin improved: 4% more margin dollars and 150 basis points of gross margin percent improvement in the quarter, fourth successive quarter of gross margin percent improvement. - Attributable adjusted EBITDA up 21.5% year-on-year for the quarter and 23.8% for the first nine months. - Management and Board are evaluating strategic alternatives. - New Board members appointed, advancing corporate governance work.

On a consolidated basis, third quarter revenue was down 3.6%. Merchandising services saw growth: U.S. merchandising business grew by 27%, Canada merchandising by 23%, Mexico by 28%, and Brazil by 10%. Distribution services had an exceptionally strong third quarter, up 10x from the prior period last year. Remodel services: U.S. remodel was softer than same period last year but up 60% from Q2 2023; Canada remodel expected to grow over 400% in 2023. Asia Pacific represents 8.4% of revenue and declined 21% in Q3. EMEA (South Africa) represents 11.7% of revenue and declined 12%. Americas (U.S., Canada, Mexico, Brazil) is the cornerstone of results.

• Remodel transformation service business expected to fully recover over the next 9 to 12 months. - Focus on building from strength, reducing U.S. debt and related interest expense, exploring improved terms with clients to optimize liquidity.

• Forward-looking statements are uncertain and actual results may differ materially. - Economic factors in operating countries can impact performance. - Competitor distractions could affect market share capture.

Q: On the last quarter, talked about remodel business with big-box stores remodeling to handle pack and ship and small box stores introducing perishables; wondering if all that's being pushed out or just part of that.

A: Some of the big box stores moved, recovery is already happening, up 60% from Q2 to Q3 in remodel. Small box discount space didn't slow as much.

Q: What's driving merchandising growth in Mexico; is it rebound from employment law changes or something else.

A: Picked up a great new big client, a large chocolate brand, contributed significantly. Still working on fixing cost structure but bullish on improving it in next couple of quarters.

Q: Can you give guidance on gross margins between merchandising and remodel business, any significant difference.

A: Yes, merchandising is a much healthier margin business than remodels. Merchandising can be almost twice the margin of remodel because remodel work involves travel baked into the rate.