Good day, and welcome to the SPAR Group Second Quarter 2026 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Philip Cooper from Three-Part Advisors. Please go ahead.

Thank you, Operator, and good morning, everyone. We appreciate you joining us for SPAR Group Inc.'s conference call to review second quarter 2026 results. Joining me on the call today are SBAR's Chief Executive Officer, William Lenane, and the company's Chief Financial Officer, Steve Hennett. This call is also being webcast and can be accessed through the audio link on the events and presentation 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 on 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 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 was also included in the 8K submitted to the SEC. Now I'd like to turn the call over to the company's CEO, William Linne.

Thank you, Philip, and good morning. Thank you for your interest in SPAR Group and for joining us today. After our prepared remarks, we will open the line for questions. The second quarter represented an important milestone in sparse transformation. We returned to profitability for the first time since the first quarter of 2025. We also delivered more than 60% year-on-year growth in adjusted EBITDA and maintained gross margins above 22%. These results reflect the progress we've made over the last 12 months to simplify the business, strengthen operating discipline, improve the quality of our revenue, and focus on profitable growth. While there was a revenue makeshift to higher-margined business which impacted overall growth in the quarter, we have focused our efforts on markets and accounts where we have to scale and expertise necessary to offer competitive rates to the customer and still earn a reasonable return on the investment. We maintained pricing and operational discipline, supporting a stronger profitability program. We have continued to prioritize reoccurring merchandising programs over lower margin project work, and the results are increasingly evident in both our earnings and cash generating potential. Importantly, the underlying health of the business continues to improve. Both our core U.S. merchandising business and our Canada operations generated sales growth in the quarter. Canada remains a strong performer, underscoring the strength and resilience of our diversified North America platform. At the same time, our operational initiatives are gaining traction. Gross margins have stabilised in the low 20% range and remain towards the upper end of our guidance. We continue to believe there is a clear path towards achieving gross margins of approximately 25% over time as our revenue mix improves. productivity initiatives mature, and scale benefits increase. We are also making significant progress in building a leaner, more efficient organization. Our actions over the last year have reduced complexity, improved execution, and positioned the business to drive greater operating leverage as we grow. We continue to expect our underlying SG&A run rate to trend towards approximately $20 million annually. Looking ahead, I believe the business has been in a fundamentally stronger position than it was a year ago. Our balance sheet has improved during the first half of the year. Our operations are delivering greater consistency. And we have established a clear roadmap to enhance how SPAR executes, goes to market, leverages technology, and delivers financial performance. Overall, we believe we're building a business with improving momentum, expanding operating leverage, and increasing visibility into long-term value creation. Finally, we began trading on the OTCQB in late July under the same ticker symbol SGRP following the NASDAQ delisting notice. Notably, this has not changed our strategy. Our focus remains on execution, operational improvement, and maintaining transparency. I will discuss our strategic initiatives in a few moments after Steve covers our detailed financial results for Q2. Steve.

Thank you, William, and good morning, everyone. Second quarter 2026, net revenues totaled $36.9 million, down 4.5% year-over-year, primarily due to the lower volume in our remodel business. As William comments, we continued to shift the business to more recurring, margin-enhancing merchandising services. Gross profit for the second quarter was $8.4 million or 22.8% of revenue, compared with $9.1 million or 23.5% of revenue in the prior year quarter. Higher stabilized 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 $6.8 million, which included $543,000 in non-reoccurring or one-time costs. This compared to $7.9 million in the prior year. As William mentioned, after we anniversary certain restructuring actions next year, our underlying SG&A base costs will be approximately $20 million as we transform into a leaner, more efficient, and effective business model. Operating income for the quarter was $1.2 million compared to operating income of $715,000 in the prior year. Second quarter gap net income attributable to SPAR Group was $409,000, or $0.02 per diluted share, compared to break-even results in the prior quarter. Adjusted net income attributable to SPAR Group was $838,000, or $0.04 per diluted share, compared to adjusted net income of $151,000, or $0.01 per diluted share in the prior year period. Consolidated adjusted EBITDA was $2.1 million in the quarter, up 63% from $1.3 million in the prior year. We believe our net margins are durable and sustainable, especially as the merchandising business becomes a larger percent of our business wins. Turning to our financial position as of June 30, 2026, our balance sheet remains solid with positive working capital of $25.8 million, excluding the balance owed on the line of credit and the current portion of the long-term debt. This includes $2.9 million in cash and cash equivalents. Net cash used by operating activities was $8.7 million for the quarter, primarily reflecting working capital timing associated with growth in the merchandising business. We are revising our full year 2026 financial outlook to reflect our continued focus on growing the merchandising side of the business and current expectations for lower remodel activity this year. While this impacts revenue expectations, it supports our objective in improving earnings quality, profitability, and long-term shareholder value. Net revenues in the range of $130 million to $138 million compared to 2025 net revenues of $136 million for the U.S. and Canada. Gross margins of 21.5 to 23.5 versus 2025 gross margin of 15.9 for the U.S. and Canada. And selling general and administrative costs, excluding unusual items of 21 to 24 million versus 2025 of 32.2 million. With that, I will turn it back to William.

Thanks, Steve. Our outcome-based model is gaining traction, and a key differentiator of that strategy is our ability to combine technology, data, and execution at scale. By pairing real-time insights with a flexible, accountable workforce, We help retailers improve inventory visibility, accelerate replenishment, and respond more effectively during peak periods and labor shortages, and ultimately improve in-store performance and sales. This integrated approach strengthens client outcomes while creating durable, reoccurring revenue opportunities for SPAR. Based on that foundation, we have made meaningful progress with RepositRack in developing a compelling scan-based trading, or SVT, proposition that we believe can create significant value for retailers and consumer brands. In parallel, we have become re-platforming our technology capabilities by leveraging RepositRack's deep retail technology expertise. Together, these initiatives are enhancing our go-to-market offering, improving scalability strengthening our technology foundation and further differentiating inspiring the marketplace. Looking ahead, we have greater visibility of the operating model and strategic priorities than at any point in the past year. We are building a leaner, simpler organization with good financial funding. Our operations have stabilized and we have improved our profitability trajectory, expanding our service offering, modernized our technology, and are driving sustainable long-term growth. Finally, we believe that our associates are at the heart of everything we do, and we will continue to build a winning culture by investing in their training, their development, and their growth. While our return to profitability in the second quarter is encouraging, we view it as the beginning of a much larger opportunity. Over nearly six decades, Bar has helped retailers and brands to improve in-store execution and drive sales performance, And we believe we are well positioned to build on that legacy. We are building a stronger, more efficient, and more capable SPAR, one that is better positioned to serve our clients, create opportunities for associates, and deliver long-term value for shareholders. Steve and I would like to thank our employees for their dedication, passion, and relentless focus on serving our customers every day. Their commitment has been instrumental in stabilizing the business, advancing our transformation, and delivering the improved financial performance we reported this quarter. With that, Operator, I would like to open the line for questions.

We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Guy Riegel with Engels and Snyder. Please go ahead.

Hi, guys. Can you hear me? Yes. Hi, Guy. Great. Hi. So, I have a couple of questions here. What was the rationale for not trying to stay on the NASDAQ?

Given the size of the company and the compliance costs related to it, I think the OTCQB is a market that we can operate on. But ultimately, the shareholders made that decision out, and we had limited grants to appeal at that point. So, we moved the company to the OTCQB as the next best market to be on.

Okay. And I didn't get a chance to read it in the 10Q, a pretty big section regarding Robert Brown. Where do you stand with him?

Yeah, I don't want to comment on ongoing legal matters, but we don't believe that it's material to the operation. And obviously, we're focused on the business itself, and it will resolve itself. But I don't want to really get into any other detail on that question.

Okay. And then, you know, in terms of your lower revenue guidance, is it a function of your determining that – was it just associated with the remodel business, or did you lose some merchandising business?

Can you speak to that? yeah sure yeah yeah the merchandising business was in growth in q2 and in the first half and the canada business which is largely merchandising was in growth so yeah it's purely a decline in the remodel business uh related to uh choices we've made around you know markets where we can really earn margins that make sense for us relative to the working capital we're tying up and some of the work we're doing. So, you know, we're quite focused on keeping that cross margin high as we get to a leaner organization to create the right operating big ridge. So, yeah, the answer is it's a purely remodeled decline.

Okay. And then can you explain the IT agreement that you have with RepositTrack? I see you're paying them $151,500 a month. So why that agreement?

As you know, they're a retail tech company, so we're working with them on replatforming our technology. We think there's significant benefits to replatforming that technology.

Okay. And my last question, did you say that going forward your annual SG&A costs will be a total of about $20 million?

Yeah, we're trending towards that number. I think in the guidance, we said 21 to 24 for the fiscal year 2026, but we're trending towards the lower end of that as we approach the back end of the year into 2027.

Great. Okay. Thank you so much. Okay. Thank you.

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

Thank you. And thank you for continuing to follow our company. I look forward to providing our Q3 results and updates on strategic initiatives in a few months. Have a great day. Thank you.

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