Superior Group of Companies, Inc.

Good afternoon, everyone. Welcome to Superior Group of Companies' second quarter 2021 conference call. With us today on behalf of the company are Michael Benstock, the company's chief executive officer. Andy DeMont is chief operating officer, chief financial officer, and treasurer. Phil Cousette, chief strategy officer. And from the promotional products division, we have Jay Kimmelstein, BAMCO's president. After the speaker's open remarks, We have a Q&A session. This call is being recorded, and your participation implies that you agree to this. If you do not, then simply drop off the line. I'd like to turn the call over to Hala El-Shabini, Senior Managing Director of Three-Part Advisors, who will read the Safe Harbor Statement. Please go ahead.

Thank you, and good afternoon, everyone. 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 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 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, 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, the quarterly report on Form 10Q for the quarter ended June 30, 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 hereunder 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 2020, unless otherwise noted. With that, I'll turn the call over to Michael.

Good afternoon, everyone. Thank you, Hala. I think your portion of this gets longer and longer every single quarter. Thank you all for joining us to discuss our Q2 results. In addition to Andy and Jake, I'm pleased to be joined by Phil Cousin, our recently appointed Chief Strategy Officer and the newest member of our C-suite. Phil is a dynamic leader with proven strategic acumen, and we're excited to further tap into his expertise. Additionally, Jake has been an invaluable leader, serving as COO and CFO of BAMCO these past few years, His depth and breadth of business and industry experience, as well as his prior M&A work, is a tremendous asset. His recent promotion to president is certainly well-deserved. For the call format, I'll open with second-quarter highlights, and Phil will provide higher-level thoughts on our strategic direction, followed by Jake's review of BAMCO. Andy will then provide an operational financial review. As usual, when we are done, we will open the line for questions. So let's get started. Sales are quickly moving in the right direction. Our core businesses are prospering. In particular, we're seeing a faster than expected recovery in most of the sectors of our uniform business that were weakened by the pandemic. We're also seeing a return to normalized yet strong levels in our other uniform channels. Overall, second quarter results and visibility for a strong second half gives us greater confidence to update our sales guidance that we gave during our first quarter call. we now expect to approach $525 million in revenue for fiscal 2021 versus our guidance last quarter of approaching the $500 million mark. This puts our revenue target on par with 2020's spectacular numbers. To keep some perspective here, and I'm going to throw out a lot of numbers now. I hope we can keep up with it. In 2019, our total sales revenue was $377 million. In 2020, our sales revenue were $527 million, exceeding our budgeted $408 million by $119 million. Our core non-PP sales for 2020, this last year, was $396 million. Our anticipated sales for this fiscal year will greatly eclipse our actual core sales results last year. Our 12.5 percent guidance with respect to our growth from 2025 remains the same. We are on track to meet our consolidated CAGR goals of organically achieving nearly $900 million in revenue in 2025, and along with acquisitions, expect to exceed $1 billion. Let's take a closer review of our segments. As anticipated, our uniform division serving both healthcare and essential employee ID end markets are normalizing when compared to the frenetic pace of pandemic purchasing last year. For HPI, activity is booming, and with some customers, demand is nearing and even exceeding pre-pandemic levels. This is particularly evident in lodging, entertainment, hospitality, food service, and transportation. As corporate customers realize rebounding sales, they are returning to initiatives paused during the pandemic, including uniform upgrades and market checking RFPs. As a result, we are also seeing a market increase in customer acquisition opportunities. We are excited about an initiative we began last quarter at HBI to combine the HPI sales team with our BAMCO sales team as a shared service to move both divisions towards a more direct sales approach versus the cross-selling approach that we've successfully executed since our acquisition of BAMCO in 2016. I can tell you this. This exponentially deepens our ability to uncover and participate in many more opportunities. This strategy, which we beta tested in Q2, is already paying dividends. Jake will speak more about this in his remarks. Our remote staffing division, the OfficeGurus, continues to post remarkable results as existing customers add seats and many new customers are onboarded. We're seeing more openness than ever for near-shore outsourcing as many of our customers and prospective customers are experiencing difficulty in hiring in the USA. Many of these had their teams in the US working remotely during the pandemic and have come to the realization that many of the tasks they thought had to be done in office could be done in a remote environment, and they're now looking to do the same work at a lower cost with us. Customer preference for in-center work is somewhat of a mixed bag. We're seeing more customers willing to accept the hybrid solution of work from home and from center. Regardless of their choices at our current rate of growth, we'll have to only slightly tweak our future investments in infrastructure to accommodate this unprecedented opportunity for growth. Overall, we continue to capitalize on tremendous tailwinds, resulting in a quarter where we added 437 billable agents across all sites. Keep in mind, that we added 184 agents in Q1 for a total of 621 agents for the first half of 2021. To put this in perspective, our original 2021 forecast, which was ambitious, called for 362 new seat requirements for the entire year. We've already put on 621. From a profitability standpoint, the team delivered outstanding results again and an operating margin of 24%. BAMFCO delivered the third consecutive quarter of record sales in core promotional products. I'm going to leave the rest of our discussion around BAMFCO to Jake. Turning to our operating environment, global logistical and supply chain challenges as well as increased prices for raw materials persist for many businesses, including ours. We are not immune from the disruptions, but our proactive stance on building our inventory early has provided a level of insulation and gives us on a longer-term basis further advantage over smaller competitors. In addition, like others, we also face hiring challenges domestically in lower-wage jobs, which has presented a headwind for our distribution centers. We believe the coming cessation of the supplemental unemployment benefits combined with our creative and aggressive recruitment, incentive, and retention programs should allow us to maintain needed staffing levels. In regard to the recent tragic events in Haiti, fortunately, our own managed facilities in Wannament are far removed from the epicenter of disruption in Port-au-Prince. The company's production facilities remain largely uninterrupted except for a couple of days following the tragedy and a two-day government-mandated mourning period. Overall, we have not experienced a material impact to our business, and our inventories of the products made in those factories, as I said earlier, are more than adequate to offset any unexpected disruptions. We're also still in aggressive hiring and training mode in our Haiti facilities as we begin to staff now that the third facility has been opened. As I said at the start of the call, we continue to be impressed by the rising leaders in our company. Our team is passionate and driven and hardworking. They are the key to our future success. Phil's entrepreneurial drive, innovation, and strategic mindset our assets to the company, and we're pleased to welcome him as our first Chief Strategy Officer. Phil, take it from here.