Thomas Walsh - Alliance Advisors Gary Raymond - Chief Executive Officer James Segreto - Chief Financial Officer

Matthew Paul - Sidoti & Company

Good morning, ladies and gentlemen. Welcome to the SPAR Group Inc. third quarter 2013 update conference call. (Operator Instructions) I will now turn the conference over to Thomas Walsh, Partner of Alliance Advisors. Please go ahead.

Thank you and good morning. I'd like to thank, everyone, for joining us today for the SPAR Group third quarter 2013 earnings conference call. Mr. Gary Raymond, Chief Executive Officer; and Mr. Jim Segreto, Chief Financial Officer of SPAR Group, will be your presenters on the call. 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 a forward-looking statement. 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, I'd now like to turn over the call to Gary Raymond, CEO of SPAR Group. Gary, please go ahead.

Thank you, Thomas. And thank you, everyone, for joining us today for our third quarter 2013 earnings conference call. The 2013 third quarter and nine month period served as a time of integration and growth. First and foremost, the third quarter marked a return to profitability for the company, as we recognized $331,000 net income following last quarter's disappointing net loss of $130,000. We solidify the domestic reoccurring revenue stream by successfully integrating the Market Force acquisition. Market Force now allows us to expand our existing client base, while augmenting a new service offering to our in-store audit services catalogue. This newly acquired business is expected to generate incremental annualized revenue of approximately $8 million that will expand our clientele in the mass merchandiser, hardware, grocery, drug, toy and other classes of trade that we consider vital for continued profitable growth. The company is pleased with a 16% increase in overall revenue growth that we have achieved for the nine months period ending September 30, 2013. Improvements to our topline continue to be driven by our international business, specifically integrated acquisitions in South Africa and India and the organic growth of our operations in China and Mexico. Today, we have seven joint ventures in nine markets. And for the first nine months of 2013, international revenue accounted for 60% of the $80.2 million in total revenue for the nine month period. Although, the domestic margins did improve for the three months period, SPAR did incur overall margin compression for the third quarter and nine month period compared to last year. While we are pleased with our return to profitability, we are aware that recent margin compression associated with the increased cost of operations in some of our international subsidiaries added impact on our earnings. I assure you that management is committed to remedying this situation, so that we can ensure increased earnings and improved shareholder value. Management maintains that we have reached the necessary balance in our business that is required to uphold its position as a market leader. Our ability to organically grow while integrating profitable bolt-on acquisition has always served as a key to our success. Going forward, we will remain committed to following this proven business model of acquiring and efficiently integrating profitable subsidiaries, while organically growing earnings via large scale contracts with Fortune 500 company. Management believes that improved seasonality, organic growth and SPAR's continued strategic acquisition model, will continue to improve our financial results throughout the fourth quarter and into 2014. With that, I would now like to turn the call over to James Segreto, Chief Financial Officer, who will provide greater detail of our financial result.

Thank you, Gary. Before I provide a summary of our financial results for the three and nine month periods ending September 30, 2013, I would like to reaffirm Gary's previous comments, that we are actively pursuing acquisition targets worldwide in an effort to deploy our assets in markets that we believe will provide more opportunity for growth and increase shareholder value. With respect to our financial results to follow, it is important to note that effective August 31, 2013, we had made a strategic decision to exit the Romanian market. Therefore, we have removed Romanian operations from our financial statement presentation for both periods, both years. The results for the third quarter, net revenues for the three months ended September 30, 2013 were $27.8 million compared to $25.4 million for the three months ended September 30, 2012, an increase of $2.4 million or 9%. Domestic net revenues totaled $11.3 million for the three months ended September 30, 2013, compared to $11 million for the same period in 2012. The $300,000 increase was primarily due to incremental revenue on the recent Market Force acquisition and the September 2012 acquisition of National Merchandising Services. This was partially offset by a decrease in syndicated services and other project work in 2013 compared to last year. International net revenues total $16.4 million for the three months ended September 30, 2013, compared to $14.3 million for the same period in 2012, an increase of $2.1 million or 15%. The increase in 2013 international net revenues was primarily due to incremental revenue from the integration and acquisitions in South Africa and India and the increased revenue in China, which was partially offset by lower revenue in Australian market. Consolidated gross profit margins for the three month period ended September 30, 2013, were 24% compared to 25% during the same three month period ended September 30, 2012. Domestic gross profit margins increased to 30% compared to 29% during the same three month period ended September 30, 2012. The international gross margins decreased to 19% as compare to 21%, during the three month period ended September 30, 2012. The decrease in margin is directly attributable to higher gross margin business in India and Australia, Mexico and Turkey, which was partially offset by margin improvements in the market of Japan, China and Canada. For the period, the company reported net income of $331,000 or $0.02 per diluted share compared to the net income of $578,000 or $0.03 per diluted share for this corresponding three month period ended last year. The decrease of the three month period ended September 30, 2013, was driven primarily by increased selling, general and administrative expenses related to the Market Force acquisition. Results for the nine month period. Revenue for the nine months ended September 30, 2013, were $80.2 million compared to $69 million for the nine months ended September 30, 2012, an increase of $11.2 million or 16%. Domestic net revenues totaled $32.4 million in nine months ended September 30, 2013, compared to $31.2 million for the same period in 2012. Domestic net revenues increased $1.2 million or 4% due primarily to increased revenue from the recent acquisition of general merchandizing and certain in-store order services for Market Force Information and the September '12 acquisition of National Merchandising Services. This was partially offset by a decrease in syndicated service another project work. International net revenues totaled $47.8 million for the nine months ended September 30, 2013, compared to $37.8 million for the same period in 2012, an increase of $10 million or 26%. The increase in 2013 international net revenues was primarily due to the incremental revenue from the newly rated acquisitions in South Africa and India and increased revenue in both China and Mexico market. Consolidated gross profit margin for the nine months ended September 30, 2013, were 24% compared to 27% during the same nine month period ended September 30, 2012. Domestic gross profit margin decreased to 31% compared to 32% during the same nine month period September 30, 2012. International gross profit margin decreased to 19% when compared to 22% during the nine month period ended September 30, 2012. The decreased in overall international gross profit margins were directly attributable to an unfavorable mix of business across all markets. SPAR Group reported net income of $244,000 for the nine months ended September 30, 2013, or $0.01 per diluted share compared to net income of $1.6 million or $0.07 per diluted share for the corresponding period last year. The decrease in net income for the nine month period ended September 30, 2013, was driven primarily by higher general spending in our domestic operation. As of September 30, 2013, cash and cash equivalents increased to $3.1 million, working capital was $8.6 million and the company's current ratio was 1.6 to 1. Total current assets and total assets were $23 million and $29.9 million, respectively. Total current liabilities and total liabilities were $14.4 million and $14.6 million, respectively. Shareholders equity was $15.4 million at September 30, 2013. I would now like to turn the call back over to Gary, for his closing remarks.

Thank you, Jim. In closing, management is optimistic regarding the direction of the company and we look forward to executing on the abundant opportunities that lay ahead of us. SPAR has continued to expand its market footprint, while constantly bolstering relationships with some of the world's largest retailers and consumer packaged goods companies. We are currently examining several acquisitions to further increase our revenue and profitability growth. Our strategy is to research current areas of operations that offer additional growth potential, particularly in the U.S. and Asian marketplace, as well as new markets, while our focus remain in South America. Our current project pipeline remains strong and we are presently engaged in discussion to secure additional profitable acquisition. The company expects a strong holiday shopping season to serve as one of the many reasons for our continued optimisms that we will end the year with a strong fourth quarter. Based on the success we have achieved thus far in Q4, we expect to return to our traditional financial performance that we experienced in previous years. Management expects to record solid revenue and earnings, as we end in 2013. So with that, on behalf of the entire team of SPAR Group, I would like to thank all of you for joining us on today's call. That ends our prepared comments we are now available to answer any questions from participants.

(Operator Instructions) Your first question comes from Matthew Paul from Sidoti & Company. Matthew Paul - Sidoti & Company: In regards to Romanian asset that you divested, can you tell us a little bit about [ph] the asset there, and maybe if I can get that contribution number for sales out of that operation?

You were kind of cut off a little bit, Matt. So you were asking about the reasons behind it strategically that we were asking for divesting? Matthew Paul - Sidoti & Company: Sorry, I couldn't hear you?

Are you asking me strategically, why we're getting out of that particular market? Is that were you're asking? Matthew Paul - Sidoti & Company: Yes, that was the first part of question. Second part was, can you just provide a contribution in relation to sales from the operation?

We made a decision, as Jim mentioned in his comment, strategically of what markets we want to be, both in terms of currently and going forward and we decided that this particular market, well, it has good management, good clients and all that kind of stuff is probably not the market we probably wanted to stick with going forward. We want to redeploy our energies focused asset again in market that we would consider to be probably bigger opportunities for growth and potentially higher, larger type of market. And that's the reason we made this decision to do so. I made mention of I think in my comments as well, we're looking at a lot of our other current market to looking to maybe do more acquisitions inside the markets we're in and we're also looking at some other newer markets, where there probably our bigger focus, again is South America, because as we talked to some of our current clients and it's actually projected client, that's where a need seems to be. So we've decided to kind of go after that. And frankly, it's no different than anything I've done, that we've looked at with different JVs over the last number of years. As you know, I think you and I have discussed this about different markets that we've been in and out of or particular partners that we've had over the course of the year. So this is just kind of more in the normal course of trying to evaluate, which is the direction we want to head. As it relates to what it is contributing, from a revenue perspective, I think it's what you're asking. The guidance that we originally put out there was $115 million and if you look at our ending for 2012, it was that [ph] 102.7. So we're looking at about a 12% increase, is what we have put out there year-on-year. If you actually back out the Romanian subsidiary, you're still going to be at that 12% increase. So it's really no change, should be no marketable change in terms of the increase that we're looking at year-on-year.

And Romania contributes about $1 million dollars in revenue per quarter. Matthew Paul - Sidoti & Company: Just one more question in regards for the quarter for the unprofitable regions you're in internationally, can you talk about some of maybe the macro forces or some of the more specific events that are leading to the unprofitable quarter, just for a few of your international operation?

I don't think we said it was unprofitable thing internationally combined. I think the one thing that Jim, in particular, talked about was some of the margin compression that we had in some of the international markets. But if you look at it collectively for the three months period, I mean we were certainly in a positive position. So we have almost, I think all markets right now are actually showing a number over the nine month period, that's colored in the black. So I think I have touched on earlier in the year that my goal is to have every single market, make sure that they are running in a positive direction. And I think we're pretty closed on our way of having that objective met.

There are no further questions on the phone line at this time, please continue.

Thank you, operator. I'd like to thank everybody, who participated on the call today. As I mentioned in some of my comments, we're feeling pretty good about how the business has now turned around from our result in the second quarter. Feel like, we're back on pace to the more traditional performance that we like to see over the course of both a third quarter and going forward into 2014. And particularly pleased on sort of how our conversations are going from an acquisition point of view as well as our organic growth. So I'm feeling very positive, as we move forward into the next quarter and into '14. So with that again, I would like to thank everybody, thank all of the employees of SPAR, who have done a wonderful job, integrating a lot of acquisition and getting us on the path that we're on today. So with that, again, thank you very much. And we will now close the call.

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.