Ladies and gentlemen, thank you for standing by. Welcome to the SPAR Group 2014 First Quarter Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Valter Pinto of Alliance Advisors. Please go ahead, sir. .

Thank you, operator, and good morning. I'd like to thank everybody for joining us today for the SPAR Group 2014 First Quarter Earnings Conference Call. On today's call, your presenters will be Ms. Jill Blanchard, Chief Executive Officer and President; and Mr. Jim Segreto, Chief Financial Officer..

Before we begin, I'm going to review the company's Safe Harbor statement. Statements in this conference call that are not descriptions of historical fact are forward-looking statements relating to future events and, as such, all forward-looking statements are made pursuant to the Securities Litigation Reform Act of 1995.

These forward-looking statements are subject to risks and uncertainties, and actual results may differ materially..

When used in this call, the words anticipate, could, enable, estimate, intend, expect, believe, potential, will, should, project and similar expressions as they relate to SPAR Group, are such forward-looking statements.

Investors are cautioned that all forward-looking statements involve risks and uncertainties, which may cause actual results to differ from those anticipated by SPAR Group at this time..

In addition, other risks are more fully described in SPAR Group's public filings with the U.S. Securities and Exchange Commission, which can be reviewed at www.sec.gov..

With that out of the way, I'd like to turn the call over to Jill Blanchard, CEO and President of SPAR Group. Jill, the floor is yours. .

Thank you, Valter, and thank you, everyone, for joining us today for our 2014 first quarter earnings conference call. During the first quarter of 2014, overall revenue increased 12.2%, with the domestic increase of 13.1% and international at 11.6%.

This revenue growth was driven by our Market Force acquisition and higher revenues from new contracts with India, Mexico and Japan, each with multinational Fortune 1000 companies. .

Internationally, our gross profit outpaced our revenue growth by increasing 15.5%. Additionally, operating income internationally is over 100% increase. We are thrilled with our international performance and look for the part of our business to be an increasing contributor to our bottom line. .

Unfortunately, in the 2014 first quarter, we experienced year-over-year margin pressure domestically. There continues to be a weakness within the retail sector, which has forced some our clients to allocate less of a budget for merchandising, marketing and assembly services.

This has resulted in a different and unfavorable margin mix of business for the first quarter. I would remind our shareholders that we have maintained some of these client relationships for upwards of 25 years and they include some of the largest, well-known and globally recognized brands in the world.

We recognize the trending of our domestic margins are experiencing and I, along with my management team, are focused on adjusting our existing mix of services and customers with higher margin as our strategy continues to evolve. .

On the technology front, we are aggressively rolling out innovation to improve our in-store efficiencies including communications with both our field and clients. To lead this effort, we have appointed Panos Mastrogiannis as our Chief Information Officer and an Executive Officer in the company.

Panos has been with SPAR since 1998 and has been a key driver in the evolution of our technology. .

Some of our industry-leading IT capabilities include multilingual platforms with bilingual options for global customers that we could implement and enter into new markets and be fully operational in less than 30 days; GPS-enabled maps that show in-store execution in real-time, opportunity tracking systems, along with SPAR's flexibility to address challenges and avoid future problems; data collection capabilities with handheld computers, smartphones and tablets, along with SPAR to include pictures, signatures, GPS; and better supporting on shipment tracking, out-of-stocks, voids, returns and much more.

And real-time executive summaries and dashboard that show actual date online and on mobile devices. .

We are also delivering on sustainability and green [ph] initiatives, a part of which is powered by our proprietary end-to-end paperless merchandising process. We have our assisted our associates and JV partners automating their merchandising service processes from recruiting to reporting.

Our capabilities include identifying and on-boarding qualified experienced merchandisers, deployment to the specific programs, providing client instructions for each specific initiative, executing the project, exceptional reporting, and timely and insightful customer analysis, all enabled at a paperless fashion via SPAR's proprietary platform.

Customers can use the SPAR on-the-go application which compiles execution, maps, statistics, pictures and product data, all viewable and communicated through their smartphone or tablet device in real-time. .

This sophisticated suite of applications includes efficiency, reduced cost and turnaround time, eliminates errors and aligns with our customers' sustainable and paperless strategies. We have invested years of time and resource against this effort, and I have personally traveled the world to visit with our current and prospective customers.

All have been very receptive to this level of technology which is virtually unheard of in the industry. This effort is a differentiator for us and going to be a driving force in our ability to retain and grow our existing customer base, attract and onboard new customers and strategically grow with multinational companies. .

We are in the process of executing the planned strategic management of our overall business with a focus on our customers, international businesses and our talent. With our customers and prospects, we are focusing on their objectives and challenges.

We are working as a team and addressing the issues in the boardroom so that we can successfully implement a plan to execute in the field. .

Internationally, we are working aggressively with our JV partners to build our multinational customer base, expand our services and geographic reach and leverage successful strategies across countries.

Strategic management of our talent is focused on talent development, career pathing and professional planning to build, grow and retain the best team possible through the SPAR Group.

I'm confident in our ability to implement these strategic plans and that they will result in a strong infrastructure that continually produces reliable and profitable results for both our clients and shareholders. .

With that, I would now like to turn the call over to Jim Segreto, our CFO, who will provide greater detail on the numbers.

Jim?.

Net revenue for the first quarter of 2014 totaled $28 million, an increase of 12% as compared to $25 million for the first quarter in 2013. Domestic net revenue totaled $11 million in the 3 months ended March 31, 2014, compared to $9.7 million for the same period, 2013.

The 1.3% (sic) [13%] increase in domestic net revenue was primarily due to the incremental full quarter impact of net revenue attributable to the acquisition of merchandising and audit services from Market Force Information late in the first quarter of 2013. .

International net revenue totaled $17 million for the 3 months ended March 31, 2014, compared to $15.3 million for the same period in 2013, an increase of $1.7 million or 11.6%.

The increase in international net revenue was primarily due to incremental revenue from new contracts in India, Mexico and Japan, and the full integration of the acquisition in India partially offset by lower revenue in Australia and Turkey markets. .

As mentioned earlier, in the first quarter of 2014, we did experience a 1-percentage-point decline in our gross profit margin to 22% compared to 23% in the first quarter of 2013.

The main driver of this reduction in gross profit margin for the 3 months ended March 31, 2014, was a 3.6-percentage-point reduction [indiscernible] our domestic gross profit margin to 27.8% compared to 31.4% for the same period in 2013.

The decrease in gross profit margin was due primarily to a disproportionate and unfavorable mix of product work -- excuse me, project work compared to the same period last year. .

On a positive side, our international gross profit margin for the 3 months ended March 31, 2014, improved by 0.7 percentage points to 18.7% compared to 18% for the same period last year.

The improvement in our international gross profit margin was primarily due to a favorable mix of business in Mexico, South Africa and the Japan markets compared to last year, partially offset by lower gross profit margin business in India and Turkey markets. .

Selling, general and administrative expenses increased $700,000 for the 3-month period ended March 31, 2014, when compared to the same period in 2013.

The increase was primarily due to fixed overhead in support of assets acquired from Market Force late in the first quarter of '13, an increase in stock compensation expense from a onetime charge for the escalated vesting of restricted stock awards previously granted to the company's retiring CEO, and an increased spending in both Mexico and Japan markets in support of their respective revenue growth for the quarter.

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The company reported a net loss attributable to SPAR Group Inc. of $369,000 for the 3-month period ended March 31, 2014, or $0.02 per diluted share compared to net income of $44,000 for the same period in 2013, or $0.00 per diluted share. .

Our balance sheet at March 31, 2014, remained strong with cash and cash equivalents of $4 million, working capital of $14 million and our current ratio of 2.1:1. Total current assets and total assets were $26 million and $34 million, respectively, and current liabilities and total liabilities were $12 million and $16 million, respectively.

Our total equity at March 31, 2014, was $19 million. .

With that, I would like to turn the call back to Jill for closing remarks. .

Great. Thanks, Jim. As my first full quarter in the CEO position here at SPAR Group, I realize that our margins and bottom line fell short of expectations, including mine.

With that, I can assure our shareholders that I am on top of our problems and working with my executive team to both address near term, and importantly, build the right structure long term for sustainable and profitable results. .

As a final comment, I would like the address the visible evolution our industry is undergoing, and our commitment to retaining our industry-leading position.

We are committed to expanding our service offerings, our technology innovations and our continued commitment to a green planet by ideating and testing some of the latest and fastest-growing retail trends such as experiential marketing, crowdsourcing , omni-channel retailing, model businesses, social marketing and mobile shopping. .

So with that, on behalf of the entire team here at SPAR Group, I would like to thank you, all, for joining us on today's call. This ends our prepared comments and we're now available to answer any questions. Thank you. .

[Operator Instructions] Your first question comes from Matthew Paul, Sidoti & Company, LLC. .

In regards to your last comment, can you shed a little color and how you plan to incorporate crowdsourcing into corporate strategy?.

Sure. Matthew, thanks for the question. So just for those of you on the call that might not know what that crowdsourcing is, and I don't know if this is the perfect definition, but I'll take a layman's approach to it.

Crowdsourcing is a -- is the latest and fastest-growing retail trend, whereby companies can enlist any human, basically, via their mobile device to go into a store and essentially audit condition. So they can go in there and take a of something or say, "yes or no, a display was up," or how many items they saw, or what they saw.

They don't actually touch the shelf, but they do audit in-store conditions. We are currently looking at crowdsourcing from a variety of angles. We're looking at companies that are using crowdsourcing today and potentially looking to bring them into the fold. We're also looking at how crowdsourcing can positively augment the merchandising business.

There's a -- there are a variety of things that we're looking at in terms of how to use it, and we're going to be testing that in the very near future. So that would be one idea. .

Okay. And moving forward, a few more specific questions. How quickly can you streamline the additional fixed cost related to the international acquisitions? Or actually, acquisitions as a whole across the company? And a follow-up, maybe if there's a dollar figure of duplicate cost you can kind of wipe out, we'd love to hear it. .

Okay, so let me make sure that I understand the question correctly, Matthew.

So you're looking for when we acquire a company and expect synergy, how quickly, we can realize those synergies?.

Yes, but even more specifically, I guess, in your prepared remarks, you had an increase of, I think, it was about $700,000 in SG&A costs, and at least a part of that was associated to some expenses that have stemmed from... .

one, how accurately we assess those synergies, so sometimes we will acquire a company that isn't exactly in our space, but in a tangential space, and we need to do a good job of understanding how much of that would be synergistic and how much is going to be additional; and then second, how quickly we can take that action.

And we've got some historic cases where we've taken action very quickly and some we will be taking longer to make that assessment and also understand the impact on the existing customers that we're taking on with those acquisitions. .

Okay.

And last question, so a bit of another 2-part question is, could you, I guess, quickly address the current temperature of the retail space? I know you touched upon some of the trouble you had in the quarter with your profit margin and your confidence in obtaining margins in the future that are higher than what you saw in the quarter due to some sort of rebound, I guess, in the space?.

a, being very effective in doing this in a very fast way, I'll give you an example in just a second; and also, b, very excited about this.

So instead of retailers that sell their products, both within their stores and online, instead of offering them a better deal online and in the store, they really changed their strategies to marry the 2 together, which is what's called omni-channel marketing.

So they're doing things on the Internet and their mobile devices that, ultimately, lure the customer into the store for a better deal, and/or some other type of shopping experience, because, as we all know, customers spend more when they're in the store than when they're buying products online.

So I think the temperature in the retail sector today is very fast moving, very fast-moving and excited. The second part of your question is, what are some of the strategies that we're currently employing to get those higher-margin services and higher-margin contracts.

I mentioned in my prepared comments that we're really focused on developing more strategic relationships with multinational customers. And that's really a different game to play. So we are implementing those strategies to ensure that we're not in a price-play game and that we're in a value-play game.

And when we're moving with our multinational customers at their global headquarters and doing a webcast with 3 or 4 of their different zones across the world about the business that we're doing together and pulling together our joint business plan for the upcoming fiscal year, that puts us in sort of a different place to be working with that partner on ultimately, higher-margin services and, more importantly, higher value to them as to what we're doing for them.

So again, our strategy behind this is to ensure that we're not in the price-play game, that we're in the value play game and that we can measure the value along with the customer that we're delivering to their business. .

[Operator Instructions] Ms. Blanchard, there doesn't appear to be any further questions. Please continue. .

Okay. Again, thank you, all, for joining us on today's call, and we look forward to talking to you next quarter. .

Ladies and gentlemen, that does conclude the conference call for today. Thank you for participating. You may now disconnect your lines..