SPAR Group, Inc.

Good morning and welcome to the SPAR Group third quarter 2022 financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. 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 Philip Cooper with three-part advisors. Please go ahead.

Thank you, Operator, and good morning, everyone. We appreciate you joining us for the SPAR Group, Inc.' 's conference call to review third quarter results for 2022. Joining me on the call today are SPAR's Chief Executive Officer, Mike Matacunas, and the company's chief financial officer, Faye DeVries. This call is also being webcast and can be accessed through the audio link on the events and presentation page of the investor relations section at investors.sparinc.com. Information recorded on this call speaks only as of today, November 14th, 2022. So please be advised that any time sensitive information may no longer be accurate as of the date of any replay or transcript reading. I would also like to remind you that the statements made in today's discussion that are not historical facts, including statements or expectations or 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. Actual results may differ materially from those expressed or implied. please refer to the earnings press release that was issued today for our disclosures on forward-looking statements. These factors and other risks and uncertainties are described in detail in the company's filing 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 publicly update or advise any forward-looking statements. Finally, the earnings press release we issued earlier today is posted on the investor relations section of our website at sparinc.com. A copy of the release has also been included in an 8K submitted to the SEC. And now I would like to turn the call over to the company's CEO, Mike Matacunas.

Mike. Thank you, Philip, and good morning, everyone. I am pleased to share our third quarter results and comment on our progress on a number of initiatives. At the end of our prepared remarks today, we will open the line for questions from analysts and institutional investors. Total revenue for the third quarter was $70 million. This reflects a 4% increase year over year on a reported basis. On a constant currency basis, total revenue grew by 7% over the year-ago quarter. As a reminder, we report in three segments, America's EMEA and Asia Pacific or APAC. I will comment on each one first on a reported basis and then on a constant currency basis or on an organic basis, which excludes the impact of foreign exchange. Our Americas segment reported record revenue of $53.7 million, an increase of 7.8%. And the Americas grew organically or on a constant currency basis by 8.1% during the third quarter. In addition to the United States, the Americas division includes Brazil, Mexico, and Canada. Within the Americas, the U.S. grew by 13% and delivered a record $32.5 million in revenue. Our core merchandising services business grew by 15.5% in the third quarter with the addition of new clients and expansion in our current client agreements. This is on top of 6.1% growth in 2021 to comprise a 21.6% two-year stacked growth in our domestic business. Our resets and remodels business continued to expand in the third quarter and grew by a strong 62% over prior year. Momentum continues as we are working with more than 20 of the largest retailers in the country, often as a preferred partner, to help them reset categories, open stores, remodel locations, and renovate. We remain bullish on the growth of our remodel business as the industry continues to invest in reinventing physical stores across key segments, such as big box, discount, drug, and convenience. Our Brazil joint venture reported record revenue growth of 13.3% in the third quarter, essentially the same as our 13.5% organic expansion. The strength is based on winning new business and expanding current client agreements. In addition, we grew EBIT for our Brazil venture by 15.3%. The Brazilian AI has been relatively stable over the last several months. Therefore, these numbers are largely the same in constant currency. Our EMEA segment, representing our joint venture in South Africa, reported revenue of $8.9 million, down 7.3%, and on a constant currency basis, expanded by 8.3% over the prior year quarter. We've won new clients, renewed large multi-year agreements, and increased EMEA EBIT on a reported basis by 14.7%. Organically, EBIT for EMEA grew by a strong 41% over last year's quarter. Asia Pacific segment reported revenue of $7.1 million, which represents a decline of approximately $774,000, or 9.8%. On a constant currency basis, total revenue improved by 0.4% based on the mix of a China revenue decline of 1.8%, a Japan decline of 7.5%, offset by organic growth in Q3 of 1.5% in India, and a strong 134% increase in Australia, albeit small numbers for this joint venture. We continue to watch the APAC market. It makes up approximately 10% of our overall revenue, but is immaterial to our bottom line. Therefore, we are exploring alternative approaches to improve the leverage of these businesses and ensure we are focused on delivering value for our clients and shareholders. With a solid organic revenue performance in the quarter of over 7%, let's turn our attention to gross margin. Our third quarter gross margin was 18.4% compared to 18.7% last year. Our America segment, which represented 77% of the total business in the quarter compared to 74% last year, maintained gross margin at 17.2%, same as last year. We continue to focus on pricing, productivity, and leverage of technology during the quarter. Our EMEA segment reported a strong 23.4% gross margin and improvement of 370 basis points. We worked hard on merchandiser productivity and margin enhancement initiatives this year. I am pleased but this is reflected in our third quarter number. The countries that make up APAC for us, China, Japan, India, and Australia combined, delivered a gross margin of 21.2%, down 590 basis points from the prior year same period. While a small dollar part of our gross profit, the 29 percentage drop year over year in gross margin dollars from APAC lowered the consolidated gross margin percent. As I've noted several times, we'll continue to focus on gross profit, and I'm pleased with the results to date. I believe there's more opportunity to improve margins, and we'll continue our pursuit of this. Relative to operating income, we reported consolidated operating income of $1.7 million. There are a number of one-time expenses related to our strategic alternatives announcement, including accounting, consulting, investment banking, and other expenses that impacted our operating income for the quarter. Combined with negative operating income from our APAC business, our operating income is down 35% from last year's same period. As I noted in the press release, I expect these expenses and effects to be temporary in nature while we stay focused on growing the top line, improving gross profits, and creating more operating leverage. After Faye covers the detailed financial results for third quarter and first nine months of 2022, I will come back and share additional thoughts on our business in progress. With that, I would like to turn the call over to Faye DeVries, our Chief Financial Officer, to review our results.