SPAR Group, Inc. Q4 FY2023 earnings call

• Consolidated fourth quarter revenue up 0.7% y-o-y, gross profit up 11%, EBITDA up, and net income improved materially.
• US owned merchandising business up 9%, Canada up 66%, Japan small business up 8%; offset by declines in Brazil, South Africa, and US joint ventures.
• US remodel business recovering, distribution services had excellent quarter.
• Gross margin of 22.8% achieved by focusing on terms, rates, and productivity; 430 basis points higher than Q4 2021.
• Divested joint ventures in Brazil, South Africa, Australia, China, and US national merchandising services to simplify portfolio and focus on core growth.

Consolidated fourth quarter revenue was $65.1 million, up 0.7% year-over-year. Americas segment had $49.2 million revenue, APAC $7.1 million, and EMEA $8.8 million. The US owned merchandising business saw a 9% revenue increase, Canada was up 66%, and Japan's small business had an 8% top-line growth. This growth was offset by declines in Brazil, South Africa, and US joint ventures. Fourth quarter gross profit rose 11% with a 210 basis point improvement in profit percentage. Consolidated EBITDA was $3.1 million for the quarter, compared to a $250,000 loss in the prior year quarter. For the full year 2023, revenue was $262.7 million, gross profit was $55 million (21.1% of sales), operating income was $9.4 million (up 75%), and adjusted EBITDA was $9.9 million (up 62% from 2022).

• Divestitures expected to raise cash, with Board considering options like dividends, stock buybacks, organic growth.
• Expect remodels to grow quickly in 2024 due to available capital and demand.
• Simplifying operations to accelerate growth and generate more cash flow for shareholders.

Q: What approximate percentage of 2023 revenue did the divested businesses (South Africa, Brazil, NMS, Australia, China) represent? Any plans for dividend or stock buyback with raised cash?

A: The divested businesses represented ~25%-30% of total revenue. Board is discussing options including organic growth, accretive opportunities, or returning cash to shareholders, but no immediate announcement.

Q: Are the stronger margins the new normal? Any specific geographic area or industry contribution?

A: Margins were affected by mix, with the rapidly growing US merchandising business being the most profitable. Focus on terms and productivity continues, but remodels expected to grow quickly in 2024.

Q: What's driving strong demand in Canada?

A: Growth in merchandising business due to global brands shifting to third-party partners, and strong performance in remodels as there are few competitors in the market of their scale.