Good morning and welcome to the SPAR Group's Third Quarter 2022 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instruction]. Please note this 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 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, 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, November 14, 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'm 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 Americas, 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 plan agreements. This is on top of 6.1% growth in 2021 to comprise a 21.6% two years 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 the 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…

Thank you, Mike, and good morning, everyone. SPAR Group operates under three segments: America, APAC and EMEA. Americas is comprised of the United States, Canada, Mexico, and Brazil. APAC is comprised of China, Japan, Australia, India. And finally, EMEA is comprised of South Africa. We have included a new segment table in our press release that includes revenues and operating incomes for each of our segments. Third quarter 2022 net revenues totaled $69.8 million, an increase of 3.6%, which includes $53.7 million of revenues from the Americas, $8.9 million from EMEA and $7.1 million from APAC, as the U.S. dollar strengthened against other currencies this quarter and year, a number of our international businesses, particularly in Japan, in South Africa, suffered from significant foreign exchange adjustments. Excluding the foreign exchange impacts, our third quarter revenues improved by 7.2% on a constant currency basis. By segment for Q3, the Americas revenues increased over the year ago quarter by 7.8% or 8.1% on a constant currency basis, and EMEA Q3 revenue decreased by 7.3% but increased 8.3% on a constant currency basis, and APAC Q3 revenue decreased by 9.8% and it was up 0.4% on a constant currency basis. As Mike as mentioned earlier, our Americas segment revenue increase was primarily driven by positive momentum from our reset and remodel work in the U.S. and Brazil. The revenue decrease in EMEA was due solely to negative foreign exchange impasse for our South African business. In constant currency, EMEA revenues would have been up 8.3% compared to Q3 last year. Headwinds in APAC for the quarter was due to pandemic-related lock down in both China and Japan along with foreign currency pressures impacting Japan. Australia's revenues were strong, but the numbers are small and be not offset pressure results for other countries for…

Thank you, Fay. On September 8, we announced that the Board had initiated a process to evaluate potential strategic alternatives to maximize shareholder value. This process includes a full range of options including a sale merger, divestiture going private, as well as other potential value creation opportunities to accelerate our growth and return profile as a publicly traded company. The management team is fully engaged with the board on exploring ways to unlock value for the shareholders SPAR. We have not set a timetable for the conclusion of this review, and I do not have an update today. So I will not be answering questions related to the company's strategic alternatives process after our remarks. As always, we remain optimistic about our business prospects, especially given the macro environment going into the holidays. Our business has not slowed. Our pipeline is robust, and we have been successfully taking share from our competitors. While we recognize consumer confidence is low in the U.S. market and interest rates are rising globally. We do not expect this to have a meaningful impact on our plans. We work with brands and retailers and segments that are needed in any economic environment. The list of our largest 10 clients includes those in the discount retailing market, large box retailers were opening stores today, brands that sell consumable products that people need every day, food products, pharmacies, and more. Most of these companies have been announcing comparable sales growth and expansion. At the same time, we've begun discussions with a number of clients and prospects that are under commodity price pressures, and margin challenges and would like to explore how SPAR can provide them leverage. For those with large field organizations, they are asking us about syndicated models that share expenses, better use of technology to…

We will now begin the question-and-answer session. [Operator Instructions]. And our first question will come from Theodore O'Neill of Litchfield Hills research. Please go ahead.

Thank you very much. My first question is about revenue in the Americas. It looks like it's accelerating a little bit, your year-over-year comparisons in Q1 was down 4.9% then it was up 3.9% in the second quarter, now it's up 7.8% in the third quarter. Are there market share gains going on there? Or is this just comparisons to COVID periods that were artificially lower?

First of all, good morning, Theodore. Thank you for the question. It's a little bit of both. So as you would expect early in 2021, we were still coming out of some of the COVID impact. It slowed, I think fundamentally everyone in our space in 2020 and then extended into the early 2021 period. However, we really feel quite bullish about the new contracts we're winning, and extensions decline agreements. So we already have. So my sense is particularly in Brazil, the U.S. and Canada, in the last six months, we have begun to take share from competitors and are winning some deals that are really exciting for us. And I hope to see that continue for another several quarters.

Okay. My next question is on the input side, are you seeing any inflationary impacts or COVID lockdowns in China that are having an impact on the day-to-day business?

We've continued to see this third quarter impact from COVID lockdowns in China and continued impact and more than expected actually in the third quarter in Japan. Again, these are not large bottom-line contributors, fundamentally to the business. But Japan, as you'll look in the country, data was off on revenue before you deal with the exchange rate 27%, I think it was down. There are sort of restrictions to meetings you can have and restrictions about people going into stores and doing merchandising work in Japan and throughout the country. China's continued to maintain a zero-tolerance policy and it has had impact on our bottom or EBIT, so if you look at the consolidated operating income for the impact of EBIT from China was about [304,000] [ph]. So, we're still looking at that carefully the potential long-term impact of that over our business and make sure that we're doing everything we can for the merchandisers as well as the business and shareholders. I don't think we're through all of that yet, Theo. I think China's policy remains the same. I think the highlight for us, though, is that it's a small and material piece of the bottom-line.

Okay. My last question is about the SG&A increases that were primarily due to increase marketing and non-capital IT investments, as well as consulting and board-related fees here in your prepared remarks. Is that going to continue into Q4?

Yes. Thank you for bringing that up. Probably could have been stated in reverse order, the fees related to the strategic alternative process that involves I mentioned consulting and accounting and a number of other things. Frankly, we were a significant impact on our SG&A in the third quarter, I expect some of those to continue in the fourth quarter, but it was more material in the third quarter than I think we'll see in the fourth.

Okay, thanks very much.

Thanks, Theo.

Next question comes from [Michael Cae of CAE Associates] [ph]. Please go ahead.

Yes. Thank you. Unless I'm mistaken. When I looked into your balance sheet, it seems as the current assets and current liabilities are about the same? Doesn't that put the company in precarious financially? Maybe you could elaborate.

Michael, good morning. I’m not sure, I'm clear on your question.

On your balance sheet, it says current liabilities and current assets. They seem to be more or less the same. But I would think that would put the company in a precarious position financially or somewhat?

Well, I'll come in for a moment, then Fay maybe I could ask you to comment more specifically, to Michael's point. I feel quite comfortable with the company's financial position at the moment. We run on a revolver on an ABL with a receivable and the more we grow, the more it may appear that way on the balance sheet, but that's actually healthy for us over time. But Fay can you comment, maybe -- make sure Michael's question be best we can as answer?

Yes, of course. So on the prepay side, the increase is driven by the Brazil tax provision, as you can see in the income as well. As Mike mentioned that Brazil has been very profitable. So the tax provision is higher than what we're seeing. And that's now got posted into the asset. Now, on the accrual liability side, it's actually a function of accounting changes as you recall last year, we have book of $4.5 million of the change in control agreement, and it reclass got down to the paying capital, so it's more of a non-cash balance sheet movement, then the cash itself. And kind of to Mike's point, we're not concerning over the cash position that we're in today.

Okay, that's helpful. Thank you. The other question is, it seems that there's not that much competition in terms of what SPAR does. And you're all over the world. You got tremendous expertise, and good insights into the retailing market and situation. Are you doing anything to make the company and what it's doing more known to the Wall Street Community?

Michael, certainly to the Wall Street Community beginning on after we resolved our issue and Fay just referred to the CIC in January 25. We put out an 8-K to explain that resolution. I and Fay, have been very active with our Investor Relations partner, talking one-on-one with investors. We've been to investor conferences and have been doing as much as we can to get continued visibility of the company to Wall Street. We will continue to do that.

Okay. Maybe when the numbers improve further, that will be helpful too.

Thank you. Yes.

Thank you. Bye-bye.

The next question comes from Maj Soueidan of Geoinvesting.com. Please go ahead.

Hi, guys. Thanks for taking the question here. I have one quick question. You talked about signing up some multiple deal -- multibillion dollar deals in the quarter. I like to understand how that relationship works overtime. Do you book revenue right away? Does that revenue come in a future quarters? So maybe you could help maybe shed some color on how that works?

Yes, absolutely. Thanks for your question. Good morning. It is the agreements we signed to commitment for typically one, two, or occasionally three years’ time, which allows us to engage or hire, if we don't already have them, or share them in a syndicated ways the resources we have, but then the revenue comes quarter-after-quarter from there. So we earn it each quarter. And occasionally it can grow in size. But typically, the contracts are nevertheless than what we have originally agreed to and that revenue we generate.

Great, thanks. So the contract you signed this quarter haven't hit any income statement yet? Though you are coming in [indiscernible].

That's correct.

All right. Thank you.

You are welcome. And let me -- I'll add something to that, too by the way, some of the agreements we've been signing recently are actually -- will begin to really materialize in 2023. So more to come.

Okay. Thanks for answering.

You're welcome. Good morning, again.

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

Operator, thank you, again for not slaughtering my last name as most people do. At the conclusion, I just want to thank everybody for your interest in the company and listening to earnings conference call today. I look forward to providing an update of our progress when we report fourth quarter results after the first of the year. Thank you again.

The conference has now concluded. Thank you for attending today's presentation and you may know disconnect.