Alan Sheinwald - Jill Blanchard - Chief Executive Officer, President and Director James R. Segreto - Chief Financial Officer, Principal Accounting Officer, Secretary and Treasurer

Good day, and welcome to the SPAR Group, Inc. 2014 Third Quarter Conference Call. Today's call is being recorded. At this time, I would like to turn the conference over to Alan Sheinwald of Capital Markets Group. Please go ahead.

Thank you, operator, and good morning. I'd like to thank everyone for joining us today for the SPAR Group 2014 Third Quarter Earnings Conference Call. On the call today, your presenters will be Ms. Jill Blanchard, Chief Executive Officer and President; and Mr. Jim Segreto, Chief Financial Officer of SPAR Group. 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, I'd like to congratulate the SPAR Group team on their outstanding 2014 third quarter and 9 months financial results and turn the call over to Jill Blanchard, CEO and President of SPAR Group. Jill, the floor is yours.

Thank you, Alan, and thank you, everyone, for joining us today for our 2014 third quarter earnings conference call. We are very pleased with our year-over-year financial results. Our revenue has increased overall both domestically and internationally during the 3- and 9-month period. Additionally, we maintained steady margins across the board. At a very high level, our success is directly attributable to our discipline and focus on becoming more strategic with our customers, international partners and talent. We continue to be focused on building more senior-level relationships with each of our customers. We have a stable of Fortune 1000 customers, with our largest customers providing steady annual business. Our goal is to be the retail partner to each of these customers who are in varying stages of need, development and growth. We cater to each with intensive attention to ensure that we're delivering value to their business. In addition to our standing client relationships that we've talked about in the past with Somerset, Staples and Family Dollar, we have established a new business with Ergotron and expanded business with Koodo Mobile. For our wholly owned subsidiary, SPAR National Assembly Services, or NAS, we recently announced a 3-year partnership agreement with Ergotron to provide professional installation of its WorkFit sit-stand workstations in businesses and homes. Ergotron is our 75th in-home and in-office assembly manufacturer. Our proprietary assembly software allows in-home, in-store and in-office assembly purchase and scheduling directly through their manufacturing clients. This process allows our customers to increase the level of service offerings while gaining additional revenue. With more than 1,200 certified technicians on a nationwide basis with 20-plus years of experience, we assemble all types of products such as indoor furniture, outdoor furniture, grills, fitness equipment, cart corrals and much more in customers' homes, offices and retail locations. We…

Thank you, Jill. A summary of our financial results for our 2014 third quarter and first 9 months, beginning with highlights and followed by more detailed explanation, is as follows. Highlights for the 3-month period ended September 30, 2014, as compared to 2013 are as follows: Revenue for the 2014 third quarter totaled $31 million, an increase of 12% as compared to $27.8 million for the same period last year. Gross profits totaled $7.3 million, an increase of 12% as compared to $6.5 million for the same period last year as well. Domestic and international gross profit increased 10% and 15%, respectively, and gross profit margin remained constant at 24% for both the third quarter periods. Net income for the third quarter of 2014 increased 15% to $383,000 or $0.02 per diluted share compared to a net income of $331,000 or $0.02 per diluted share for the corresponding period last year. Domestic net revenue increased 3% or $400,000 to $11.7 million for the 3 months ended September 30, 2014. The increase was primarily due to incremental revenue from project work compared to the same period last year. International net revenue increased 18% or $2.9 million to $19.3 million for the 3 months ended September 30, 2014. The increase in net revenue was primarily due to increased revenue in China, primarily due to the recent acquisition in that territory; Mexico; India; and South Africa; partially offset by lower revenue in Japan compared to last year. Domestic gross profit margin increased 2 percentage points to 31% -- 32% of net revenue for the 3 months ended September 30, 2014, compared to 30% of net revenue for the same period in 2013. The increase in gross profit margin was due primarily to more favorable mix of higher-margin project work compared to last year.…

Great. Thanks, Jim. As part of our conscious evolution and effort to maintain ourselves as a leader within the global retail merchandising industry, it is our job collectively to identify trends within the industry. It's mine, specifically, to lead our team down a path in order to stay ahead of the curve with innovative new ways to assist our clients in achieving their goal. As we travel the world and work closely with Fortune 1000 companies, we are privy to new and fast developing trends, trends that have a significant effect on how we do merchandising today and in the future. We have captured these trends and what they mean to our customers' businesses, and we're actively discussing these trends with them today. While we are not publicly discussing the specifics of these trends and how we're pioneering this effort, we are disclosing openly a bit of what's happening behind the scenes so that our shareholders understand that the merchandising industry is continuing to evolve. It's critical for us to synthesize these trends with our largest customers. We are creating some new conversations about ideation sessions that are serving as the impetus to innovative opportunities and techniques. Alongside these conversations, we continue to invest in technology. In my 20-plus year career in the retail industry, today, more than ever, this is the key component of innovation, growth and efficiency. We are currently evaluating some new areas in technology that can revolutionize this industry, and we're confident that we're going to lead the way, both for our customers as well as our industry. On the acquisition front, we continue to explore both domestic and international opportunities. Domestically, we are in discussions with several strategic candidates that could expand our current service offering. Internationally, we are focused on expansion efforts in South America and in Asia, and to this effort, we are internally expanding our team to broaden our penetration in these key markets while continuing to explore expansion in our current countries. Overall, I'm very pleased with our team and the improvements that we've made since I've come on board. The culture and the morale amongst the team is at an at all-time high as we continue to be focused and disciplined on the core job at hand, delivering value to our customers' businesses. On behalf of the entire team here at SPAR Group, I would like to thank you for joining us on today's call. And this ends our prepared comments, and we're now available to answer any questions. Thank you.

[Operator Instructions] And we'll take our first question from Michael Strong [ph] with Strong Capital [ph].

I have 2 quick questions if I can. First one is, can you further comment about your international expansion and joint ventures and what we should be thinking there, certainly, in terms of timing? And I guess the second one relates to, I guess, gross margin expectations going forward.

Sure. Thank you, Michael. Let's see. Jim, I'll talk a little bit about some of the work that we're doing in the international expansion effort, and then I'll turn it over to you to add some more color to that and also talk to the gross margin expectations. First, on the international expansion, we typically globally, both domestically and internationally, do 2 to 3 acquisitions per year and are going to stay on that same target. How we choose the international expansions is typically a mixture of client interest, marketplace opportunity and the ability to, within an existing country, provide some new services or provide additional coverage. So it's really those 3 things that we consider as we look to expand into markets and/or bolster an existing market, and we've done both of those things in the past 2 to 3 years. As we said in the prepared comments, we are currently looking to expand South America and then potentially, further in Asia, and both are driven by those 3 things that we look at. So you can continue to expect us to expand both in existing countries as well as into new countries. Jim, let me pass this over to you if you have some additional comments to add on that as well as to address the gross margin expectation question.

Thank you, Jill. Yes, and Jill's pretty much handled the acquisition strategy. We've planted seeds both domestically and internationally. Next week, I am traveling to Central America to look at a potential opportunity there and hopefully get us into a signed term sheet and opportunities in that market, which we feel is very strong for us and would be a new market for us. In addition to that, as we look into Asia, our client base is constantly asking us to expand into other markets there, and we are just starting up some due diligence work in Hong Kong and other Asian markets. With respect to domestically, we have a team assigned to that, that is exploring opportunities. I think we've probably met with about 9 potential candidates. I think there's 1 or 2 that are rising to the top, and hopefully, as we move into 2015, we'll have some exciting news there. Again, it's always exciting to pick up something domestically -- or in a market that we're currently in because the synergies are pretty dramatic for this company and the service industry that we're in. So with respect to gross profit margins, there again, we're constantly looking at -- and they're completely different here in the States than they are internationally, but our focus is constantly on both the domestic margins as well as the international subsidiaries. We spend a lot of time -- this year, we've employed an international controller, a new position, and his responsibility is to travel to those locations and really do what I would call deep dives into their financial statements and really focus on improving some synergies that we can capitalize on to constantly move those margin points upwards. Domestically, we spend a lot of time evaluating our field cost in all levels and look for synergies to improve there, to the extent that historically, we've been -- our gross profit margins have been declining. We've stabilized them so far this year, and our expectation is to improve them as we go forward into 2015.

[Operator Instructions] And it appears there are no further questions at this time.

Okay. Thank you again, everybody, for taking the time to join us on today's call.

And that concludes today's conference. Thank you for your participation.