Superior Group of Companies, Inc.

Good day and welcome to the Superior Group of Companies fourth quarter and fiscal year 2021 conference call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. With us today are Michael Binstoff, the company's chief executive officer, and Andy DeMott, chief operating officer and chief financial officer. After the speaker's remarks, there will be a Q&A session. To ask a question, you may press star then one on your telephone keypad. And to withdraw your question, please press star then two. This call is being recorded, and your participation implies that you agree to this. If you do not agree, please disconnect your line. Now I'll turn the call over to Ms. Hala El-Shabini, Senior Manager Director of the Three-Part Advisors, who will read the Safe Harbor Statement. Please go ahead, ma'am.

Thank you, and good morning. This conference call may contain forward-looking statements about Superior Group of Companies, the companies. 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 statements. Such risks and uncertainties include, but are not limited to, the following. The effects of 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 10-Q for the quarter ended September 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 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 2020, unless otherwise noted. And with that, I'll turn the call over to Michael.

Thank you, Holla. Good morning, everybody, and thanks for joining us for our fourth quarter and fiscal year 2021 earnings call. Today, I will discuss strategic initiatives, review performance highlights, and touch on the current macro environment. After that, Andy will provide an operational financial update. Phil Koussid, our Chief Strategy Officer, Jake Himmelstein, Banco's President, and Dominic Lighty, TOG's President, will participate in the Q&A session following our prepared remarks. We're very pleased to report that we exceeded our fiscal 2021 sales guidance, reaching $537 million in net sales. As you recall, we increased our top-line guidance twice during 2021. From a bottom-line perspective, inflationary and other cost pressures intensified as we moved through the end of the fourth quarter, which impacted results. Additionally, we incurred unusual non-cast charges, which Andy will discuss in more detail in his remarks. It is important to note that we took a range of pricing actions and cost control measures to mitigate the impact of future cost inflation as well. As we move past 2021 and finish lapping historic revenue comps, we are now seeing improved activity and expect normalized comparisons to resume as we progress into 2022. Investments in our people, business processes, technology, and product innovation underscore our ability to withstand and excel through market uncertainty. 2021 was marked by supply chain and logistic challenges, labor scarcity, and market uncertainty. which some competitors were less able to mitigate. While we also face these challenges, we are doing so with greater resilience than many. I'd like to highlight key achievements accomplished in 2021. In 2021, we established the Chief Strategy Officer role and appointed Phil Kusin, who brings his astute vision, passion, and entrepreneurial spirit to the C-suite. We executed two acquisitions during the year, first welcoming Gift by Designs in January. An industry leader, Gifts by Design, develops corporate awards, incentives, and recognition programs for some of the world's biggest brands. Sutter's mill specialties joined our team in December, bringing extensive in-house decoration, production, and engraving capabilities that further vertically integrate and elevate our unique and custom offerings to expand options for our clients. In the second quarter, we announced the integration of our branded uniforms and branded merchandise sales force and marketing teams. This combination of HBI and Banco exponentially increases our reach beyond four sales reps at HBI, adding 70-plus sales representatives from Banco who are now uncovering significant opportunities and yielding wins. We're taking a targeted approach to focus on our branded uniform core competencies and and particular vertical industries. We believe developing a deeper and more focused approach will further increase our market share in the uniform space. In May, we increased our regular quarterly cash dividend by 20%. The dividend is an important piece of our value proposition to shareholders and has been paid consistently since 1977. Overall, our organization made significant headway in strategic infrastructure investments with the preponderance of the expenditures behind us. We are well positioned against competitors and are enthusiastic as we enter 2022. We do want to mention some recent accolades we are very proud to receive, including recognition in Forbes Magazine 2022, America's Best Small Company Ranking. This is our second year in a row to be included on the list, and we are ranked number 66 out of the top 100 small cap companies. SGC was also recently named to Fortune Magazine's 100 Fastest Growing Companies list. Our brand building organization received many points of recognition during 2021, thanks to our dedicated team who drive our success. Now, let's speak to some segment highlights. Our core uniform revenues for fiscal 2021 increased 2.3% over 2020, excluding PPE sales, and decreased 8%, including PPE. Our fourth quarter 2021 core non-PPE revenues Uniform sales increased 15.4% compared to fourth quarter 2020. Interestingly, the quarter showed strength early on, but paced much slower in the second half of the quarter. Uncertainty related to the spread of the Omicron variant, customer hiring challenges and supply chain issues appeared to drive the slowdown in customer activity during the latter portion of the quarter. Of late, though, we are seeing elevated activity and accelerating rebounding uniform sales. As we move forward, we are optimistic and expect our core uniform sales to continue to grow throughout the year. We are seeing weakened competition in the uniform segment with two significant competitors exiting the space that competes with HPI and a few, lately more than a few, consolidations of competitors in the healthcare space that will narrow the field of choices for our customers. Keep in mind, that our greatest value proposition to customers who have uniforms needs is that we offer the widest range of workwear apparel than any of our competitors. We're differentiated in that we design, manufacture, and distribute both institutional and fashion healthcare apparel, as well as non-healthcare identity uniforms. The integration of our branded uniforms and branded merchandise sales force in the second quarter of 2021 is proving very beneficial, as I said earlier, to HVI, yielding big opportunities and significant wins that will translate to increased revenue later in this year. Our branded merchandise sales grew by an exceptional 65% for full year 2021 compared to 2020 when excluding PPE sales. Net sales for the fourth quarter were $63 million, growing approximately 12% when compared to fourth quarter 2020, and by almost 41% excluding PPE sales, perpetuating a strong trajectory as our fastest growing revenue segment driven by both organic and inorganic growth. Turning to the office gurus, our remote staffing solution segment, TOG posted a record-breaking year in terms of revenue growth, reporting a net sales increase for 54% year over year. We continue to add new agents, and unprecedented pace to meet the robust demand from existing and new customers. Our excellent reputation to meet customer needs drives the business's growth, with the exceptional culture drives high retention and internal promotion rates. I want to note during 2021, we celebrated more than 361 promotions, added nearly 1,000 employees. We also began a recent expansion into the Dominican Republic and welcomed the seasoned vice president, of human resources onto the team. Back to SGC for a moment. The continued dynamic operating environment prevents challenges as well as opportunities. While we're excited about taking market share, we're pragmatic about the headwinds we and most companies across the globe are currently facing, including labor scarcity, rising logistics, and freight costs and supply chain issues. These costs impact the bottom line for everybody. and we are continuously working to mitigate these impacts for ourselves and our customers. I will now turn the call over to Andy to discuss operational financial highlights in more detail.

Andy. Thank you, Michael, and good morning, everyone. Overall, we ended the year on strong footing both operationally and financially. We completed a number of capital investments across our distribution and manufacturing facilities to drive automation and technology enhancements, expand manufacturing capacity, reduce our costs, and improve overall customer service. This includes robotics at our CID Dallas Distribution Center, the nearly completed upgraded robotics at our Eudora Arkansas Center, and additional nearshore manufacturing capacity at our third facility in Haiti. Financially, our teams executed well while managing through the effects of global macro events. Consolidated fourth quarter net sales were $142 million compared to $145.4 million in Q4 last year. The 2.3% decline was largely due to the higher PPE sales reported in Q4 of 2020. As expected, PPE sales trended lower in Q4 of this year at $3.9 million, while Q4 of 2020 included $37.9 million. Excluding these PPE sales, our consolidated net sales increased by 28.4%. For the year, consolidated net sales exceeded our expectations, up $10.3 million or 2% to $537 million. Excluded PPE net sales for the year increased by 26%. Turning to our segment results for the fourth quarter, uniforms and related products net sales declined by 19% to $63.3 million compared to 2020. We saw a return to the more normalized legacy PPE sales levels of $1 million versus the Q4 2020 spike in PPE sales of $24.2 million. Excluding PPE sales, our net sales in this segment increased by 15.4% in the fourth quarter. And as Michael mentioned, mid-fourth quarter, we did see a slowdown in activity across both healthcare and non-healthcare uniforms due to the overall market uncertainty. Our promotional product ended Q4 with sales of $63 million, Note that Q4 had less than $3 million in total PPE sales compared to $14 million in the same period last year. And excluding PPE sales, sales from the quarter were up 41% year over year. TRG continued to produce high double-digit growth from the quarter, with net sales up almost 45% to $15.7 million, another very impressive report. On a consolidated basis, our gross margin for Q4 of 21 was 31%, compared to 35.7 percent in the 2020 fourth quarter. The variance was due to a number of factors in addition to product mix changes. First, due to market saturation of PPE products, we determined that it was necessary to take some markdowns on the remaining PPE inventory in the fourth quarter of $1.6 million. Just as a reminder, in total, we sold almost $170 million of PPE in 2020 and 21. Additionally, air and freight logistics costs were significantly higher in 2021 versus last year. Air freight alone was $500,000 higher in Q4 of 21. Our consolidated SG&A expenses held flat, and as a percentage of sales, total SG&A expenses was 26.7% versus 26% in the fourth quarter last year. Our income for operations for the fourth quarter was $6 million, versus $14.1 million for the fourth quarter of 2020. Our operating margin was 4.2% compared to 9.7% in the prior year quarter. Net income was $4 million or 25 cents per diluted share compared to the $12.5 million or 79 cents in Q4 of 20. The PPE inventory write-down reduced diluted earnings per share by approximately 7 cents, and net income was reduced by a non-cash charge of $0.9 million related to the wrap-up of the pension plan termination of our two non-contributory qualified pension plans, which were fully funded. This non-cash pension termination charge reduced fourth quarter earnings per diluted share by 5 cents. Turning to fiscal year 21 segment highlights, our uniform net sales declined 8.1% to $263.9 million due to a decrease in PPE sales from lower volumes and lower market demand for healthcare-related apparel compared to the significantly high pandemic-related demand in 2020. Excluding PPE sales, our uniform segment net sales grew 2.3% despite the supply chain challenges and lingering effects of the pandemic. Promotional products net sales increased 6.8% to $215.8 million, reflecting an increase of $77.4 million in our core branded merchandise partially offset by the decrease of $63.7 million in PPE sales. Excluding PPE sales, BAMCO was up a stellar 65% year over year, despite heightened market uncertainty related to the pandemic late in the year. Overall, our integrated sales strategy leveraged a return to core promotional program launches, growth of our customer base, and market share gains. Additionally, the acquisitions of gift by design in Sutter's Mill in 2021 contributed $16.9 million to net sales for the year ended December 31st of 21. Our promotional product backlog at 1231 was $74.3 million, made up of $2.7 million in PPE sales and $71.6 million in non-PPE. This is the largest backlog in the company's history, resulting from huge bookings of promotional products in the fourth quarter of 2021, which are expected to deliver in 2022. TOG executed extremely well throughout the year with net sales finishing with a 54% increase. It's a record-breaking year for TOG in terms of sales growth in dollars. For the year, consolidated gross margins was 34.6% compared to 35.8% in fiscal 2020. Again, in addition to product mix changes, our gross margin was impacted by significantly higher error in freight as well as logistics costs in 2021 versus last year, with air freight contributing increase in cost of $1.2 million in 21. The full-year impact of the write-downs associated with the PPE inventory previously discussed was $2 million. Consolidated STNA expenses increased by 4.1% to $142.1 million, primarily due to an increase in personnel expenses, partially offset by a decrease in bad debt expense of $4.5 million. As a percentage of sales, our total SG&A expense was 26.5% versus 25.9% in 2020. Income from operations was $44 million compared to $52.3 million in 2020. And our operating margin was 8.2% compared to 9.9% last year and well ahead of 2019 operating margins of 5.7%. Our effective tax rate for the year was 17.8% compared to 20.3% a year ago. The variance was primarily related to favorable impacts of compensation-related items and uncertain tax positions of 4% and 1% respectively, partially offset by a 3% impact of the pension plan termination charge. Net income was $27.2 million, or $1.69 per diluted share, compared to $41 million, or $2.65 per diluted share last year. The PPE inventory write-down reduced diluted earnings per share by approximately 10 cents in 2021, and net income was reduced by the non-cash charge of $7.8 billion related to the wrap-up of the pension plan termination of our two non-contributory qualified pension plans. Excluding the impact of the non-cash pension termination charge, our full-year 2021 earnings per diluted share would have been $2.14. Moving to the balance sheet and cash flow highlights, We continue to generate solid cash flow supported by a healthy balance sheet. While net borrowings at December 31st, 2021 were up $28.5 million from year end 2020, our debt to EBITDA ratio remained very strong at two times, which is in line with our desired range and well under our covenant limits. Cash and cash equivalents at year end was $8.9 million, an increase of $3.8 million. Our CapEx the year was $17.7 million, with investments primarily related to facilities and technology enhancements across our distribution and manufacturing locations. In 2022, we expect to continue CapEx investments, but at a lower level than 2021. Lastly, we paid dividends of 46 cents per share, and in total, we've returned $7.2 million in cash dividends to our shareholders during 2021, compared to $6.1 million in 2020. Our fourth quarter and four-year results reflect our team's tremendous agility to manage through the challenges and opportunities while building sustainable, profitable growth. I'll now turn the call back to Michael for closing remarks.

Thanks, Andy. I'm glad you have to do that portion of the script and not me. So to wrap up, we're very proud of our 101-year-old company, award-winning, More global than ever, serving some of the largest brands in America. Our core business continues to grow, posting consistent long-term growth. Double-digit top line and 20% EBITDA and EPS CAGR since 2015 in terms of our growth. Our adaptability, our long-term strategic planning, and I believe our entrepreneurial mindset are key strengths for our business. We're executing more than ever against a clear strategic vision for superior future growth, scaling our organization to leverage higher margin opportunities, capturing market share, and expanding our multi-channel reach and amplifying our brand solution offerings. I'd like to update our guidance to ensure the most accurate inflection of our outlook moving forward. We do this periodically. It's appropriate we do it now, having passed through 2021 with all its diversion of PPE and non-PPE. And I know it can be somewhat confusing sometimes, but here's how we feel about the future. Our previous guidance for the period from year 2021 through 2025 was based on the assumption that 2021 sales would be approaching $525 million. That's where we set the floor. With final net sales of $537 million, in fact, in 2021, our updated guidance is as follows. The uniform segment is expected to grow organically at a CAGR of at least 10% through 2025, driven by continued growth in the healthcare portion of the uniform segment, as well as taking market share in the non-healthcare HBI division and leverage the Banco sales team to increase our penetration of the market. BAMCO is projecting at least an 11 percent CAGR during the same period, and TOG is expected to grow at an increased CAGR of at least 23 percent through 2025. We expect at least a 12 percent CAGR for SGC on a consolidated basis through 2025, and including acquisitions, we expect to exceed $1 billion in net sales by 2025, and operating margins to consistently exceed 10% by 2024. With all that said, we'll now open the line for questions. I want to remind you that we have Dominic from TOG and Jake from Banco and Phil, who's our Chief Strategy Officer on the line. So, if you want to direct any of your questions to any one of us, go ahead.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. And to withdraw your question, please press star then 2. And at this time, we'll pause momentarily to assemble our roster. And our first question will come from Kevin Steinke with Barrington Research. Please go ahead.

Good morning, everyone. I wanted to start off by asking about the Omicron variant. And you obviously called it out in relation to your uniform segment. And it doesn't seem like it had much of an impact here given the strong sales in the quarter. But did you see any impact at all on your other two businesses, that is, BAMCO or the office gurus in the quarter or early in 2022?

Good question. Good morning, Kevin. Let me let Jake answer the BAMCO portion, and Dominic's here, and he'll answer the TOG portion of it.

Hey, Kevin. How are you? Certainly as it relates to BAMCO, we saw some headwinds in the fourth quarter, right? A lot of events canceled, in-person meetings canceled due to the Omicron variant. And that certainly had an impact, right? Obviously our results were great nonetheless. But we're seeing that come back in a big way. We've never seen people as excited about in-person events, big conferences as they are right now. Now that Omicron is largely past us, we think the tailwinds are huge. So the headwinds we faced in Q4 have turned into tailwinds in Q1, and we're really excited about what that means in terms of conference event giveaways, in-person meetings, back to in-person RFP meetings, which is all really exciting to us.

Thank you. Dominic, why don't you jump in on TOG? Sure. Hi, Kevin. Yeah, we were definitely affected. We started seeing higher levels at TOG of absenteeism when Omicron was hit our locations late in fourth quarter. And some of that did carry over until just recently. We saw our absenteeism rates double or even more than double in some cases, which obviously that affects our recruiting, which limited our ability to effectively backfill for that absenteeism. Fortunately, though, like here in the U.S., we've seen a steep decline in COVID cases over the past several weeks in all the countries that we operate from. So now we're back to normal absenteeism levels.

All right. That's helpful commentary on both fronts. Thanks. So I wanted to ask about inflation. You know, obviously, we've been hearing that it's been worsening. And how do you feel about your ability to catch up or mitigate inflation? Are you seeing any stabilization? You know, you mentioned last quarter that you did a price increase fourth quarter, and then I think you said price increases on this call. So are you implementing more, and just how are you feeling about your ability to mitigate inflationary pressures?

Great. I'll take that one. For all of our businesses, really, we did for the uniform segments put a price increase that was largely effective on December 1st. And we feel that that, on a go-forward basis, covered all the inflationary challenges that we were seeing up to that point in the marketplace and that we could foresee over the coming months in terms of pricing. We have seen a little bit of a settling down in prices. They haven't come down much or hardly at all, but at least they've settled down to a level that we feel comfortable that we have well covered. We're not anticipating at this point any other price increases, but we'll largely be watching that to make sure that we're staying ahead of it. That's on the Uniform side. On the BAMCO side, you know every one of their deals is priced based on current prices that they're able to lock in for each deal. In their case, at least for more than 80% of their business, they're able to cover their price on every single deal and ensure that they can have the gross margin that they hope to get. TOG raised prices to their customers. Dominic, why don't you speak to that a little bit?

Sure. Sure. So, yeah, we were seeing, you know, inflationary pressure also. So we did, like Michael said, we implemented our first widespread price increase actually this quarter, you know, for the first time in our history, which is going to allow us to recover most of what we've experienced so far. And then we'll just continue to make necessary adjustments as we go forward.

Jake, did you have anything to add with respect to BAMCO? I think I might have covered it.

I think you got it.

All right, great. So for the office gurus, is that just labor cost inflation? That's your experience? Is that kind of the main area?

Yeah, good question. So labor is part of it, but it's also technology. We were seeing increased prices from just about every vendor that we deal with. So labor is a piece of it, but it's also from our vendors as well.

Okay, thanks.

It's important to note, Kevin, that interestingly, we're not in the habit of doing price increases. Apparel, you know, on the uniform side has been in a deflationary cycle for the last 30 years. So for the opportunity to be able to raise prices, you would expect there would be some pushback in the marketplace for the fact that we're doing that. But not in the uniform business, nor in Dominic's business, nor in Jake's business, have we seen any pushback from our customers with respect to our price increases. I mean, they're seeing it in everything they buy, in every service that they buy, not just products, but services as well. So it's not unheard of. It's kind of the course of the day. We're hoping that The effects of what's going on in Russia and Ukraine right now don't lead to even more price increases. But if they do, I think we'll be prepared to do them. And I think, again, we'll have very little pushback from customers.

All right. Thanks for that. And then, so you obviously talked about the slowdown in the second half of the fourth quarter. for the uniform segment related to Omicron, but now you're seeing activity pick up again. You had talked on the previous quarter's call about expecting to see some significant RFP activity in 2022. Is that still the case, do you believe? Has anything been thrown off meaningfully?

Yeah, I'll speak to the slowdown in late. let these guys jump in on what they're seeing, but we definitely did see a slowdown. I don't think it was only related to Omicron. I think it was also related to the fact that many of our customers who had stockpiled during the early parts of the pandemic were bleeding off some of their inventories and bringing their inventories down to more normalized levels. And we're seeing the benefit of that. So on the uniform side of the business, we're definitely seeing more RFPs than ever. We're also seeing a fair amount of consolidation within that business. So we're offering ourselves out there. I mean, the great thing is we're sitting with pretty large inventories. So we're able to service people, even though There's all kinds of supply chain issues. I believe in most instances we're in better shape than much of our competition is. So, you know, it's great to be on an RFP and also have products sitting on the shelf when your customers need it. I'll let Dominic and Jake jump in on their businesses.

Yeah, I can jump in real quick, Dom. So on the BAMCO side, I think one of the things we're seeing here is that there are a lot of procurement and marketing departments who are quite honestly just anxious about what the future holds for their providers and branded merchandise. And I think that the entire last two years of COVID has opened their eyes and is our provider going to be here long-term? And I think we provide a really strong alternative, not just because we have all the technical capabilities, whether it be sourcing or technology or distribution, but also the strength of our balance sheet is really appealing to procurement departments. And so we really like where we're positioned. The RFP activity has been as strong as we've seen in the last two years. A lot of companies going out to bid, and we expect to continue to see that over the course of 2022.

Yeah, and for the office gurus, we continue to capitalize on tremendous tailwinds in terms of demand. for our services. We continue to see a lot of activity from existing clients who are growing their business with us, as well as new opportunities. And I think a big part of that is just, you know, one of the things that COVID made companies realize it doesn't really matter where the work is being performed as long as it's being performed well. And our team continues to step up and just do a great job in providing great service to our clients. And it's resulting in more activity.

Yeah, Phil, it would be great for Phil to actually speak to what's happening in the world of people trying to get their branding messages out there and how fewer alternatives they have today. Phil, can you jump in on that?

Yeah. So when you look at the overall landscape of any corporation trying to get their message out, you saw pretty dramatic shifts. obviously, over the last probably 10 years from traditional advertisement like TV or billboard ad or magazine ads or newspaper ads to digital advertisement. And what we've seen over the last year is actually kind of quite a dramatic shift out of some of the digital. And when you look at it, We got the benefit of that earlier move over the last 10 years in the sense that people were saying TV is no longer the powerhouse that it was, and so therefore marketing dollars and corporate messaging dollars were going elsewhere. But now we're getting the secondary benefit, I think, when you look at it from the standpoint of everything that's happening with Apple privacy laws and how that's affected Facebook and Instagram's ability to actually target customers, what Google is doing with the cookies changes they're making. It's just getting harder and harder to target customers, and therefore it's getting more expensive to target customers' messaging. So I think we've seen the benefit of that, and I think we'll continue to see the benefit of that in the next year or two to come as digital advertising just becomes a bit less targeted and effective as it was prior.

Okay, that's really interesting color. Thanks. So, you know, obviously BAMCO has been – posting strong results here, and the outlook sounds very favorable. So just with regard to the updated guidance, you just very slightly lowered the outlook for BAMCO to 11% from 12% over the long-term timeframe here. Is that just, again, a function of the higher base of revenue you saw in 2021 versus original expectations?

Absolutely. Yeah, you nailed it. The 11% from 2022 and 2026 that we're now projecting is due to the fact that we exceeded guidance in 2021. So basically raises the floor that we're using, just as you suggested.

Okay, thanks. I wanted to ask on the healthcare side of the uniform business, how much you know, clinical labor shortages, especially nurses, how that plays into your ability to sell into the healthcare institutions or, you know, if it's actually helping your pipeline because, you know, maybe healthcare institutions view a really good uniform product as a way to, you know, attract or retain nurses, and other clinicians.

I think you've got our marketing down pat now, Kevin. That is absolutely so. Yes, you know, there's a huge shortage. There's less healthcare workers in the marketplace. There's been a lot of retirement exits, you know, to the tune of a recent stat I read said something about a half million less than there were of the 12 million healthcare workers when the actual need is somewhere around $15 million. I know the healthcare nursing programs are, schools are pumping out, looking to expand to meet that need, as well as the medical colleges and universities around the country. But yes, it is a strategy to increase employee retention, and they use many methodologies to do so. I mean, obviously, pay scales have come up. but uniform is an important component of that as well, and whether it's giving somebody more sets or providing their uniform so they don't have to actually buy it or providing them a more fashionable uniform in the case of whether it's Indy or it's CID that's being bought at retail, all those options are on the table, and hospitals certainly are, and healthcare workers are looking at things differently than they might have some time ago. We still feel that, you know, as well as the prognosis is for the future for TOG and for BAMCO, BAMCO and I lump with that HPI because their sales efforts are together now, but in our healthcare uniform space, particularly at CID with, you know, international being a major focus of theirs, omni-channel, you know, being an absolute focus of of entering all channels and being important at all levels of a customer's buying decision, I think you're going to see that division of ours over the long haul see some very stellar growth from that. We have high hopes for that. We'll certainly be talking more about that in future releases and earnings calls and so on. The healthcare market is something that we feel is growing. We might have in vast healthcare a pretty mature business, but the market itself is not mature. It's evolving greatly in the price points people are paying, in the diversity of product that they're looking for, and for the partners that they're looking for to help them get to the next level.

Thanks. That's helpful. I wanted to ask, again, in relation to the uniform segment, do you feel like that business is on track for 2022 specifically to be around that longer-term 10% organic growth rate? Or should we think about maybe that business more kind of ramping up towards that growth rate more gradually and over the longer-term time frame that you discussed?

Yeah, Kevin, our guidance really is that 10% is an average for the five years. I would say that while we, as Michael mentioned, we're seeing tremendous increases in the RFP activity as the BAMCO sales team starts to penetrate the market as well and the number of opportunities we're working on. But it's going to take a little bit of time into the year for that to start hitting our revenues. So I would go with the ramping up.

I don't think we're going to be all that far off the expectation that you're asking us to set. Our goal is certainly over the long haul to exceed all these numbers, Kevin. And it'd be nice to get started with a great year. We have some opportunities that we're working on that could certainly get us there. And some of those are later in the year. some of those earlier in the year, but we'll keep you posted. I think you'll see our results as we continue the year. We spoke about the second half of the first quarter being kind of just a slowdown to an extent because of all the factors that we've spoken about. We saw a little bit of that in the beginning of the first quarter as well. I can tell you that by the middle of March, middle of February rather, through to date, things are looking much more normalized, and even we're hoping to be able to take care of some pent-up demand as well.

Okay, great. That's helpful. Lastly, I just want to ask about your new efforts in Europe with regard to driving sales for CID. Any update on that and any potential disruption there just, you know, given the events going on in Ukraine?

Actually, you know, our warehouse is in Poland where there's been a great influx of Ukrainians. We've done some things and our actual European sales lead has done some things to help some Ukrainian people who own uniform shops in Ukraine get settled in Poland and Hungary. But we are seeing a lot more increased activity and interest in our Poland warehouse as a result. Obviously, you know, all these two million people leaving Ukraine and being dispersed throughout still mostly Eastern Europe, but we expect to make their way west They're going to need more health care workers to help those people, and some of those people themselves are health care workers who will find employment locally. But we are seeing increased activity. We don't expect a negative impact. Quite frankly, we weren't selling a lot in Russia. So the fact that we can't sell in Russia now because of whatever bans there might be, isn't going to hurt us at all. Poland is a customer and we don't expect Poland to be diminished at all. Ukraine, we had a couple of relationships there we were working on. We weren't really embedded in Ukraine as we would like to. Our warehouse is up and running now though. It is fully stocked with product and it is servicing anyone in Europe who would like to see us shipped to them from Europe.

Okay, thank you for all the insight as usual. Appreciate it. Okay, Kevin, thank you.

Again, if you have a question, please press star, then 1. Our next question will come from Tim Hart with Menfree Investments. Please go ahead.

Good morning. I was wondering two questions. First, whether you could just talk a little bit about cash flow guidance for 2022. And second, just going back to the core uniform business, and you were just talking about the 10% growth target. Maybe talk about are you expecting to gain market share? Is customer retention going well? And when will you actually start seeing more of that 10% growth materialize?

I'll speak about the uniform side of it more, and then I'll turn it over to Andy for the cash flow side. On the uniform side, our retention rates are still very high. They've been over 95% on a year-over-year basis for many, many years on average. While there are more RFPs out there and even more RFPs with respect to the business that we've owned for a long time, keep in mind that when you have a 5% market share approximately and 95% you don't have, if it's going out to RFP, you actually have an opportunity to grow your business. And that's how we look at it. We think we're in a very admiral position. I don't believe there's anybody out there that we compete with, who has lower cost sourcing capabilities, who has managed through logistical challenges as well as we have, who has people on the ground to make sure that what they promise to their customers can actually happen in all these countries that we operate in. So I'm not concerned about You know, business retention, I believe we're going to retain, as we have in the past, 95% of our customer base. Might we lose some? Of course. Will we gain more than we lose? I'm absolutely confident of that. So, you know, the second half of this year, I think Andy spoke about, particularly in our branded uniform business, you're going to see some improvement. We know that because we've already won business that will ship in the second half of the year. Our sales cycle is a pretty long one, but these are sales that materialize as a revenue that will come about in the second half of the year as a result of efforts that began almost a year, year and a half ago. So we feel confident on the HPI side that we've got this year covered in the back half and that next year should be very strong. And with HBI's efforts, which began about, I believe, eight months ago or so, you know, we should start seeing that turn into revenue in the next year. On the healthcare side, we're employing a lot of new strategies, a lot of omnichannel. It's paying off. Our healthcare business is, in fact, growing. You know, we bought CID. If you keep in mind, they were $58 million, trailing 12, don't quote me on that number, but somewhere, actually, you know, to external customers and so on. We have a great runway ahead of us with respect to our healthcare channel. And I think with buying habits changing and with price point being higher price points than we've experienced in the past that people are willing to spend, we should get there. We don't give guidance on a quarter-by-quarter basis or even on an annual basis. That's not really how we run our business. We run our business on a long-term basis of what we can do over a longer period of time. And I realize we try to keep it now in the four-year range. of saying, you know, where we'll be in 2025, and we prefer to do that. There will be some years where we will greatly exceed that, and there will be some years where we might not. But on average, we believe that that's where we get to.

Yeah, and on the second part of your question, or the first part, actually, the cash flow, when you look at where we're at going into the year, you know, I mentioned our capex was very high during the current year. I would expect that we would be back to a more normalized, just a little bit more than our normalized 2% number of revenues on that basis. From a working capital perspective, I think we've talked a little bit over the last several quarters about the substantial amounts we invested in inventory to be prepared for what was going on in the pandemic. And I think we're definitely in a very strong position from our inventory levels that we will begin to work down in 2022, where that'll be a much more favorable impact Versus in 2021, I mean, our inventories, that added $21 million, or we used $21 million of cash to build inventory. I would expect that would kind of turn and go the other direction. I don't know if it will bring down $20 million in the year, but it will work towards that. From the other items, from a cash flow perspective, I mean, obviously we will continue to pursue acquisitions. I can't say per se what those amounts will be, but we will use money on that. And of course, from a dividend perspective, I mean, as Michael mentioned, we do recognize that as an important part of our value proposition. I would expect we would continue to pay dividends, and if our results perform appropriately, we'd look to increase it at the right time. But that's a decision the Board will make as we move through the year.

Great. Well, maybe one final question just on TOG. That business has had a phenomenal, you know, last couple years, and the guidance is very positive. Is there anything specific you're doing to try to, maybe just a little more commentary on specifics on what we should look for to make sure that business is on track?

I'm going to let Dominic jump in and tell you about some of the infrastructure things we're doing and things we're doing from a customer standpoint to grow and retain.

Jump in, Dominic. Yeah, great question, Tim. Like Michael mentioned, last year was a record-setting year for TOG. Really excited about the future as well. What we're doing from a capacity standpoint to make sure that we can continue to support our growth. Last year, we started looking at additional buildings in all three countries that we operate from, El Salvador, Belize, and Jamaica. We signed leases there to increase our capacity and center capacity. We also, as Michael mentioned, we're entering the Dominican Republic. Together with the Dominican and the expansion in our current countries, You know, we're going to increase our insider capacity by about 1,500 seats. As we enter the DR, you know, we always enter a new territory conservatively. We're going to enter with about a couple hundred seats in Santiago. Once we prove that, you know, we can hire the same caliber of employees that we hire today to support our customer base, then we'll look to expand into Dominican as well.

From a customer standpoint, Dominic, what are you doing to grow your customer base?

Yeah, so we, you know, fortunately for us, you know, we've been able, like I mentioned earlier, we've seen a lot of activity and demand for our services. I mean, I think Nearshore in general, there's a lot of demand. But the support that we've been providing to our current customer base has elevated, you know, I think our status and our brand amongst our brokers who bring us new business. We're seeing a tremendous amount of activity from new customers in specific industries that we're going to look to grow this year. And then our current client base have grown exponentially with us also. So, you know, that's a real testament to our team, you know, and what they do day in and day out to provide excellent service to our clients. And I just don't see that slowing down.

I think there's another part of this that Dominic didn't mention. He ought to brag a little bit. But, you know, it's not just brokers who are bringing us business. Our reputation is bringing us business as well. The word is getting out about what we do, what we do well, the awards we win, how well we treat our people, how well we service our customers. And whether it's through social media that we posted or just word of mouth among people who are in a position to buy our services, we're seeing more and more opportunities than ever come to us that aren't through brokers that we have literally no sales expense for.

Mm-hmm. Is the gating factor on growth the ability to add the qualified sheets?

Absolutely. That certainly is it. So, you know, we're spending a lot of time now in strategic planning on, you know, where we are next, how we grow it, how far ahead of the curve do we want to stay. You know, I think I remember speaking about TOG and speaking about, you know, we're going to grow our business by 6%, by 8%. by $4 million, by $5 million, by $10 million here. You know we're up in much bigger numbers, which requires a lot more people. Dominic spoke about having the capability of adding 1,500 seats. Well, that's roughly $45 million of revenue, just north of $45 million of revenue. We've got to stay ahead of it at least by 18 months. because we do get pops every once in a while of a couple hundred seats somebody wants, or 100 seats, or somebody wants to grow, or multiple customers who each want to grow at 50, or 100, or 200 seats. It's been a very dynamic environment, and Dominic, in every case, has exceeded whatever numbers he's ever put out there. I expect he will in the future, too.

Great. Well, thank you very much, and keep up the good work. Thank you. Thank you.

Okay. This concludes our question and answer session. I would like to turn the conference back over to Mr. Michael Binstock for any closing remarks. Please go ahead.

Thank you. I appreciate your time today. I know it's a lot to absorb in a short amount of time. With PP, without PP, all the divisional differences, I think we've done everything we can to try to make it as easy for our investors to understand where we're headed. Look forward to speaking to you next quarter. And thank you for your continued support. We really do appreciate it. Take care.

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