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Operator: Good day, and welcome to the SPAR Group First Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Sandy Martin, with Three Part Advisors. Please go ahead.

Sandra Martin: Thank you, operator, and good morning, everyone. We appreciate you joining us for SPAR Group, Inc.’s conference call to review its first quarter 2026 results. Joining me on the call today are SPAR’s Chief Executive Officer, William Linnane; and the company’s Chief Financial Officer, Steven Hennen. 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. The information recorded on this call speaks only as of today, 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, expectations, future events or future financial performance are 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 today’s earnings press release 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 reconciliations to the nearest GAAP measures can be found at the end of our earnings release. SPAR Group assumes no obligation to update or revise any forward-looking statements publicly. Finally, the earnings press release we issued earlier is posted on the Investor Relations section of our website at sparinc.com.

A release copy was also included in an 8-K submitted to the SEC. Now I would like to turn the call over to the company’s CEO, William Linnane.

William Linnane: Thank you, Sandy, and good morning, and thank you for your interest in SPAR Group and for joining us today. After our prepared remarks, we will open the line for questions. Before turning to our strategy and results, I want to address an important development. Earlier this month, we reached a settlement agreement with Bob Brown, one of the original co-founders and former CEO of SPAR. This resolution formally closes a chapter in the company’s history and allows us to move forward with full alignment, constructive engagement and a singular focus on creating shareholder value. We appreciate Bob’s decision to support SPAR’s current direction and to move beyond legacy matters that do not reflect the progress of today’s company.

With this behind us, the entire organization is solely focused on execution, client success and long-term value creation for shareholders. SPAR today is a fundamentally different company than it was just a few years ago. We are a North American-focused best-in-class retail service platform with deep expertise in core merchandising and on-demand execution. We serve leading retailers and consumer packaged goods companies across the United States and Canada. And our differentiated model combines highly skilled people with technology-driven tools to deliver real-time measurable outcomes. Importantly, we are not constrained by legacy labor-based models. We are outcome-focused, data-informed and built to move at the speed of today’s retail. The work our team completed in 2025 laid the foundation for a renewed SPAR, a leaner, more disciplined margin-focused organization designed to scale with operating leverage.

Turning to our first quarter results. We delivered several important milestones. We returned to positive EBITDA. We achieved gross margins of 22.3%, reflecting the strength of our evolving business model. This margin performance demonstrates the benefits of our shift towards higher-margin recurring merchandise revenue supported by our technology-enabled workforce. Notwithstanding a 10% revenue decline in the quarter, this represents an inflection point driven by our deliberate reduction of lower-margin project-based remodel work. We continue to see progress in our core merchandising business with U.S. merchandising revenue up 5% and Canada returning to growth with a 3% increase. SG&A was delivered at $1.9 million below the normalized average quarter of 2025, demonstrating the significant restructuring benefit of the work done in the second half of 2025.

We remain focused on achieving our medium-term target of approximately 25% gross margins over the next 18 to 24 months. Our financial strategy is clear: drive up gross margins, control SG&A and grow the top line via recurring revenue streams, all by relentlessly focusing on our core merchandising business. This aligns our business and financial strategic objectives. Based on current trends, we expect the second quarter to be substantially stronger on a sequential basis as momentum continues to build. Our growth strategy is deliberate and focused. We are prioritizing higher-margin core merchandising programs while simultaneously expanding new service offerings that leverage the infrastructure we already have in place. Each incremental client, scope of work or agreement improves the economics of our fixed cost base, supporting margin expansion over time.

This is a model designed for profitable growth, not growth for growth’s sake. In March, we announced a partnership with ReposiTrak, which underscores our belief that the future of retail execution is not technology alone, nor labor alone. It is the intelligent combination of both. Our partnership combines proprietary technology with our flexible workforce platform to enhance inventory accuracy, reduce out of stocks and improve on-shelf sales. AI and advanced analytics can identify problems, but people still need to execute solutions at the shelf edge in real time across thousands of locations. This is where SPAR excels. Retailers and brands do not need more dashboards. They need issues resolved, standards maintained and sales protected. Our platform identifies exactly where action is needed and SPAR’s national on-demand workforce takes the action.

We help keep shelves full, stores organized and products visually merchandised without adding incremental store labor costs. At a time when retailers are under intense pressure to protect revenue and reduce operational complexity, this capability matters more than ever. After Steve covers our detailed financial results, I will share additional thoughts. Steve?

Steven Hennen: Thank you, William, and good morning, everyone. First quarter 2026 net revenues totaled $30.5 million, down 10.3% year-over-year. Breaking out net revenue further, U.S. merchandising revenue grew 5% year-over-year and Canada revenue increased 3%. U.S. remodel work declined in the quarter as we continued our deliberate shift toward higher-margin recurring merchandising services. Gross profit for the first quarter was $6.8 million or 22.3% of revenue compared to $7.3 million or 21.4% of revenue in the prior year quarter. Higher gross margins were driven by the intentional shift towards merchandising work that combines people-centric expertise with technology-based tools. Selling, general and administrative expenses for the quarter were $6.2 million compared to $5.9 million in the prior year.

On a normalized basis, removing out-of-period accrual adjustments, SG&A declined $1.9 million versus the 2025 quarterly average, and we see further reduction opportunities ahead. Operating results were essentially breakeven with a small operating loss of $42,000 compared to operating income of $1 million in the prior year. First quarter’s GAAP net loss attributable to SPAR Group was $553,000 or $0.02 per diluted share compared to net income of $462,000 or a positive $0.02 per diluted share in the prior year quarter. Adjusted net loss attributable to SPAR Group was $274,000 or $0.01 per diluted share compared to adjusted net income of $528,000 or $0.02 per diluted share in the prior year period. Consolidated adjusted EBITDA was $737,000 in the quarter.

While this represents a decline from $1.5 million in the prior year, it reflects the intentional revenue mix transition away from lower-margin remodel activity and certain out-of-period accruals that were reflected in our SG&A costs last year. We view the underlying margin trajectory as encouraging and remain on track with our full year outlook. Turning to our financial position. As of March 31, 2026, our balance sheet remains solid with positive working capital of $18 million, excluding the balance owed on the line of credit and the current portion of the long-term debt. This includes $4.3 million in cash and cash equivalents. Net cash used by operating activities was $3.9 million for the quarter, primarily reflecting working capital timing associated with growth in our merchandising business.

With that, I will turn it back to William.

William Linnane: Thank you, Steve. We are encouraged by the quality of our business development pipeline. Recent wins with blue-chip retailers and CPG partners validate the strategic changes we have made to our go-to-market approach. We intentionally redesigned that strategy, prioritizing recurring higher-margin core merchandising supported by people-centric domain expertise and technology-enabled partnerships that improve economics for both our clients and for SPAR. Our model is designed to function as a highly efficient and flexible service that can address critical needs when retailers or brands require support without burdening store teams or adding fixed labor costs. That flexibility delivers strong return on investment for clients and position SPAR favorably relative to legacy providers who are constrained by outdated cost structures and business models.

Technology is a critical enabler for this model. By layering intelligence on execution, better inventory visibility, faster and more accurate restocking and support during peak seasons or labor shortages, retailers can act faster and smarter at scale. This approach is an integrated approach, and this is how we will build a durable recurring revenue stream and create competitive separation in the market. We continue to believe the market opportunity is significant. Our solutions are applicable across all retail formats, grocery, dollar, convenience, club, mass and specialty stores across the U.S. and Canada. The need for cost-effective execution-focused partners has never been more immediate, and we are actively deploying and evaluating additional technology and AI-based tools to further enhance our offering.

From a financial point of view, our priorities are clear. We are building a leaner, profit-focused business, starting this quarter with positive EBITDA with an explicit goal of generating sustainable free cash flow. Growth underpins those objectives and our plans call for expansion across each of our core areas. We are deepening relationships, expanding service scopes and growing wallet with existing clients. We also see meaningful cost reduction opportunities this year as we implement further efficiencies across the business. Together, these actions position us to deliver sustainable, profitable growth and increased shareholder value over time. Today, we are reiterating our fiscal year 2026 guidance. We expect revenue in the range of $143 million to $151 million, gross margins of approximately 20.5% to 22.5% and SG&A, excluding unusual items of $25.5 million to $26.5 million.

At its core, SPAR has built a differentiated platform: Real-time insights paired with a scalable accountable workforce. This combination gives our clients speed, consistency, transparency and national reach. And it gives us a business we believe can compound value over time. Retailers and brands are demanding partners who can execute at their own pace, commit to outcomes and scale without friction. That is the company we are building. We believe SPAR is well positioned for the opportunities ahead. Steve and I would like to thank our employees for their continued commitment, hard work and dedication and the Board for their continued support. With that, operator, I would like to open the line for questions.

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Operator: [Operator Instructions] The first question comes from Igor Novgorodtsev with Lares Capital.

Igor Novgorodtsev: I’m actually a former Board member of the company years ago and in investor today. So I just wanted to get a brief introduction. So I know the company well. Could you tell me a little bit about the remaining revenue for this year? How much of it is already committed contracts, which you’re confident about and how much of it is projection? And how much of it is coming from your partnership with ReposiTrak?

William Linnane: Igor, it’s William here. Thank you for your remaining interest in the company. And thank you for your service in the past. In terms of the revenue at this point, a substantial amount is contracted given we’re already 5 months into the year. We have some project work where we have a best forecast against, but we’re highly confident on that. And then we have a small element of uncommitted relative to the total revenue. And within that uncommitted and future revenue, there’s some of the revenue we believe we can drive via the ReposiTrak partnership. But obviously, that’s going to build over time as we get momentum on that. So we’re having some good discussions and more to come in relation to that. Does that answer your question?

Igor Novgorodtsev: Somewhat, if you can just delve a little bit more. So it seems to be that if you look at your guidance, it’s $37 million to $40 million for the remaining quarters according to your guidance. So Q4 is going to be traditionally weak, I would assume, knowing your business. So the strongest are going to be next quarter and Q2 and Q3. Am I reading it correctly?

William Linnane: Yes, that’s correct. Q2 and Q3 are historically the strongest quarters in the U.S. and Canada business, which is now the group.

Igor Novgorodtsev: Okay. How do you think your quarter did versus revenue-wise versus what you expected in revenue? Is that what you kind of expected? Or was it a little bit lower or something was deferred?

William Linnane: So it was broadly in line with revenue. Obviously, we’ve taken a pivot to focus on the higher-margin merchandising business. So we were pleased to get that back into growth. Some of the remodel revenue was connected with low-margin accounts. So yes, we’re broadly pleased with revenue. Obviously, the higher revenue, the better, but we believe we started pretty strongly. We’re looking forward to Q2, which, as you said, will be stronger on revenue and the balance of the year will play out, as I described.

Igor Novgorodtsev: Okay. The other question I wanted to ask is you’re currently not in compliance with NASDAQ listing requirements about the — I believe net worth of the company or of the book value. So maybe you can talk about this, how you’re planning to come into compliance?

William Linnane: Yes. We have a plan. We’re working that through, and we’ll present that to the Board, and we will be communicating to NASDAQ later in the week. But we’re pretty confident we have a robust plan. I don’t want to talk publicly to that until we communicate to NASDAQ on it and get their response, but that’s the current status.

Igor Novgorodtsev: But we should expect an update within the next few weeks, but is that what you think we should hear one way or another, right?

William Linnane: Yes, that’s correct. You’ll hear one way or another or you can appeal if you don’t like the answer, but the process will work its way through. But we believe we have a robust plan. So we’ll see how that goes. But yes, you’re correct.

Igor Novgorodtsev: Okay. And I guess my last question and a sort of theoretical question. Obviously, you were up for sale a few years — well, a couple of years ago. I know it didn’t work out, but it was a considerably higher price than it is today. Right now, you just did a big restructuring, and I understand it will take a little bit of time. But is considering a strategic sale still on the table? Or are you not anticipating anything anytime soon?

William Linnane: Well, I think as a public company, obviously, anyone can buy shares or make an offer or trying to get control. But we’re focused on the business in hand and delivering the numbers and the guidance, and we believe the share price will respond to that. So we’re not actively working through a strategic process and trying to get people to bid on the company. But yes.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to William Linnane for closing remarks.

William Linnane: Thank you. Thank you for joining the call, and thank you for continuing to follow our company. I look forward to providing our second quarter results and updating on strategic initiatives in a couple of months. Hope you have a great day and take care. Thanks.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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