Superior Group of Companies, Inc.

Good afternoon, everyone. Welcome to Superior Group of Companies' first quarter 2021 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 chief operating officer and chief financial officer. After the speaker's opening remarks, There will be a Q&A 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 would like to turn the call over to Hala El-Sharbini, 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 the Securities Act of 1933, the Securities Exchange Act of 1934, 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 statement. 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. The impact of global supply chain disruptions. 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 in 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, 2020. Thank you. the quarterly report on Form 10-Q for the quarter ended March 31, 2021, 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, feature 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 2020, unless otherwise noted. With that, I will turn the call over to Michael.

Thank you, Hala, and good afternoon, everyone. Thanks, as always, for joining us to discuss our Q1 results. Joining me today, as usual, are Andy, who will report on overall SGC results and the status of our operations, and Jake, who will report on BAMFCO's financials and operations. After our opening remarks, we'll open the line for questions. So let's get started. I'm very pleased to report another great quarter of substantial growth. I would characterize our core businesses as mostly thriving, growing both organically and through strategic acquisitions. We have again proven our ability to meet PPE demand as well as service spot crisis PPE orders as they arise. While we expect that to continue, our primary focus has always been and will remain our loyal long-term customers in the core products and services that we offer to them. Our disciplined long-term approach is yielding what we believe is sustainable organic growth in both our recurring customer base and with new customers across diverse end markets. Our differentiated share resources operating model that we've spoken about on previous calls continues to support accelerated returns as we gain economies of scale. Our omni-channel market strategy is paying dividends, and we are enthusiastic about the great potential even yet to be unlocked. First quarter net sales increased 49%, and net income grew by 211% when compared to the first quarter last year. While PPE was a strong contributor to our first quarter 2021 results, organic growth in our core businesses is the more pertinent narrative. As we look ahead, our indicators are pointing to a strong recovery in our non-essential customer base, replacing crisis PPE sales. Overall, our operational investments, cost reductions, and market response efforts completed over the last year further enhanced our ability to execute long-term growth and profitability in our core business segments. Our uniform segment reported strong growth and is sitting with a much increased backlog, which Andy will also address in his comments. Supply chain disruptions due to poor congestion, rail and container and trucking capacity issues interrupted the flow of inventory supply. Even with our outstanding results, this tempered them to some degree, as well as our service KPIs. A larger than usual amount of uniform orders, roughly estimated at $5 million received during the first quarter, will be fulfilled in the second quarter. This is not where we'd like to be positioned from a service standpoint, but it is the current condition that we're quickly overcoming in spite of the logistical challenges. We do continue to book additional PPE orders as well, albeit at much reduced levels than we saw in 2020. Our healthcare product lines saw a continuation of strong demand during the quarter. We anticipate broad-based strength for our signature brands, Fashion Seal Healthcare and Wonder Wink by CID. CID is making great strides in seeing success with their retailer and e-tailer partner expansion, as well as finding new channels to market their products. Our international marketing strategy that we spoke about on the last call through CID is also progressing as we near a significant milestone with the opening of of our first distribution point in Europe on track for later in the second quarter. This will allow us to better serve our existing customers in that hemisphere while expanding our footprint and improving our ability to capture new European and Middle Eastern market share. HPI, our employee ID business, serves diverse end markets, including essential and non-essential businesses. While this portion of our uniform business is more heavily weighted to essential businesses, some non-essential industries we serve, including travel, transportation, dining, and entertainment are seeing resurgence in activity after being nearly dormant. Hiring initiatives on the part of these customers are in full force in preparation for reopening or capacity increases. Entertainment venues such as theme parks and even movie theaters are starting to show signs of light. I'll share some stats with you. According to a recent study by QSR Magazine using March as a benchmark, Quick service restaurant transactions were up 29% year over year. Hotels saw a 93% increase in occupancy rates, with a greater portion of business going to limited service hotels. As a reminder, this part of the hospitality industry is our focus in that channel. Transportation is showing renewed strength, specifically over the past 8 to 10 weeks. As activity levels for these businesses have become increasingly stronger, We're expecting to see a normalization in the essential businesses we serve, such as pharmacy, grocery, and big box retailers. We continue to meet customer demand for non-legacy PPE. While we are aware that many customers will include PPE products as part of their normal uniform programs, we expect that demand for crisis PPE will steadily recede to pre-pandemic levels. Our promotional product segment, BAMCO, delivered another remarkable quarter. First quarter 21 sales grew by 125% compared to the first quarter of 2020. The conversion of new crisis PP customers to traditional promotional product customers has been a winning strategy. BAMFCO is clearly a differentiated industry leader and is very well positioned to continue to take market share, while the overall promotional products industry remains, as we understand, depressed. Jake will cover BAMFCO in more detail shortly. The office gurus delivered double-digit growth in both existing and new customers, resulting in a 42% increase in net sales in the first quarter when compared to the prior year. We added 320 additional billable agents during the first quarter, of which 84% will serve existing customers and 16% supporting new TOG customers. We expect that the new customers will continue to steadily grow their businesses with us, as has been the case when onboarding most of our existing customers. We have also implemented a redundancy strategy at TOG to mitigate risk against future catastrophic events by adding seats in different geographies to service some accounts, as well as continuing with our strategy of work from home. Our pipeline of opportunities continues to grow, outpacing our expectations. We're prepared to meet near-term capacity demands. As the growth trajectory of the segment continually pushes higher, We will leverage our work-from-home model. We anticipate maintaining approximately 25% of our call center workforce as remote agents. Currently, approximately 20% of our TOG workforce is back in our call centers, and we plan to increase that number per customer preferences and legal limits on a steady basis while keenly focusing on safeguarding the health of our team members. We feel very confident that the number of billable agents being added for the second quarter of 2021 could be largely in line with what we saw during Q1. Moving forward beyond second quarter, we expect to return to a more normalized cadence, which is approximately half of the current seated rate of additions per quarter at roughly 150 seats. Lastly, I should note that TOG won the Lawyer International Legal 100 Best BPO Provider Award for 2021, another strong accolade added to their growing list. Our optimism is pretty powerful, but it's not totally unbridled. Leaning into our disciplined, conservative approach, we're effectively navigating market challenges from a position of strength, giving us an edge over many of our competitors. Logistical headwinds originating in shipping ports are cascading throughout the transportation and logistics ecosystem. Notable logistics delays are now converging, with significant increase in orders creating inventory pressure. As orders increase, inventory is turning quickly, and items that should have already arrived in our warehouse are sitting in queue to be loaded on containers overseas or in line to be received at shipping ports. By comparison, however, smaller competitor weakness is profound. Many are unable to manage and sustain a pandemic and these supply chain issues. This ultimately opens the door for us to accelerate market share growth, as well as evaluate potentially attractive opportunities in both our uniform and our promotional product segments. We're also managing through cost inflation and instituted a sizable price increase in our uniform businesses. We're able to, and where we were able to, which largely took effect in the past few weeks. It was done to mitigate increasing logistic costs, higher fabric prices, wage increases, and persisting weakness in the dollar. These logistical challenges were further exacerbated by extreme weather in the southern United States during the first quarter, which shut down most parts of Texas and Arkansas, which, if you recall, includes our main distribution facilities. We anticipate the easing of logistical challenges, but these challenges will not abate until the fourth quarter, most likely. I will now turn the call over to Jake to discuss BAMCO's results.

Thank you, Michael, and good afternoon, everyone. Our team at BAMCO is thrilled to report another extraordinary quarter. Once again, sharing a performance by our incredible team that surpassed expectations. For the first quarter, sales surged by 124.9% compared to the first quarter of 2020 to $58.9 million. Yet again, we established a new watermark by delivering the largest quarter of promotional product sales in our company's history, excluding PPE. operating margin reached 12.7% compared with 3.6% in the first quarter of 2020. These operating results once again validate BAMCO's ability to continue to scale our business and achieve significant operating leverage. Our backlog at quarter end was $40.8 million compared to $39.2 million in Q1 2020. What is most impressive is that PPE sales account for just $800,000 of the Q1 2021 backlog, versus $18.5 million of PPE in last year's first quarter. BAMCO's core promotional products business has more than replaced the large PPE backlog from a year prior. This speaks to the strength of our business, and we expect this trend to continue as companies put marketing budgets to work and their efforts to reinvigorate their brands. What we're seeing in macroeconomic trends and in consumer spending habits is that the return to pre-pandemic economic activity is actually happening more quickly than we had anticipated. There's an exuberance about a return to normalcy and a built up sense of anticipation that is being reflected in the actions of our clients. We have been successful in showing our clients that expanding marketing budgets now is the best way to recapture customers. At this pace, we would not be surprised to see activity exceed pre-pandemic levels in the coming months. While programs in certain verticals, such as employee gifting, have slowed down compared to the fourth quarter, our diversification across industries and market segments more than offset the pullback in these areas. From an industry perspective, our competitors are still seeing promotional product spend that is down by approximately 15 to 20%. The struggles of the promotional product industry generally stand in contrast to BAMCO sales, which continue to increase even when excluding the impact of PPE sales. We believe that BAMCO's extraordinary Q1 results and accelerating client spend is reflective of our having built a company whose culture, capabilities, and client relationships are stronger than the industry as a whole. While we anticipate continuing reductions in PPE sales, we are encouraged by what we are seeing currently in our non-PPE business. Overall, we expect our six-month results should be as strong as our first half 2020 performance. It's a genuine thrill to be able to say that the BAMCO team continues to perform at a level that is the very best our industry has to offer. Additionally, the M&A market is robust. Our pipeline continues to grow, especially now with new tax laws on the horizon. We see a lot of opportunities, so we are being very selective in evaluating prospects that meet our specific criteria. Our gifts by design acquisition in February is a great example of the right kind of deal for BAMCO. Gifts by design is a cultural fit, offers synergies in a new market vertical, bolstered our leadership team with experienced and highly respected individuals, was quick to integrate, and made both companies better from day one. Gifts by Design was by far our quickest and most successful integration to date. We believe that BAMCO's management team continues to build upon and benefit from the knowledge and experience we gain from each subsequent successful acquisition. Now I'll turn the call over to Andy for his operational and financial review.

Thank you, Jake. Good afternoon, everyone. I'm extremely pleased with how our teams continue to perform, especially through challenging times in our marketplace. We continue to outperform the market, and our competitors to report solid results for our stakeholders. We carried strong momentum from last year and are continuing to invest in the growth of our businesses organically and through selective acquisitions. We have a strong margin profile, an exceptional balance sheet, and healthy cash flow generation capability. All three elements are key foundational pillars that enable us to perform at a high level, strategically and operationally. During the quarter, we closed on the gifts by design acquisitions, In addition to the acquisition cost of $6 million, CapEx spend was $6.7 million in the quarter. While net borrowings increased $22.5 million, so did our EBITDA, keeping our debt-to-EBITDA ratio stable at 1.5 times at March 31, 2021. I'll now review operational highlights for the quarter. We're progressing well with technology and automation investments in our Eudora Arkansas Distribution Center, slated for completion later this year. We're pleased to see improving efficiencies resulting from our investments in robotics in our CID Dallas distribution center, which will continue to gain additional competencies using AI and machine learning. Our third manufacturing facility in Haiti is on track and is expected to come online in the next few months, adding to our nearshore production capabilities in a duty-free environment. Haiti's proximity enhances our ability to better service our customers, and when completed, We expect to be producing about 30% of our product out of Haiti this year, about 70% of that coming from our own factories. Our distribution capabilities will be greatly expanded by the completion of our new 100,000 square foot replenishment warehouse, also in Eudora, Arkansas later in the year. Turning to our financial highlights, we had an outstanding start to the year with first quarter net sales of 49.4% compared to the prior year quarter to $140.8 million. All segments exceeded growth expectations once again. BAMCO was the largest contributor with a 124.9% increase, accounting for $32.7 million of the overall quarterly sales growth. $14.2 million of this increase for BAMCO resulted from PPE sales. Uniforms and related products net sales increased 17.4% to $70.6 million relative to the comparable period in 2020. PPE sales were $12.5 million versus $1.5 million of only our legacy PPE products in Q1 2020. As Michael said, West Coast porous congestion hindered our ability to maximize uniform segment growth this quarter. Total uniform backlog at quarter end was $44 million compared to $11.6 million last year. Of the quarter end backlog, PPE accounted for $15.3 million last versus essentially zero at March 31, 2020. Jake discussed BAMCO's impressive results and backlog, which warrants another mention that our core promotional product sales are rebounding at a faster pace and beginning to replace PPE business at a higher level. The office gurus again reported high double-digit growth as demand has strengthened. Net sales after intersegmental eliminations increased 43.2% to $11.4 million. Overall, the team excelled at onboarding new customers and has continued providing superior services to our existing customer base. As a reminder, during the 2020 first quarter, TOG operations in El Salvador were impacted for more than a week due to the local government mandate to shut down operations at the onset of the pandemic. For the quarter, we reported consolidated gross margin of 34.8% compared to 35.5% in the first quarter of 2020. The variability is due to customer and product mix. While total SG&A expenses increased by 27.7% due to higher sales volume across our segments, we saw a significant improvement reflected as a percentage of net sales of 24.9% versus 29.2% in Q1 last year. This increase in SG&A dollars is primarily due to increased sales commissions and employee compensation due to a significant increase in net sales for the current quarter. Of note, our 2020 first quarter included a $1.2 million reversal of the 2019 accrual for our 401k discretionary matching contribution. Additionally, TOG incurred expenses related to compensation paid to agents without the benefit of sales in the amount of approximately $1 million due to the shutdown last year. Wage reductions were implemented at the beginning of Q2 last year. We have reinstated these pay rates to pre-COVID levels at the beginning of the second quarter of 2021. Wage reduction savings taken last year were $2.4 million on an annualized basis, of which 25% would have been a benefit in this first quarter. Income from operations for the first quarter increased $13.9 million compared to $6 million in 2020 Q1, and operating margin reached 9.9% in the first quarter, compared to 6.3% last year. Net income for the first quarter markedly increased by 211.2% to $10.5 million or 66 cents per diluted share compared to $3.4 million or 22 cents per diluted share in last year's first quarter. Of note, diluted shares outstanding increased by 5.2% to 16 million shares compared to the same period last year. Our effective rate for the quarter was 20.8% compared to 27.1% a year ago. Now for a few balance sheet highlights. Cash flow from operations were reduced in the first quarter primarily due to significant accruals associated with the company's strong operating performance and which were recorded in 2020 that were paid in the current period. This included accrued incentive compensation and income taxes. Working capital increased for the quarter from $143.6 million at the end of 2020 to $165.3 million at the end of first quarter 2021. At March 31st, 2021, we had cash and cash equivalents of $10.9 million. This is an increase of $5.7 million since last year. And this increase is mainly due to timing of customer payments received at the end of the quarter. We also paid a quarterly dividend of 10 cents per share during the first quarter. Capital expenditures were approximately $6.7 million with the investments primarily related to our expansion of the distribution facility in Eudora, Arkansas. We anticipate continued heavy investing in our automation projects this year and expect CapEx to still be in the range of $16 to $17 million for 2021. Lastly, the company is in the process of terminating its two non-contributory qualified defined benefit pension plans, which were fully funded as of March 31, 2021. In April 2021, we settled the majority of our obligations under the plans by providing lump sum payments of $13.7 million eligible participants who elected to receive them. And we expect to settle the remaining future obligations under the plans through the purchase of annuity contracts from one or more highly rated insurance companies in the second quarter. These settlements are being paid from the assets of the related pension plans. We estimate that we will record a total non-cash pre-tax charge associated with the plan termination during the second quarter of 2021 of between $7.5 million and $8.5 million, which primarily represents the acceleration of deferred charges currently accrued and accumulated of the comprehensive loss. I'll now turn the call back to Michael for his closing remarks and a general outlook.

Thanks, Andy. Despite the operating landscape, we still have so much opportunity to unlock We've always taken bold steps to navigate market challenges in the past and have, in most cases, in our 101-year history, come out stronger than before. We remain competent. This time is no different. To fuel future growth, we're making prudent investments in distribution, manufacturing, marketing, and IT, as well as workforce expansion. We're recruiting heavily for talent in top positions. To date, this is our strongest push for key positions ever to take us to the next level. In our uniform segments, We're building out teams in sales, project management, design, plant management, and other key areas as well. Banco continues to recruit several national sales reps as well as other key employees. The same is happening across our uniform business. Our M&A pipeline is where we want it to be without distracting us from managing our business. Additionally, our international strategy is beginning to take hold, and we're investigating distribution expansion possibilities beyond the new distribution point in Poland as we increase our scale internationally. At TOG, demand for our niche call center services continues to increase, and we're looking at a variety of options to augment long-term capacity. This could potentially include acquiring call center businesses that bring us into new geographies that open us up to pools of agents and leaderships, as well as capacity, and that might give us entree into new channels of service. We are operating in a dynamic environment and seeing additional momentum in sales growth. From our point of view, there has never been a better time for us to disrupt what we see as a weakened competitive landscape and take market share. Taking into consideration our organic growth rates and our recent acquisition, we are raising our sales outlook for the year and updating our long-term goals. Previously, we guided to $450 million in net sales for 2021. Factoring in our gifts by design acquisition and updated organic growth expectations, our current estimates show us approaching $500 million in net sales for 2021. The uniform segment is expected to grow at a CAGR of 12% from 2021 through 2025. BAMFCO is projecting a 12% CAGR during the same period, and TOG's trajectory continues to excel, yielding expectations of 18% CAGR through 2025. We expect overall a 12.5% CAGR for SGC from 2021 to 2025. Overall, we expect to exceed $800 million in net sales by 2025 in our current business units, absent of any acquisitive growth, and expect operating margins in excess of 10% in 2025. Our strong performance is a result of our strategic diversification and integrated business model, underpinned by the determination and hard work of our entire team and our loyal customers. Business is never without its challenges, most of which lately have been precipitated by outside events. We're working through those challenges and will prevail in overcoming them as we always do. With that, we would 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 one 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, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Kevin Steinke from Barrington Research. Please go ahead.

Hey, good afternoon, everyone. Good afternoon, Kevin. I wanted to just start off by talking about the uniform segment pipeline, what you're seeing there. You mentioned some continued strength. Are you seeing the continued strength on the healthcare side? You've talked before in the past about reusable wear and things like that. Our healthcare institution still is interested as they were before, even with some sense that maybe the pandemic is starting to recede a bit, although still some way to go there, but just maybe some comments around that would be helpful.

Sure. Our healthcare business is very robust right now. It's driven by the usual channels that we operate in, the retail channels and the, you know, the laundry channel, basically, you know, the institutional side. And there's no shortage of opportunities in that business. I mean, there's still a tremendous, you know, shortage of healthcare workers in this country. Hospitals are are still seeing pretty high censuses of employees. Things get back to normal. They expect to even see higher ones from people who have delayed procedures and seen doctors and so on. But a lot of it is new channels. Our e-channels on the CID side are very strong. We spoke about on the last call, Universe taking an interest in Indy and that they reported in a press release. We've spoken about Sanmar taking a pretty big position in the channel that we have not been in to date, which services basically the 22,000 ad specialty companies out there, giving them the opportunity to buy a defined product from Sanmar that we've designed for them. And the online, both walmart.com and target.com, We're starting to gain some traction there. It's very early. But we expect it, you know, in the past, when we've entered any new online channels, and you go to the Internet and you Google Wonder Wink and you'll see all the different online channels we're on, that they've grown very nicely. So we're feeling really good about the health care side. On the other side, what we're seeing is, as I said earlier, almost normalizing of what we call the essential businesses and other people call the essential businesses during the pandemic, you know, grocery and pharmacy and all big box. You know, they're starting to come down a little bit and be back to normal, not the crazy, you know, cadence they were on last year of hiring people. You know, they seem to have leveled off a little bit. They're not eliminating anybody. They are finding that all these businesses are finding it hard to hire people right now, interestingly, and I'll let everybody use their own imagination as to why that's true. But what we're seeing is we're starting to see a resurgence of the businesses that weren't essential businesses, that were really dormant or quiet during the early stages of the pandemic, you know, food service, restaurants, and so on, hotels, as I mentioned during my talk a little bit ago. And, you know, that's encouraging because they haven't They haven't been buying for a long time, and they're also struggling to find employees. And, you know, a great way to motivate employees is to put them into a new uniform. And typically those customers do put their people into new uniforms. So we expect, you know, as quickly as they can hire, Kevin, you know, and the nonessential businesses we spoke about, and we actually did a chart I think a couple of calls ago, where we showed that about 80% of our business services, the essential businesses, and 20% services, the more non-essential businesses, that 20% is starting to grow very, very nicely and come back. Particularly over the last few weeks, we've seen a resurgence. We all know that the schedules are getting full again, and airports are getting full again, and so are limited service hotels. So we're excited about that. We feel we're on the right trajectory. there have been challenges on all the uniform sides of the business. We think we've met them as well or better than any of our competitors. That's our own sense. We feel like we've been able to do that because of our feet on the ground in China and some of the long relationships we have as well, but it's not a perfect situation. I would much rather that we weren't having any issues along with our competitors, but There are those issues which seem to be getting better over the last few weeks, but in January and February, well, December through February were absolutely awful. Who knows where it's going to turn now and where there's going to be shortages, but we're anticipating, we're trying to anticipate as much of that as we possibly can.

Okay, great. And those logistical issues you've talked about that are kind of rippling across the economy, do you have a sense as to how much of a headwind that was to your growth?

I think you said it might have tempered growth a bit, but, you know, what's... Yeah, we would have done approximately, I mean, it's hard to actually slice and dice it perfectly, but of orders that we took we could have shipped about $5 million more if we hadn't had those logistical issues. What we don't know is what orders would we have taken if we had inventory on the shelf.

Okay, right. Got it. And I think you might have mentioned that you see perhaps some of these issues clearing up by the fourth quarter. That still weighs off, but Do you think there's some line of sight to those challenges beginning to subside?

It's like predicting when the pandemic's going to end, when logistical challenges are going to end. We thought that by now the pandemic would be largely behind us, although there seems to be some places in the U.S. and around the world that are suffering more than other places. And if we are coming out of it, we're coming out of it pretty slowly. But the same thing with logistical issues. A lot of it depends on supply and demand of container ships and rail space and truckers in the United States. And I don't know what's going to happen with respect to when all these retailers who are stocking back up now which is driving a lot of this, as well as all the internet buying, how long that's going to continue, nor how that's going to impact what they bring in around for their Christmas season, which is generally them bringing product in September, October, early November, what we're going to see. We're challenged to get our inventories in better shape before that happens. so that the impact is less. But, yeah, I believe by fourth quarter. But, you know, my crystal ball is not always 100% right, but that's what we're basing our forecast on right now.

Okay, fair enough. You also mentioned that some of these challenges are really hitting smaller competitors much more significantly and that that perhaps could lead to some acquisition opportunities. So, you know, if you see a smaller business that's struggling with logistics issues, is that still kind of an attractive candidate for you to acquire knowing that, you know, they're normally kind of a pretty good quality business, but, you know, just being challenged by external factors or how would you kind of think through that equation?

Yeah, you know, we look at those that struggle with sourcing, logistics, on the IT side of their business that have a disproportionate SG&A overall that we can, you know, help reduce by our development that we do in India and our back office that we have in Central America and Jamaica. So, you know, those are great candidates for us. You know, a solid business that's already making some money that we can add great synergies to with all that we bring to the table. So yes, it's not always outward forces. It happens to be in this case. A lot of these companies and the uniform companies jumped onto the PP bandwagon, and some of them did better than others, the smaller ones we've heard, and it saved them, quite frankly, from destruction otherwise. That coupled with the PPP money and the low interest SBA loans and the forgivable SBA loans and everything really helped them through this. So months ago, we were talking to people and asking them, would they consider selling their business? They said, no, I'm okay. Their business was down in the dumps, but they were okay because they got PPP money. We know that's going to run out and the government can't keep on sending people money. And when it does, we will have spoken to them already and they'll be prepared to have even more serious discussions with us than they're having now.

Okay, great. When I think about the strength at BAMCO, if you take out the PPE sales, it looks like they grew around 70% year over year and You've noted clients starting to spend their marketing dollars and you're outperforming the industry, but should we think about that in terms of just pent up demand coming back versus taking market share? I notice you still are talking about 12% longer term growth there, but that business is obviously doing really well. Can you just talk about some of those points, please?

I'll let Jake jump in on that one. That's why we brought him to the call. So, Jake, go ahead.

Hey, Kevin. Nice to talk to you again, and thanks for the congratulations on the great quarter. So, yeah, I mean, it's all the things you talked about. It's taking market share. It's bringing on new sales reps. It's growing existing clients. the expansion of marketing budgets with our clients trying to recapture their customers and bringing employees back into the office, all of those things are having an impact. And we've talked about it a lot. The competitive landscape in the promotional product industry is 20-some-odd thousand distributors, many of whom are smaller mom and pops, and they just can't offer what we're able to offer, whether it's to customers or to sales reps. And so we're a really attractive landing spot for new salespeople, as well as for customers to continue to come on board. And we talked about it before. We've had a lot of success in converting customers that were PPE-only customers, right, that we brought on, sold the masks, sanitizer, you know, face shields. And we've converted a lot of those to promotional product customers. And we continue to work with these customers to find additional opportunities to penetrate and get their promotional product business. And so that's been a big source of – success for us, too, and we're really excited about what's to come. You know, the addition of GIFs by Design has been a really exciting one. We're already well underway leveraging our client base and Salesforce to extend corporate awards, incentives, recognition programs to our current and future client base, and we've already seen some successes there, and we're really excited about the potential.

Okay, great. And as you look at BAMCO, are there Still maybe some gaps you'd like to fill in through acquisition? Are you going to mostly focus on organic growth going forward? What do you think the mix will be there?

Yeah, and I think it goes to what Michael said before. We're opportunistic, all right? The right opportunity comes along. That's accretive to the bottom line, good for culture, potentially puts us into a new line of business. Absolutely, we'll look at it. We're not going to force the issue if there's nothing that fits that mold. We're not going to force it, but if something comes along and it fits that mold, absolutely, we'll look at it. I mean, Michael mentioned it before. There's quite a few companies that are struggling. Good companies, good underlying fundamentals, but struggling through logistics problems, supply problems, whatever it might be. Maybe one of their big customers was affected in a major way by the pandemic. We're an attractive landing spot for them and can turn them a lot more profitable under our model. Again, we have the ability to scale through the infrastructure we've set up, technology, logistics, warehousing. We have that set up to be a lot larger company than we are right now, and we're a really attractive landing spot for a lot of those targets.

Okay, great. You mentioned Eudora facility likely completed later this year. Can you just review that? what you see in terms of a margin benefit from that going forward, I guess kind of as we looked at 2022, is that kind of a step function change or, you know, just kind of continuing on that normal kind of trajectory towards 10%?

I'll answer the last part. Yes, that helps us get to the 10%. That's anticipated in that number. But keep in mind the multitude of steps to get us to what we consider to be our most efficient place from a distribution standpoint. And that's, you know, we closed the HBI warehouse last year and sold the building along with the warehouse, the office and the warehouse. And we moved all that to Arkansas. When we moved to Arkansas, we anticipated that ultimately there would be some storage challenges there. And so our longer term plan was to take and put to have a receiving warehouse, which is the 100,000 square foot warehouse, which would be a replenishment warehouse to our main facility, which was 250,000 square feet, so we just put an addition on it of 54,000 square feet, I believe. I may be off by a few square feet there. The additional square footage we put into the Arkansas facility, not the 100 for replenishment, which is down the road, but in the actual facility, was to house our technology that we're bringing to the multishuttle system, which is going to ultimately replace the robotic systems that we have in that warehouse now and to bring us even greater efficiency. So we've taken all of HBI's business, all of Fashion Seal Healthcare's business now, and it's being serviced out of Eudora, Arkansas, both from the 100,000 square foot building and the 300,000 square foot building. There are economies to that scale And as we grow, it will certainly give us – for what we anticipate these next five years, our expectation is that that will service our needs during the next five years to get us to the level of growth that we stated.

Okay, great. You mentioned for the office gurus – potentially acquiring other call center businesses. I think that might have been the first time you've talked about that, so I'm just curious about the types of businesses that could be available. Are there a significant number of them with kind of the same strategic and cultural fit in terms of your focus on the smaller businesses number of agents, et cetera, that would be logical fits with that business?

Yeah, Kevin, it's Andy. I mean, we think there's a fairly rich landscape out there of targets to acquire. And we've touched on it in the past. It was something we would consider. You're right, this is probably a little more forward in our statements this time about it. And it really ties to one of the key things we're looking for beyond the normal stuff that is always important to us of the culture, the fit, the quality of the individuals that we're picking up and building out our team. In this case, it's really a matter of trying to find additional geographies that are rich in an employment or employee pool to be able to draw in as well as facilities. When we first started in the pandemic talk, we had expected that with the work from home, that had really taken a lot of our capacity constraints off and we weren't certain how long that was going to last or how far it was going to last. We do expect that it will ultimately, I think there's going to be a mix. And I think Michael touched on it that, you know, we think ultimately 25% of our workforce will end up being work from home, which means at the tremendous rate at which they're growing, we're going to hit capacity constraints, constraints relatively soon. And we need to consider those options. One of the other factors that I left out when we were going over the, The key thing is English-speaking, quality of English, and that is critical for us, I mean, for the quality of call centers that we have.

Kevin, it's really had the office gurus been on the cadence, supposing there had not been a pandemic, because they grew nicely during the pandemic as we reported last quarter. And here they are, you know, as far as, you know, their business is concerned. The pandemic is not largely affecting them, except they have a lot of people still work from home. But their customer base is growing at rates that, quite frankly, in our wildest dreams, we hadn't anticipated. We have a cadence of people coming to us, wanting us to do business with them. They're in our sweet spot. You know, we've spoken about the 5 to 25 seats. and some even larger, but still within our niche, that we're very interested in servicing. And, you know, the word has gotten around. We've gotten a lot of awards over the last two or three years in particular. Dominic Leidy, who runs that business, has received a lot of recognition. He does a few white papers from time to time through different social media channels. And quite frankly, you know, word of mouth has been wonderful for us. So, you know, it's a business that doesn't have a sales force, and the growth they have is just phenomenal. You know, we do in many instances use brokers, and we've become their preferred vendor. And, you know, that's a great synergistic relationship with us with some of these brokers who have been dealing with us for years, and we've never let them down. It's a good problem to have, growing faster than you anticipated. I don't know how long ago I said, boy, during the pandemic, I don't think we'll have an infrastructure capacity issue for some years. I'm hoping I have a capacity issue sooner. It just means that the business is growing faster. We're not going to be buying any buildings. We'll lease buildings wherever we are. We're looking at a few geographies, mostly in this hemisphere as well as the southern hemisphere, but Andy enumerated what the important points were for us when going out and looking for them.

Okay, great. And lastly, I just wanted to ask about you mentioned the updated target of nearly 500 million of sales in 2021. Is there a specific number that you're assuming in there for PPE sales or Kind of how do you build to that? I know, obviously, we're layering gifts by design, but any other color around that would be helpful.

Yeah, Kevin, I think whenever fairly consistent with what we said in November, what we've included in the $500 million for this year of PPE really is our legacy PPE business as well as what we have in known PPE business upcomings. And I think we ended the quarter, as I said, in the uniform business with a PPE backlog of about 15.3 million. So really that's what's contemplated within our forecast for this year for PPE. On the uniform side is another 15 million. BAMCOs, you know, their backlog was only 800,000 at the end of the quarter for PPE. And I would expect they'd continue to pick some up, but it is not included in that $500 million projection for the approaching $500 million number for 2021 total.

Okay, great. That's helpful. Thanks for taking all the questions, and congratulations on the nice results. Thank you, Kevin. Thank you, Kevin.

As a reminder, if you have a question, please press star then one to be joined into the queue. This concludes our question and answer session. I would like to turn the conference back over to Michael Benstock for any closing remarks.

Well, everybody, thank you again for joining us for our quarterly call. We look forward to reporting second quarter results in July. Be well between now and then, and we'll speak then.

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