Superior Group of Companies, Inc.

Welcome to Superior Group of Companies 2020 Fourth Quarter and Year End Earnings Conference Call. With us today on behalf of the company is Michael Benstock, the company's Chief Executive Officer, Andy DeMott, its Chief Operating Officer, Chief Financial Officer, and Treasurer, and from the Promotional Products Division, we have Jake Himmelstein, BAMCO's Chief Operating Officer and CFO. As always, upon the conclusion of the company's remarks, there will be a question and answer session. This call is being recorded, and your participation implies that you agree to this. If you don't, then simply drop off the line. Now I will turn the call over to Hala El-Sherbini, Senior Managing Director of Three-Part Advisors, who will read the Safe Harbor Statement. Please go ahead.

Thank you. This conference call may contain forward-looking statements about superior groups of companies, the company, within the Meaning of Securities Act of 1933, the Securities Exchange Act of 1935, the Private Securities Litigation Reform Act of 1995, and all rules and regulations issued thereunder. Such statements are based upon management's current expectations, projections, estimates, and assumptions. Words such as will, expect, believe, anticipate, think, outlook, hope, and variations of such words and similar expressions identify such forward-looking statements, which include statements on the impact of COVID-19 on the company's business, including inventory, supply chain, manufacturing capacity at the company's own and contract manufacturing facilities, service capacity, and customer demand. Forward-looking statements involve known and unknown risks and uncertainties that may cause future results to differ materially from those suggested by the forward-looking statements. Such risks and uncertainties include, but are not limited to, the following. The effect of the COVID-19 crisis on the U.S. and global markets, our business, operations, customers, suppliers, and employees. General economic conditions in the areas of the United States in which the company's customers are located. changes in the markets where uniforms are worn, where promotional products are sold, and where call center services are used, the impact of competition, the company's ability to successfully integrate operations following consummation of acquisitions, and the availability of manufacturing materials, as well as the risks and uncertainties disclosed on the company's periodic filings with the Securities and Exchange Commission. including the company's annual report on Form 10-K for the year ended December 31, 2019, and the eight case filed recently. Shareholders, potential investors, and other readers are urged to consider these factors carefully in evaluating the forward-looking statements made herein and are cautioned not to place undue reliance on such forward-looking statements. The company does not undertake to update the forward-looking statements contained herein to conform to actual results or changes in the company's expectations, whether as a result of new information, future events, or otherwise, except as required by law. Please note that all growth comparisons that management makes today will relate to the corresponding period in 2019 unless otherwise noted. With that, I'll turn the call over to Michael.

Thank you, Hala, and welcome, everybody. Good afternoon. Thank you for joining us to discuss our fourth quarter results. With me today, as usual, is Andy, who will report on the overall SGC results and status of our operations. And Jake will report today on BAMCO's financials and the state of our current operations there. Jake previously helped lead the third quarter earnings call, if you remember, when Andy was not able to attend. As BAMCO becomes a larger and larger part of our company, we feel that the addition of Jake to speak to BAMCO's results and answer questions is helpful. As usual, when we are done, we'll be open for questions. So let's get started. I am extremely proud to have reported our results this morning. Record results in all segments and significant increases in top and bottom line results is positive news for our shareholders. I am especially proud to have done so in one of the most trying years in our 100-year history to report on how we pivoted and brought even greater shareholder value than ever. To remind you, 2020 marked the 100th anniversary of the founding of this company. My great-grandmother, Rose, started this business on the heels of the Spanish flu pandemic, entering us into the world of medical apparel in 1920. She was a bold woman. Well, only after she started the company was she even given the right to vote. She was a trailblazer. I've been preceded by many bold leaders, my grandfather, David Benstock, who saw the company through World War II and the support we gave to our armed troops during that time, and my father, who diversified the company greatly in the uniform sphere, and took the company public in 1968. Our legacy of 100 years is phenomenal, and to have ended our 100 years in the midst of a pandemic with the level of success we have achieved gives us certain bragging rights. I mostly don't want to brag about our 4,600 associates who worked harder and smarter with so little clarity as to what was going to happen this past year. They fought for our survival, and not only did they succeed, but they exceeded beyond all of our expectations. Our work-from-home solution was deployed in mid-March across all countries that we operate in. None of us knew at that point what the future would hold, nor what the contingency plans we had put in place to sell PPE and to how to heighten our focus on essential customers would yield in terms of our level of success. As countries shut down, we benefited greatly by our long-term strategy of redundant manufacturing. moving production around the world like chess pieces to ensure continuity of supply. In keeping with our legacy, we also made record donations last year, millions of dollars in cash donations and essential products to healthcare systems. Our donations helped clothe over 100,000 caregivers. The full value of our donations well exceeded $5 million. Charity is in our DNA. It always has been, going back to our formation in 1920. Our business got started as an active charity when my great-grandmother, Rose, helped three fellow immigrants get our business started at Superior Surgical. We are fortunate to be physician today with greater strength and with more purpose than ever before. Our revenue has exceeded a half a billion dollars in sales this year. If you look back to 2010, when our revenue was $105 million, we managed to increase market share during and following the recession and the subsequent cotton crisis. Here we are 10 years later, more than five times the revenue we were able to achieve in 2010. Our 2020 earnings increased over tenfold over that same period of time. The most amazing part about 2020 was that not only did we source and sell over $131 million of PPE, but even without PPE, every segment of our business hit new revenue records. 2020 was not without its challenges. There was a sizable contraction in the promotional products industry and in the non-essential side of the uniform industry. But we have intentionally positioned our company to withstand most any uncertainty for the future. We always like to say to our investors that we are somewhat recession-proof and that we are so well diversified across so many products and services. But now we know we are pandemic-proof, too. In saying that, the bragging stops, of course. My heart goes out to the millions of families who have lost loved ones during this pandemic. My gratitude extends to all the caregivers, first responders, teachers, and other essential workers, including our very own warehouse and production associates, beyond anything I could possibly put into words. This pandemic isn't over, but our future is solid, with or without future crisis sales. Around this time last year, we discussed our trend successful transformation to elevate our innovation, automation, sales strategies, and leadership alignment for the next strategic phase of our growth. We continue on that same path in 2021. We accomplished a great deal during 2020, but the unprecedented growth we saw will require additional investments in human capital. As we have leveraged our investments in the past and our shared resources infrastructure to control costs and deliver record-setting results, we will continue to do so in the future. Our annual net sales were up by an impressive 40% to over $526 million, along with a remarkable 240% increase in net income to $41 million. These are truly outstanding results, further highlighting our resilience and strength. While the pivot to PPE sourcing was key to our growth in net sales and net income, we should emphasize again that we achieved notable organic growth in net sales in all three of our business segments, even without the impact of sales from PPE. Andy will, of course, provide more color to that. As we reported in third quarter, we are still seeing continued demand for PPE in our healthcare and employee ID retail business sectors, including reusable protective apparel, such as barrier coats and isolation gowns, as well as scrub apparel. Earlier in the year, we bolstered our inventories in much of our legacy PPE, as well as scrub apparel, which has supported much of our organic growth this year, and we believe the majority of which will be sustainable for the long term. Our FashionSeal Healthcare and CID scrub products saw sizable increases in sales across our traditional customer base. At CID in particular, we also found new channels with mostly e-commerce retailers to move the needle substantially with respect to revenue and operating margins. We've spoken previously about our Wonder Wink Indie line for FashionSeal Healthcare designed by CID. This new innovative fashion collection was essentially spoken for before even arriving in our warehouses. One of our key laundry distributor customers put out a press release at the end of December announcing the addition of the Indy branded scrub line as part of their managed uniform service offering. We are excited to continue our longstanding partnership with them and others who have come forward to support the long-term success of the first of its kind addition to our scrub offering in many years. We expect increasingly wide acceptance for this distinctive fashion scrub and anticipate that over a three-year period, it will ramp up to represent greater than high seven figures in annual sales. We continue to work on our international marketing strategy through CID. As we discussed last quarter, we are currently selling healthcare apparel into European markets at modest levels. As part of our long-term strategy, we have contracted with a warehouse in Poland to begin distributing our products and to be closer to our customer base. This will allow us to build our footprint further across those markets. HPI, our employee ID business, has a diversified customer base, including COVID essential and non-essential businesses. Revenue from the smaller non-essential sectors within our HPI customer base was down by almost 30%. This portion of our employee ID business includes the travel, dining, and entertainment industries. These sales declines were largely offset by robust sales to essential retailers, including pharmacies, grocery chains, and big box retailers. While we are seeing lighter activity than usual on the RFP side of HBI's business, we do expect a resumption of higher activity later in the year as the environment stabilizes to a new normal. As establishments increase their capacity and hire more people, the need for uniforms and rebranding will certainly provide a lift going forward. The essential side of our business still remains strong and should help mitigate most, if not all, the downturn that we have or will experience on the non-essential side of our business. Demand for PPE still continues. The challenge is often not how much we can sell, but how we can find sufficient and reliable supply. The supply chain has been extremely tight on many products. We're working with our teams across the globe day and night to source legitimate products that meet the rigid specs of this market. While many of our customers are including what we call non-legacy PPE product as part of their normal uniform shipments or as part of their employee startup kits, there is still a substantial amount of business opportunities to be won across all the sectors of PPE. In our promotional product segment, which Jake will report on further, the Banco team turned a colossal crisis into a tremendous opportunity by correctly anticipating early in the pandemic that PPE products were going to be in high demand and that customers would use those products not only to protect their employees and their customers, but also to help sustain their brand identity. Through our unmatched sourcing and creative expertise, the team exceeded expectations by delivering very profitable sales eclipsing $200 million, quite a milestone. The office gurus returned to pre-pandemic double-digit growth with a 31% increase in the fourth quarter and an 18% increase for the year. I can't say enough positive things about our team's timely pivot to a work-from-home solution that will enable us to continue to support all of our customers in the midst of an ever-changing government lockdown mandate. We onboarded several new clients during the pandemic, and grew our agent headcount by over 300 people to nearly 1,700 agents. We are considered by many of our customers who use other call centers besides ours to beat their pandemic-proof solution. We are excited about the opportunity that work-from-home means to us in terms of modest investments we will need to make in the business and our ability to scale its growth even further. Headwinds on the supply chain side impacted our uniforms and promotional products businesses, with logistic costs surging as we worked to serve our customers' elevated demands. This has happened across all freight, including domestic trucking, overseas air shipments, and ocean container shipments. We saw pricing pressures, both from a logistic standpoint and from a fabric increase cost, as well as some weaknesses. include the well-publicized backup of West Coast ports, the lack of availability of shipping containers, and scarcity of truckers to move freight. And this has caused severe logistic challenges, as well as more than doubling of our costs associated with bringing product into our warehouses. As a result of these many pressures, we implemented a sizable price increase that has largely affected this quarter. I will now turn the call over to Jake to discuss BAMCO's results and then come back to you at the close.

Thank you, Michael, and good afternoon, everyone. I'm ecstatic with the results our team at BAMCO has delivered during such a challenging year. Our presence on the ground in Asia and our superior sourcing prowess distinguished us during a year marked by crisis and opportunity. BAMCO ended the fourth quarter with sales of $56.3 million, a 52.5% increase from Q4 2019. Operating margin improved to 14.6% compared to 4.5% in last year's fourth quarter. For the full year 2020, our sales were greater than $202 million, an increase of approximately 88% over 2019. We leveraged our scale to deliver 13% operating margin compared to 4.3% operating margin in 2019. This massive increase in operating margin is a testament to BAMCO's ability to realize economies of scale as we continue on our growth trajectory. Industry-wide, promotional product spend was down approximately 25% to 30% in 2020 compared to 2019. Despite these powerful industry headwinds, BAMCO's core promotional product sales actually increased year over year by $11.9 million, or 11.1%. In fact, the fourth quarter was the largest single quarter of promotional product sales in BAMCO's history. To reemphasize, in a year where our industry was down upwards of 30%, BAMCO was up 88% overall year-over-year, and when stripping out PPE, BAMCO was still up 11% year-over-year. Just a remarkable performance in a very challenging market. Poor promotional product sales were steady in the first three quarters of the year, before increasing substantially in Q4 as we saw a sharp increase in employee gifting. Our backlog at year-end was $45.5 million, which consisted of $5.6 million in PPE and $39.9 million in non-PPE sales. While the total backlog figure is slightly lower than prior quarters, the non-PPE backlog continues to increase, showing a resurgence in promotional product spend. It's also the largest year-end backlog in BAMCO's history. 2021 brings with it both challenges and opportunities regarding the promotional products market. A primary challenge is the timing of a return to large-scale conferences and events, something we are not expecting to occur until at least the second half of the year. Fortunately, BAMCO's business is substantially less event-based than the industry as a whole, and BAMCO's continued strong performance has it well positioned to meet renewed demand as these events return. A diversified portfolio of clients and industry sectors served by BAMCO includes a number of well-performing segments beyond the gig economy sector. These include other areas of strength, such as home gifting, customer retention programs, customer acquisition, reacquisition programs, virtual conference gifts, and gift with purchase items for consumers. All told, BAMCO is much better prepared to take on the challenges and opportunities in the promotional product market than the industry at large. Our acquisition of Gifts by Design immediately positioned BAMCO to become an industry leader in corporate awards, incentives, and recognition programs. which we view as an important and rapidly growing market segment. We plan to leverage our large client base and Salesforce to extend this vertical to current and future clients. By joining forces, both companies will immediately become better with increased capabilities and product offerings. We are adding talent and proven leadership in a previously untapped vertical. Before I close, I'd like to point out that BAMCO was once again honored in 2020 by the Los Angeles Business Journal as the number one medium-sized company to work for in all of Los Angeles. Additionally, members of the BAMCO team recently won awards for Salesperson of the Year and Best Boss, as selected by promotional product trade publications. These are quite impressive achievements, which reinforce our commitment to our culture and our people. I'll now turn the call over to Andy for his operational and financial review.

Thank you, Jake. Good afternoon, everyone. Our teams performed at an exceptional level in the midst of unprecedented times and delivered four quarters of impressive results. Timely cost-cutting moves and an aggressive austerity strategy, in addition to profitable sales growth, allowed us to improve our cash flow for the year. We continue to improve our liquidity and debt leverage position, bringing our debt-to-EBITDA ratio to 1.4 times at December 31, 2020, down from four times at the end of 2019. This highlights nearly a full year in which we are in line with our historically desired range of one to two times debt EBITDA and well under our covenant limit. For the year, we reduced outstanding debt by $31.6 million. We view our business through a long-term lens, striving for continuous improvement across our operational and financial platforms. And as a matter of prudent corporate governance, we filed a universal shelf registration statement of $120 million on October 30, 2020. This gives us greater financial flexibility for acquisitions and large sales opportunities as they arise in the future. We also increased our revolving credit agreement by $50 million at very favorable terms and extended the maturity to 2026 to support our continued growth. During the year, we continued to make business process investments to greatly elevate our technology and automation, bolstering cross-functional collaboration and driving enhanced efficiencies and fulfillment capabilities. I'll briefly highlight some key accomplishments. We finalized the implementation of SAP at CID, completing critical software upgrades across our organization that further optimize our shared resources model. All of our uniform segment businesses are now fully operational on SAP. We continue to expand our manufacturing presence in Haiti, with more production being sourced from our own factories, giving us a distinct advantage over our competition. As we take a stronger position on fabric, we are able to reduce full package pricing. Overall, we expect a nearly $300,000 savings per month beginning in quarter three of this year on incoming product. This should translate into even more improved margins in 2022. We continue to make large investments in our distribution facilities in Arkansas and Dallas. We expanded our distribution facility in Eudora, Arkansas, and are in the midst of the installation of our new and upgraded robotics distribution. We expect to be operational on the new system late in 2021. Additionally, we are wrapping up the installation of robots in our distribution center at CID in Dallas now. We expect that these investments will help us to continue to drive down distribution costs even further. We completed the sale of our HPI warehouse in Georgia in December of 2020, recognizing a gain on the sale of $2.2 million. The strategic consolidation of the Georgia and Arkansas facilities was completed in late last year in accordance with our optimization efforts. Turning to our financial highlights, we had a tremendous finish to the year with fourth quarter net sales up 34.1% to $145.4 million. The largest contributor was BAMCO with a 52.5% quarterly sales growth that accounted for $56.3 million of the $145 million in sales. Uniforms and related products net sales increased 23.8% to $78.2 million relative to the comparable period in 2019. $24 million of that was PPE versus $841,000 in 2019. Jake reviewed BAMCO's outstanding results, so I'll just reiterate that we continue to see significant operating margin leverage opportunity in the promotional products division as it continues to realize economies of scale. The office gurus returned to high double-digit growth and reported a net sales increase from third parties, of 30.6% to $10.9 million. Throughout the year, the team redefined excellence in servicing existing customers as well as onboarding new customers with their successful execution to meet changing customer needs. For the quarter, we reported consolidated gross margin, defined as gross profit as a percentage of sales, of 35.7% compared to 32.2% in the fourth quarter of 2019. This margin increase is attributable to higher margin sales based on product and customer mix. As a percent of net sales, consolidated SG&A expenses for the fourth quarter improved 26% versus 27% last year, reflecting our ability to leverage higher volume sales across all business segments combined with continued cost mitigating actions to control operating expenses. Income from operations for the fourth quarter increased to $14.1 million and and operating margins climbed from 5.2% to 9.7% over the same period. Overall, fourth quarter net income increased almost 320% to $12.5 million, or 79 cents per diluted share, compared to $3 million, or 20 cents per diluted share, in last year's fourth quarter. Now let's shift to a review of the full year results. On a year-over-year basis, net sales were up 40% to $526.7 million, clearly exceeding our guidance for the year. Uniforms net sales rose significantly by 21% to $287.3 million. Additionally, we ended the year with record backlogs for the uniforms segment of $74.1 million in total compared to $15.4 million at the end of 2019. PPE backlog included in the 2020 year in total was $36.7 million versus essentially zero at December 31, 2019. BAMCO closed on a record year, posting an increase of 88%, and TOG posted an increase of 17.6%. Of note, our TOG facility in El Salvador experienced a shelter-in-place mandate at the end of Q1 with zero notice, which resulted in a loss of roughly $1.8 million in revenue while we deployed our work-from-home solution. TOG had zero layoffs due to the pandemic and continued to pay all employees who were willing to work as we deployed our work-from-home solution. As a percentage of net sales, consolidated SG&A improved to 25.9% for the year compared to 28.5% reported in 2019. Our ability to maintain cost discipline while leveraging higher sales volume across our business segments continues to drive improvements in SG&A percentages. We achieved the improvements noted in SG&A despite potential bad debts in our accounts receivable balances as we worked through budgeting and economic scenario planning, given continued uncertainty from pandemic-related disruptions. To this end, we increased our provision for bad debt to $6.7 million in 2020, as compared to $1.3 million in 2019. We also incurred an increase in expense of $4.2 million on acquisition-related contingent liabilities. primarily driven by fair market value adjustments in these liabilities as a result of the tremendous operating results delivered by BAMCO and the promotional product segment. Our cost of goods sold were impacted by rising logistics costs, as Michael mentioned, impacting our uniform segment by more than $2 million. Despite this impact, overall gross margins increased to 35.8% as compared to 34.2% in 2019, primarily due to customer and product mix changes. Fiscal year 2020 operating income improved greatly to $52.3 million compared to $21.6 million in 2019. 2020 operating margins climbed to 9.9% compared to 2019's operating margins of 5.7%. 2020 periodic pension costs were approximately $1 million compared to approximately $2 million in 2019. Interest expense was $2 million for the year compared to $4.4 million in in 2019, and our effective tax rate for 2020 was 20.3% compared to 21.1% a year ago. Overall net income for the year grew by 240% to $41 million compared to $12.1 million a year ago. Diluted earnings per share improved by 235.4% to 2.65 cents per share compared to 79 cents per share last year. Now for a few balance sheet highlights. We continue to prudently manage our cash flow, and on December 31, 2020, we had cash and cash equivalents of $5.2 million. This is a decrease of $3.8 million since last year. During 2020, our excess cash from operating activities was used to repay outstanding borrowings on our revolving credit facility. We recently announced our quarterly dividend of $0.10 per share, which is paid to shareholders February 26, 2021. In total, we returned $6.1 million in cash dividends to our shareholders during 2020. CapEx investments for the year increased $2.2 million to $11.9 million compared to $9.7 million a year ago. We anticipate continued heavy investing in our automation projects this year, and we expect CapEx expenditures to be in the range of $15 to $17 million for 2021. Our fourth quarter and full year Results reflect the team's superb agility in navigating a very challenging environment while executing our strategy for long-term profitable growth. I'll now turn the call back to Michael for his closing remarks and a general outlook for 2021.

Thanks, Andy. Our performance in 2020 can only be described as epic as a result of the tremendous gains we achieved in all segments of our business. We reached several milestones in the midst of a global crisis that impacted nearly every facet of our lives, and we excelled in ways that will be sustainable for the long term. The year highlighted our core competencies in delivering product and services to essential and non-essential businesses. At BAMFCO, we differentiated ourselves across traditional promotional products by showing our sourcing agility to pivot to PPE. At TOG, we provided critical support to our customers during a pandemic, and to do so from home and emerging stronger was nothing short of a miracle. As we look ahead, we're excited about the efficiency and the agility that we continue to display as a company. Let me recap some initiatives that we're excited about that we haven't greatly covered so far in this call. We hope that you saw Sandmar's recent press release announcing their new custom Wonder Wink offering, gaining access to their customer base of over 21,000 companies with hundreds of thousands of feet on the ground, selling our special design products via this very important B2B channel is a terrific win for CID. The realignment of our design and product development teams in our uniform segment was timely, and we will be augmenting those teams with even more talent as we forge ahead to take more market share. As Andy mentioned, our third facility in Haiti will considerably increase our near-shore production capabilities. As a matter of fact, in 2020, our own factories in Haiti manufactured 13% of our total uniform production. All factories in Haiti, including our contract factories, currently manufacture about 25% of all of our units. All this is done in a duty-free environment. This will grow, in each case, by approximately 50% this year, so that our own factories will be manufacturing more than 20%, and overall, with contractors, the numbers should exceed 35% of our total units. As each quarter goes on, this will result in improvement in gross margins in our uniform business, as well as our ability to better service our customers from a near shore location. M&A activity, which we haven't covered yet, is robust. Our ultimate mission with each prospect is to find the right fit. I said that in the last call, and I keep repeating it. As a reminder, we're being extremely discerning in pursuing opportunities that are quickly accretive, highly synergistic, have short integration periods, and have the ability to bring smart, seasoned leadership that will integrate into our corporate culture. Babco joining forces with Gift by Design, as Jake spoke about, is a great example of that and is a win-win partnership that sets our course for substantial opportunities ahead. We welcome their team to the SGC family. Additionally, Babco will be investing in a new warehouse management system, which will be implemented in its Oak Grove, Louisiana warehouse in the coming weeks. We also leased a 200,000 square foot building, which is being built right now in Arkansas, to handle all receiving, which will also serve as a replenishment warehouse for our current uniform and promotional segments to handle future growth. We are excited about the installation of an even more efficient semi-robotic warehouse management system in our main Arkansas facility, which is on pace for completion later this year. As Andy spoke about, we are wrapping up the implementation of robots at our Dallas facility as planned. Since these robots operate with a certain amount of AI and machine learning, we expect their efficiency to gather steam over the coming months, helping to reduce our costs and provide better service to our customers. We are constantly evaluating our channel strategies. We are making a lot of progress in the e-commerce space to support our retailers' platforms, both online and brick-and-mortar, particularly in group sales. Rollout of phase one of our group sales strategy will be completed this month with phase two planned for later this year. Giving our retail customers transparent visibility to their group customers down to each employee in the group is something that has not been achieved in the past. We're excited to bring this new technology to what is known as the group sales business. We do expect to spend higher marketing dollars in the future to improve and increase brand awareness through many digital campaigns, which we'll partner with many of our retailers to achieve. We continue to bolster our management ranks. Having gone from 3,200 people to 4,600 associates this year to support our growth, more is needed to take us to the next level. Please note that we are growing at a faster rate in each of our businesses then the industries themselves are growing. As we increase our market share, we must have talent to take us to new record levels. We're also proud, in case you missed it, to be listed as number 10 of America's best small companies by Forbes magazine. Much of this recognizes shareholder return and our financial operating results. We're also proud of our many award-winning teams across our brand-building enterprise. Throughout our 100-year history, We've continuously cared for our team members, served our customers, supported the communities in which we live and work. Our proven resilience and ability to excel during challenges is one of our organization's greatest attributes. We built this company to endure, and we find ourselves in a commanding position as we enter our 101st year of business. With that, we'd like to open the call for your questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. 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, press star then 2. At this time, we will pause momentarily to assemble our roster. And the first question comes from Kevin Steinke. with Barrington Research. Please go ahead.

Hey, good afternoon, everyone. I wanted to start off by asking about CID. And I know you touched on this on your call last quarter, but you, again, talked about the international growth strategy and opportunity there. Maybe could you just talk about... the market dynamics in Europe and internationally compared to what you see in the U.S. for CID, similarities, differences, and, you know, why now you feel like it's a good time to move internationally with CID?

Okay. CID has been selling internationally even before we purchased them in 2018 on a very small scale. mostly in South America. A little bit of business in Europe and a little bit of business in Australia. That has increased as time has gone on with very little effort or very little marketing on our part. There's demand in all of those markets for fashion scrub products. I think scrubs maybe they weren't always ubiquitous, but healthcare workers around the world, that is what they're wearing today. And they want fashion scrubs. Very conscious of that healthcare workers are in short supply all over the world. And generally healthcare workers make more than their peers and can afford fashion scrubs. And even when hospital supply scrubs We oftentimes, you know, nurses are taking them home, depending on the country, to launder them. So it's really a mix. It's very different by country. What we find is there's a certain consistency across Europe. And we've been selling in some CID Wonder Wing product nearly into every country in Europe with a single retailer here or broker there. sometimes with a middle person in between us. But the thing that has prevented us from really growing that dynamic is having product on the ground in Europe. Once you have product on the ground in Europe, you can ship across most borders very, very freely. There's no duties between those borders. When you have product sitting in Texas and you've got to ship it to Europe or you've got to ship it to South America, you're faced with how do you price that? You know, you've already paid duty on the United States. Of course, you can get duty drawbacks and get some of that duty back, but now you're shipping it to another country, and they're paying duties. Logistic costs are very expensive for smaller containers to ship to those countries. So, you know, we did decide that we were going to put the logical place would be a third-party location in Poland. It's central to the countries that we want to sell. It's become a gateway. for distribution to other parts. For us, I'd say it's beyond the experimental stage. We're making a strong commitment to Europe. We have even last year had consultants working for us to help us make sure we're making the right moves in Europe. And these are people who have helped other companies in the space expand their profile in Europe. And we just think that the Wonder Week product is, you know, the fabrics are great. The styling is fabulous. There's nothing that makes it a uniquely American product. It's a universal product that can be worn by all caregivers around the world. And so we're doing it because the product's good and because we can. And why should we leave that market to our competitors? Some of our competitors have already entered Europe in a big way long before we did, and we expect to be able to take market share from them as well as some of the local people producing in those countries.

Okay, yeah, that's helpful. Do you have your competitors who have already moved into Europe, do they have that same kind of differentiation in terms of the fashion, fit, comfort, et cetera, that the CID products bring? Or do you kind of feel like you have some differentiation or a first mover advantage from that perspective?

No, I think they have the same advantage that we have. I mean, these are the same people we compete with in the United States. Many of them are great companies who do a good job. We are constantly trying to outdo each other from a product standpoint. except for the Indy line, which is totally unique, except for some of the channels we might sell through that they don't. Our product certainly isn't the same. We do everything we can to see that our product is unique, or else why would somebody buy it in a shop or online? So I think it's a level playing field. I don't think, you know, they have a terrific advantage over us except getting there first. And quite frankly, some of these companies have been in business 20 years and, you know, started in the United States first too. We, you know, CIDs took a lot of market share from them in the United States. We intend to do the same thing in Europe.

Okay, great. And then you referenced your new partnership or partnership Yeah, I guess it's the Wonder Wink partnership with Sandmar Corporation. It seems like that's a channel you're excited about. So can you just talk a little bit more about that? Are there similar types of opportunities in the pipeline that you see?

There are. We're constantly... working to become as omnichannel as we can while continuing to support our retail base of customers. And so, you know, SamR was a big win for us. We've been working on that for a long time in collaboration with them, making sure we had the right products so that they could take big inventory positions to be able to service what is essentially the entire United States. and, you know, 21,000 plus competitors. And those competitors, you understand, are mostly promotional product companies who might sell into, you know, doctor's practices and dental practices and so on that actually compete with BAMCO, interestingly. You know, the lines are getting pretty blurry between all these companies in terms of who's a supplier and who's not. But, Sanmar is probably the most highly regarded customer servicing that industry with apparel. They have a very multi-inch thick catalog that essentially probably 20, probably 100,000 salespeople in the United States walk into their customers with to show them different apparel. And now there'll be some pages allocated to scrub apparel. and our apparel. They made the announcement to their sales force back in December. They did a press release last month. We're very excited about it. It opens up a whole new world for us. We have multi-year commitments from them. We think it's going to turn into something. Quite frankly, we believe it's additive to what we're already doing. We believe in the end it will support all of all the efforts that we're putting into our marketing and we'll help support them as well. But, uh, no, it's a, it's an exciting channel for us and, uh, they're smart business people, uh, and they made the right choice, uh, choosing us to be their partner.

Okay. Uh, fantastic. Um, I'm just trying to, uh, put some pieces together here, you know, so it's, it's interesting to talk about Sandmar and then, um, the international expansion for CID, and then, as you mentioned, the Wonder Wink moving into the laundry channel. I saw the announcement that you referenced there. You know, it's public information. Unifirst had that press release out about their partnership with Wonder Wink. But, you know, frankly, I'm interested in talking about all this or more about this because I had – You know, a little bit of pushback from investors post your last call, thinking that that 12% organic growth target you put out there for Uniform seemed aggressive. But, you know, it sounds like these types of opportunities or new channel partners, et cetera, that you're adding are important. really are what, uh, is what's going to kind of build up to that ability to grow 12%. So, you know, any more color on that or what, how you kind of build up to that, um, that targeted growth rate that you put out there?

Sure. Well, we felt, we felt pretty confident in a lot of these opportunities on the last earnings call and, and our growth, uh, projections, you know, took that into account, although the announcements hadn't been made yet. So yes, uh, this has been taken into account in our last growth projections, uh, both of those opportunities, as well as our, our larger entree into the rest of the world, particularly Europe. Uh, we were very excited about it. Uh, you know, I hope we can come to future, uh, to future earnings calls and give, give even better guidance. But for that, we feel very comfortable with the guidance we've given. Uh, and, uh, You know, we tend to be conservative in nature. People know that about us. We wouldn't put out a 12% growth number unless we felt pretty confident about it. I think you could see that, you know, we've usually exceeded expectations of the market over the last few years. So, you know, we hope to continue to do that.

Great. That's helpful. You did mention briefly there's some lighter RFP activity on the HPI side of the uniform business. Can you just clarify, was that for the non-essential customer set, or was that just kind of across the board and maybe a little more of what's going on there? I know you said you expected it to pick up, but just any more color on that.

Sure. The essential side of the business is so busy right now, they're not even, you know, they're not working. They're just buying uniforms, and we've seen some extension of some contracts. Very happy to get those extensions rather than going through all kinds of redesigns right now. And, you know, we're not seeing the essential side doing a tremendous RFP activity right now. I think they're they're focused on different aspects of the business of trying to service their customers and trying to reconform themselves, whether it's, you know, even on some of the non-essential side. I mean, what we see in quick service restaurants, for instance, is, you know, they're all trying to figure out how to make their takeout more efficient and how to make their, you know, when you pull up to a window, you know, drive-in more efficient and, you know, how to, how to scale their business so they can make better use of the large space they have that nobody's eating inside of. So it's kind of a funny time where we're just not seeing the RFP activity. It's not out there. I'm not saying it's not out there at all. It's just out there to a much lesser degree. I think a lot of companies, especially on the non-essential side, Kevin, are still worried about survival, have been worried about survival, thankful for what they got in PPP money. But still trying to figure out what they're going to be when this is all over. And, you know, first of mind is not or front of mind is not uniforms. It's fine. You know, we have uniform programs with them. We will likely get extensions of contracts beyond the initial periods that we're in or the, you know, sometimes some cases we're in the 10th extension of some contracts. But and that's fine with us. I'd rather, you know, have customers recommit for a few more years that we're already doing business with than chase customers who we won't see any business from, you know, for the next year and a half or two years in the normal cycle. So, you know, we do expect that as more people get vaccinated, as more people are allowed to come back to businesses, to restaurants, and people start shopping again and malls and so on, things get a little bit back to normal, maybe never what they were, but more back to normal, that we will see RP activity. We've seen, when we've come out of recession in this country in the past, an incredible lift in marketing dollars spent. And, you know, that benefits BAMCO for sure. And they've seen the same thing. And that has benefited us in the past. We came out of the recession in 2009. And you can see our numbers. I spoke to them actually in March. in my script here today. A lot of people are spending marketing dollars and one of those things they wanted to do was rebrand. And so, you know, we expect when we come out of this, it'll be quite robust, maybe more robust than ever. We've never, even a recession has never impacted a country the way this pandemic has. So we expect people to want to give their employees a lift, want their customers to view them differently, to try to rebrand themselves. It all fits together, but it is somewhat delayed. I'm not worried about it because, you know, as long as the pandemic continues, even at a diminishing level, we're going to continue to sell the essential businesses what they need and a modicum of PPE as well. So, you know, nothing's changed with respect to our guidance system. that we gave with our uniform business for this year and our overall business for this year.

Okay, fantastic. I guess I wanted to move on to BAMCO. And you spoke about the 11% growth in traditional promo products in 2020, while the industry is down 25% to 30%. You mentioned BAMCO being less event-based, but, you know, maybe more color on what's allowing you to outperform the industry so significantly. You know, is it just the overall financial strength, your ability to customize supply chain? I guess it'd probably be a little bit of everything, but just, you know, maybe speak to that more specifically. in terms of traditional promo products and the overall strength there.

I'll let Jake respond. Jake, you're on the call, and, you know, Jake runs our sales and operations and CFO of BAMCO. He's the Jake of all trades. So go ahead, Jake.

Nice to talk to you again, Kevin. So I think when you look at our industry and the promotional products segment, there's 21,000 companies, many of which are really small and struggle through something like COVID. I mentioned it before, down 30% in 2020 over the prior year. I mean, the truth is we're able to capitalize on opportunities that our competitors can't do. We pivot quicker. We're diversified in our supply base. And a lot of our competitors have been held up by PPP loans, some minor PPE sales. When those dry up, they may not be around, and we're there to pick up the pieces. And we've been very successful. I mean, 80% of the PPE we sold was to non-customers. And of that, we converted 30% of them to promo customers. We continue to work with these customers to find additional opportunities to penetrate and get their promotional product business. we're seeing the ability to do that. And it all stems from being agile, having boots on the ground, forward thinking, and being ahead of the rest of the industry. And we really like where we're positioned going forward here for 2021 and beyond.

Great. Also, with regards to BAMCO, you spoke particularly about employee gifting being a benefit to growth in the fourth quarter, and you made the gifts by design acquisition. So what's the trend you're seeing there? What's attractive about that particular niche that you saw growth in and that you're investing in through this recent acquisition?

Yeah, we've always done employee gifting throughout our history at Bamco. We've always done, you know, at-home gifting or in-office gifting, you know, acquisition programs for customers. It just wasn't a core focus, and it was something we did when customers would ask us, hey, make us an employee retention program that speaks to our employee base. We'd do it, but this makes us substantially stronger on the employee and customer engagement side of the business. You know, Gifts by Design works with a huge customer base of blue chip companies that, that we didn't have access to before and the ability to sell into these customers and kind of know the speak and be able to walk the walk and talk to talk about employee gifting and customer engagement programs. And, you know, we don't expect this to go away quickly, right? None of us really know what happens with the work at home model going forward, but we do know is that a substantial portion of employees are going to continue to work at home post pandemic and, And we want to be there to capitalize on that. And we have shipped more at-home or direct-to-home gifts probably in the month of December than we did in all of 2019 combined. It's phenomenal, the need and desire for this to connect with employees. And as Michael said, coming out of pandemic, coming out of a recession, people want to do that more and more. They've got to keep employees. They want to connect to them. They want to keep their people engaged.

Yeah, well, that's really interesting. OK, great. OK, so you mentioned M&A activity is robust. You mentioned that the recent shelf registration. So are you seeing larger acquisition opportunities in the pipeline? that would necessitate perhaps raising capital? Or is this just to be prepared on all fronts? You know, what's the size of the opportunities you're seeing in the pipeline? I guess I'm putting a lot in there, but I just want to get more perspective on the robust nature of the M&A pipeline and the size of candidates you're seeing.

There are a lot of companies for sale. There's a lot of companies for sale in all markets. During the pandemic, we've had a chance to look at many, and quite frankly, some of them were in such trouble that it really wasn't interesting to us. Some of them, the only profit they made or the only way they were able to keep their business even open to sell it was because they received PPP money. There's all sizes out there, Kevin. I'd say ranging from probably we don't look that low. We tend to draw kind of a line in the sand at about $10 million. Even that's a little bit small for us, unless it brings to us something from a standpoint of something it does that we don't currently do or has really great people that we can bring into our organization to help grow the entire business. all the way up to $100 million. You know, there aren't that many $100 million promo companies. Quite frankly, there aren't that many $100 million uniform companies, but there are a few. And some of them have gotten in trouble. Some of them are just fed up. You know, just, you know, this pandemic has taken a toll on people. Well, you know, we're lucky we've been energized and we've moved forward. And, you know, the group's done an incredible job. Probably never worked harder. It's never had more fun doing it. And during a time when it was, from a family standpoint, it was most devastating for everybody. So, you know, we think we're in a unique position with all of our systems in place now, with most of our, well, all of our integrations done. We're expanding our warehouses, but our integrations are done. to be a great platform in each of our businesses, and that includes the call center business. No, the call center business is a pretty small business to begin with, so maybe their threshold is something under $10 million. But we have looked at businesses, and we will continue to look at businesses that we feel add value or get us into a space that we're not currently in.

Okay, that's helpful. You know, this is just a little more of a numbers question here, but on the last call you had mentioned that maybe CapEx would be a little lower than you thought in 2020, around $8 million, and you came in close to that $12 million mark. So did you just have some catch-up there, or, you know, timing-wise, were you able to accelerate things a little more? I know you're looking for a ramp up next year, but maybe just talk a little bit more about CapEx this year and next.

Yeah, Kevin. I mean, there were a couple of things that we ended up adding in late in the year. Michael mentioned the third facility in Haiti. We're getting ready on that, what essentially is a prepaid lease, but does run through capital expenditures. We also invested in the robotics in Dallas, which... based on the very quick payback we get off of that, it was a project that was brought to us and made sense to add in. And earlier in the year, we really did take a very cautious perspective on CapEx and slowed things down a little bit, but that was all really pre our very successful pivot to PPE, and we really saw it as an opportunity to get a head start on some things that will have very nice paybacks for us going forward.

Okay, great. And lastly, I just want to ask about, Michael, you were talking a bit at the end there about just bringing in new management and talent as you really scale up here and the business is really ramping up. What's the environment like for finding good management and talent? I know we're still in a labor market recession, but are you seeing a a healthy pipeline from that perspective as well, because I know that's an important aspect of a business that's maybe not talked about as much. So any thoughts there would be helpful.

Yeah. So we've already doubling, more than doubling our recruiting department. Yeah. I mean, the greatest thing is it's a recruiting-rich environment today because everybody A lot of the paradigms of yesterday that, you know, somebody had to live near the office because they were going to come in the office every single day are gone. We know that we can continue to work from home. We know that we do want people in our offices, but they don't need to be there every day. And some people don't need to be there at all. You know, where teams need to collaborate like design and product development or, you marketing and design, you know, they need some time together in the office, but they don't need all their time together in the office. That opens up a pretty rich, you know, target environment for us of people who, first of all, our reputation at Banco and in our uniform business is very, very strong. So if somebody comes out of the promotional business or comes out of the uniform business or even out of the apparel business or even out of the supply side, of the promotional business with all the different suppliers that supply to companies like BAMCO, distributors like BAMCO. Those are great candidates for us. If I'm looking for somebody in project management, they don't have to be in Seminole, Florida, or Coppell, Texas. They can be anywhere. They can be anywhere in the U.S., and quite frankly, a lot of them can be anywhere in the world. Banco's proven that model over the years with their India and China office, as we have it in El Salvador. What we want is the best talent we can find anywhere to work for us. And quite frankly, a lot of those people don't have the opportunity locally, wherever they may live, would be very happy to come work for us. So we think it's a target-rich environment. There's a lot of people unemployed right now. Now, great people usually aren't unemployed very long. So we're going to have to go out and actively recruit great people. But they're out there, and we think we've got an awful lot to sell when we're pitching them in our company.

Okay, thanks, and congratulations on the great results in 2020 and such a difficult environment and also congratulations on your 100 years in business.

Yeah, Kevin, I do want to clarify one thing just so everybody understands what Michael thought about our guidance and nothing having changed. The third quarter of the guidance we had given was that we expected 2021 to be about $450 million. Based on what we had in PPE orders that we already knew of at that point, we really were giving the base business. As Michael mentioned earlier, we are continuing to book fairly significant PPE business as we go forward. And when he said nothing had changed, I did want to clarify the part about that with the acquisition of gifts by design, that was not something that we had contemplated into that 450 number. So that would be added to that number. But then going forward, it would be within the organic growth and comparable rates to what we've got across the rest of the POMA business.

Okay. So the base is still 450 and you're just layering on gifts by design. How sizable is that roughly?

About a million and a half run rate per month.

Okay. Okay. And we're still using the $450,000 as the floor, plus the gifts by design. Okay.

Plus gifts by design, plus additional PPE as we book it. I mean, we only were contemplating what we knew about at that point. And we really can't gauge how long the pandemic and the demand for that crisis PPE is going to last. So we wanted to give a realistic basis without that, and that's all added to it.

Okay, got it. All right, thanks.

Okay, thank you very much. All right.

As a reminder, if you have a question, please press star then 1 to be joined into the queue. And it looks like we have no further questions, so this concludes our question and answer session. I would now like to turn the conference back over to Michael Benstock for any closing remarks.

Thank you all for joining us today. It's always great to be with you and report great results. We hope we look forward to reporting strong operating results in Q1.

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