Good morning and welcome to the SPAR Group Second Quarter 2022 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instruction]. Please note today's event is being recorded. I'd now like to turn the conference over to Phillip Kupper with Three Part Advisors. Please go ahead.

Thank you, Operator, and good morning, everyone. We appreciate you joining us for the SPAR Group's conference call to review second 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, Fay DeVriese. This call is also being webcast and can be accessed through the audio link on the events and presentations page of the Investor Relations section at investors.SPARinc.com. Information recorded on this call speaks only as of today, August 16, 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, or 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 filings with the Securities and Exchange Commission. Management may also refer to non-GAAP financial measures and the 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 revise 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 8-K submitted to the SEC. And now I would like to turn the call over to the company's CEO, Mike Matacunas. Mike?

Thank you, Phillip and good morning, everyone. I am pleased to share our second quarter results and comment on a number of exciting achievements and work that is underway at SPAR. At the end of our prepared remarks today, we will open the line for questions from analysts and institutional investors. We filed our second quarter 10-Q yesterday and this morning distributed our earnings press release. Total revenue for the second quarter was $68 million. This reflects a 1% increase year-over-year. As a reminder, we'll report in three segments Americas, EMEA and Asia Pacific or APAC. I will comment on each one individually. Our America segment reported a record revenue of $53.3 million, an increase of 3.9%. Within this segment, the United States division grew by 16% and delivered a record 31.6 million in revenue. Our core merchandising services business grew by 27% in the second quarter with the addition of new clients. Our resets and remodels business in the United States, has increased our client portfolio by 30% year-over-year, and is now operating in multiple countries. Our Brazil joint venture revenue grew by 25% in the second quarter, as we won new business and expanded client agreements. In addition, we measure the satisfaction of our clients in Brazil and all of them continue to have excellent scores demonstrating the value of our services and relationships. Our EMEA segment representing our joint venture in South Africa, delivered revenue of 9.1 million an increase of 7.2% over the prior year. We've won new clients renewed large multi-year agreements and increased EMEA net income by 211%. Our Asia Pacific segment revenue was 5.4 million. This was a decline of approximately 2 million or 27% in our APAC segment. 1.6 million of this was due to the 60-day pandemic lockdown in China. While…

Thank you, Mike and good morning, everyone. As we noted last quarter, we changed our second reporting to better align the business with the company's growth strategy effective January 1, 2022, we operate under three segments; Americas, APAC and EMEA. Americas is comprised of the United States, Canada, Mexico and Brazil. APAC is comprised of China, Japan, Australia and India. And finally, EMEA is comprised of South Africa. Now turning to our financial results. Second quarter 2022, net revenues totaled $67.8 million, which included $53.3 million from the Americas, $9.1 million from EMEA and $5.4 million from APAC. As Mike mentioned, the strength of our Q2 revenues were adversely impacted by the lockdowns in the APAC segment. Compared to the prior year quarter, consolidated revenues increased by just 0.9%. However, the Americas increased by 3.9%, EMEA grew by a strong 7.2% and weakness in APAC revenues almost completely offset growth in the other segments down [Technical Difficulty] in the third quarter of 2021. We also have solid revenues growth in EMEA. Organic growth contributed 7.2% along with a small acquisition last year that we cycle in July, but downward pressure from APAC was due entirely to pandemic related lockdowns in both China and Japan. Gross profit was $12.9 million or 19.1% of revenues compared favorably to $12 million or 17.9% of revenues in the prior year quarter. Gross profit margins increased by 120 basis points due to strength in the Americas, up 260 basis points and EMEA up 120 basis points a largely offset by the APAC negatively impacting margins by 750 basis points due to the prolonged pandemic lockdown. Margin improvements were due to initiatives both in the U.S. and EMEA as well as favorable mix-shift in Brazil. Selling, general and administrative expenses were $10.1 million or 14.9% of…

Thank you, Fay. I am pleased with the financial results. But I'm really enthusiastic about our momentum. We've developed a pipeline that is 2x greater than it was last year at this time. We have won several new multimillion dollar agreements including our first large multimillion dollar win in the distribution staffing services business that announced we were entering only nine months ago. And our focus on margins continues to produce results. We won our first large remodel project in Canada that has opened up a pipeline that is 100% greater than the total value of Canada business today. We've continued our push into advanced analytics leveraging our low-cost structure in India completed a global rebranding effort and more. Our clients are turning to us for more work and expertise. In one example, a large multinational retailer recognized our expertise in recruiting and hiring talent in Mexico. While we continued to provide merchandising and marketing services across all of Mexico, this client asked us to help them recruit on a national scale. This enabled us to overachieve on our internal plan from Mexico and position us for more growth. This is not the exception. We are seeing more clients turn to us as they struggle to find people. The great resignation has impacted retailers and consumer goods companies worldwide. For SPAR, we rolled out part technology, text to hire, daily pay programs to empower people with their money and most recently expanded with a casting application to increase the number of applicants by 600% since this time last year. We turned our focus on this challenge last year and it is really beginning to pay off. We hired more people in the second quarter than the company has ever hired in a single quarter. Clients are also asking us to…

We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Theodore O'Neill with Litchfield Hills Research. Please go ahead.

Thank you very much. My first question is about the labor law change in Mexico. I understand you've talked about this in the previous quarter. But is this related to the change in personnel outsourcing and subcontracting the last year? Or is it something else?

Theo, thank you for the question. Good morning. Yes, it's a law that was enacted by the federal government in Mexico, mid-spring in 2021. That effectively says, if this -- the work being done in your store, is the same as other work being done in your store, meaning it's a basic function for your business, then you must do it yourself. And we were a large merchandising services provided to a multinational retailer, and we were in 1000s and 1000s of locations in Mexico. And as a result of that labor law change, they were required to bring that work in-house. So I appreciate the question. It's not something that we have a great influence on. And we will be cycling a little more of it this third quarter, but then it will be behind us.

Okay. My other question is, can you address the rise in accounts receivable, your quarterly revenue from Q4 to Q2 is up to 6 million, but the AR is up 9 million. And I understand this is due to strength in Brazil and South Africa. So could you give us a little more detail on that, please?

Yes. Fay, would you mind maybe sharing a little more detail?

Sure. So the receivable has grown in the Americas segment in general. However, there is a DSO issue on the foot because the China pandemic that did remain, obviously, we were balanced a little bit longer than we had expected. So DSO was impacted by China.

Okay. Thanks very much.

Theo, Fay has put a fine point on that. The payment terms in China are traditionally very long. And as we were required to stop work, the AR continued to build. And now we're back to work and frankly, doubled the time of our payments from our clients in China. But as you know, that's a very small piece of our business but great question. Thank you.

Thank you very much.

[Operator Instructions] Our next question is from [Michael Kay with Kay Associates] [ph]. Please go ahead.

Thank you, gentlemen. And congratulations on the excellent quarter. Unlike many companies that were negatively impacted by inflation and higher labor costs, it seems that SPAR was not. And I thought if you would elaborate on that. And also, it's really a nice little company and I was wondering, what if anything, are you doing to publicize a company to both retail and institutional investors. Thank you very much.

Thank you, Michael. Good morning. Thank you for your question. A couple of comments on the impact of rising wages. As we know, that's happening in almost all of the countries around the world. For us, the first is that we don't pay a low wage. So we're already paying a very competitive wage in the business we're operating. So while you're watching a 5%, I think it was a little over 5% increase in the middle of the second quarter, that's not a wage that directly impacts us. Our improvement in gross profit has a lot more to do with our focus on contract pricing, long-term agreements, competitive pricing, and frankly, doing work in more profitable parts of the business like resets and remodels in some cases, all of those are contributing to our improvements in gross profit. I'm pausing thinking about your second question, what are we doing to gain exposure. Thank you for that. We're actually have engaged the research analyst firm -- outside firm to begin to get more coverage. So that can be shared more broadly, with institutional investors in particular. I'd be presenting and have presented recently at a virtual conference, I'll be presenting at a conference for analysts in Chicago on the 24th of this month. So continuing to put the time and energy behind getting exposure for the company because as I hope you [indiscernible] my comments, I agree with your point, it is a great small company that needs more exposure.

And it seems there aren't too many other companies in this space. Is that correct?

Yes. We are uniquely positioned as a global company, meaning we're in nine countries. There are competitors that are regional. So there are companies in Brazil that we compete with in our Brazil business. There are companies in the U.S. that we compete with, for our U.S. business. But we have been able to carve out a niche that's unique and especially with a portfolio of services we're offering that makes us different.

Yes, that's very impressive. And the do you give any guidance in terms of revenues and earnings for the future?

We're not giving guidance at this point, Michael.

Thank you. I really appreciate it and continued success.

Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Mike Matacunas for any closing remarks?

Well, again, thank you for everyone who listened and has participated on today's call for your interest in the company. As I've just mentioned, in the Q&A, we will be presenting to [indiscernible] Investors at the Midwest IDEAS Conference in Chicago on August 24 at 9:30 a.m. Central. And we're also available for one-on-one meetings with investors that day. If you'd like to participate, please reach out to Three Part Advisors, if you'd like to attend and potentially meet with us. And after beyond that, I look forward to providing an update on our progress when we report third quarter results. Thank you for participating today.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.