Superior Group of Companies, Inc.

Good afternoon, everyone. Welcome to the Superior Group of Companies first quarter 2023 conference call. With us today are Michael Benstock, the company's chief executive officer, and Mike Coppell, the chief financial officer. As a reminder, this conference call is being recorded. This call may contain forward-looking statements regarding the company's plan, initiatives, and strategies, and the anticipated financial performance of the company, including but not limited to sales and revenue. Such statements are based upon management's current expectations, projections, estimates, and assumptions. Words such as expect, believe, anticipate, think, outlook, hope, and variations are such words and similar expressions identify such forward-looking statements. 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 are further disclosed in the company's periodic filings with the Securities and Exchange Commission, including but not limited to the company's most recent annual report on Form 10-K and the quarterly reports on Form 10-Q. 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 except as required by law. And now, I would like to turn the call over to Mr. Michael Benstock.

Thank you, operator, for the introduction, and I'd like to welcome everyone to our call today. I'll start by reviewing our first quarter highlights, including the performance for each of our three business segments. During the discussion, I'll also provide updated thoughts on the evolving macro environment and our strategy to more profitably grow the business. I'll then turn the call over to Mike, who will take us through the first quarter results in more detail and discuss our 2023 outlook. We'll then open it up for Q&A. Consolidated revenues were $131 million relative to $144 million a year ago, and our consolidated EBITDA was $7 million down from $10 million in the prior year quarter. We view this overall performance as consistent with both our expectations and messaging on our last call with respect to the softness we anticipated and still anticipate in the first half of this year. It is also reflective of the continued strategic investments we're making to tap into the attractive addressable markets across all three of our business segments. Starting with healthcare apparel, which includes the brands under CIB Resources and Fashion Seal Healthcare first quarter revenues of $28 million compared to $31 million in the prior year first quarter. As conditions across the healthcare market remain subdued, EBITDA came in at $1.6 million, which was down from $2.9 million a year earlier, primarily due to a combination of the lower revenues and gross margin rate pressure. As mentioned in March, We are focused on achieving better inventory equilibrium by the end of this year through already significantly reduced purchasing and a more disciplined inventory approach. Our strategy for healthcare apparel centers around capturing market share well beyond the 2 million caregivers who already wear our brands every day. Healthcare apparel is a large and growing addressable market, and we are increasing our focus on digital growth. On that point, we soft-launched our own direct-to-consumer website featuring our product line a few weeks ago, which has more than met our initial expectations. Over time, our direct-to-consumer strategy will nicely complement our omnichannel approach, driving higher consumer awareness and engagement with our brands. In the coming weeks, we expect to launch a new B2B website to our wholesale accounts to make their engagement with us even more efficient. We're confident in the attractive long-term prospects for healthcare apparel, with stronger year-over-year results anticipated in the second half. Turning to branded products, our largest segment, revenues of $82 million during the first quarter compared to $97 million a year ago. Again, this is in line with the outlook we described last quarter with the cloudy economic environment suppressing demand. EBITDA decreased during the quarter to $7.5 million from $8 million in the prior year period due to the sales decline. Notwithstanding near-term economic challenges, our plan is to continue expanding our less than 2% market share in this $26 billion marketplace. Contact centers, our highest margin segment, continues to generate robust top-line growth. Revenues of $22 million were up 23% over the prior year first quarter, slightly above the fourth quarter growth rate. The pipeline for new customers remained strong as the contact center segment onboarded the same number of new customers during the first quarter of this year as we did for all of last year. While revenues remained strong, first quarter EBITDA of $2.8 million was down from $4.8 million in the prior year period due to a combination of higher labor costs negatively impacting gross margins and our continued investment in talent, technology, and infrastructure. Moving forward during the year, a combination of price increases, some of which were already implemented in March, and cost reductions, of which most have already been implemented as well, are expected to improve profitability toward achieving a normalized annual EBITDA margin approaching 19% to 20%. Strategically, we continue to see the office gurus as having significant growth potential with high margins and a large addressable market. With that, I'm going to turn it over to Mike. for additional detail on our financial results and our 2023 outlook. Mike?

Thank you, Michael, and we appreciate everyone being on the call today. Overall, the first quarter was as expected. Consolidated revenues of $131 million compared to $144 million in the prior year first quarter, and our gross margin improved to 36%, which was up from 34.7%. The expansion of our overall gross margin was driven by favorable pricing and customer mix shift within branded products, our largest segment, as well as the contact center segment, our highest margin segment, becoming a larger portion of the overall revenue mix. While the overall gross margin rate was up, the contact center's gross margin rate declined during the first quarter due to increased labor costs that were only partially offset by price increases implemented later in the first quarter, as Michael mentioned. Our first quarter SG&A expense of $43 million, or 33.2% of sales, was up from $42 million, or 29.4% of sales, in the prior year first quarter. While SG&A expenses were down year over year for both the healthcare apparel and branded product segments due in part to successful cost reduction actions, the SG&A rate was up due to deleveraging on the sales declines in both segments. Contact centers drove the overall increase in SG&A expenses, reflecting the investments in talent, technology, and infrastructure to enhance future growth. I should note that while contact center SG&A expense was up year over year, the level of spending was fairly consistent with recent quarters. Interest expense for the quarter was $2.6 million, up from approximately $300,000 a year earlier, primarily due to higher interest rates and, to a lesser extent, higher average debt outstanding. Net income for the quarter was approximately $900,000, or $0.06 per diluted share, as compared to net income of $5.2 million, or $0.32 per diluted share, in the prior year quarter. Let's turn to the balance sheet and an update on our covenant compliance. We ended the first quarter with cash and cash equivalents of approximately $27 million, up from $18 million at the end of 2022. The increase in cash was driven by our focus on driving significant free cash flow, lowering working capital, and reducing capital expenditures. As a result, our first quarter net leverage ratio was 3.83 times our trailing 12-month covenant EBITDA, which is within our required covenant ratio of less than four times. While we are currently in compliance, as I mentioned on our last call, it is more likely than not that we will exceed our maximum net leverage covenant ratio during 2023. As a result, we executed an amendment to our credit agreement, which temporarily increases our maximum net leverage ratio to 4.8 times and 4.5 times covenant EBITDA for the second and third quarters, respectively. We will continue to focus on cash flow enhancement by improving our working capital position, particularly by optimizing our inventory levels within our healthcare apparel segment, as well as scrutinizing our operating expenses and capital expenditures. I'll wrap up with a reiteration of the outlook we provided for full year 2023 on our last call. On a consolidated basis, we continue to look for full-year sales of $585 million to $595 million, up from $579 million last year, and earnings-per-diluted share of $0.92 to $0.97, up from adjusted earnings-per-diluted share of $0.62 last year. More specifically, for healthcare apparel, we continue to expect low single-digit sales growth that gradually improves throughout the year as inventory levels and customer demand returned to normalized levels. For branded products, we now expect a flat to mid-single-digit sales decline, again with meaningful improvement during the second half of the year. And for contact centers, we continue to expect strong double-digit sales growth with the strong profitability of this segment enhancing our overall margins. As referenced last quarter, these segment-by-segment expectations for improvement should result in consolidated financial performance this year that is back-end loaded and our strategic plan to capitalize on the large addressable markets for each of our three business segments should drive significant shareholder value creation over time. With that, operator, Michael and I would be happy to take questions.

We will now begin the question and answer session. To ask a question, you may press star, send one on a touch-tone phone. To withdraw your question, please press star, send two. At this time, we will pause momentarily to assemble our roster. The first question comes from Mitra Ramgopal with the DODI. Please go ahead.

Yes, hi, good afternoon. Thanks for taking the questions. Mike, I just wanted to start regarding the covenant compliance and the relief you received for 2Q, 3Q. Is it reasonable to expect that 2Q will probably mark the peak or the highest ratio?

That's correct, Mitra. As I mentioned in the year-end earnings call, we really felt like we'll start to feel the pressure more in the short term. And as we get into the second quarter, or actually through the first quarter of this year, we had some favorable ad backs in our covenant calculation, which expired at the end of the first quarter. So the expiration of some of those ad backs combined with the calendarization of our forecast really creates some peak pressure in the second quarter. And then obviously we see that improving as we move forward, which ties into how we set up the amendment with our bank syndicates.

Okay, that's great. Thanks. And then on the quarter, just a couple of questions I wanted to zero in on. First on the inventory issue, is that pretty much behind you when you speak to your customers now?

Well, I think, you know, as we said before, Mitra, especially from a healthcare perspective, it will take us the full year to really work through inventory and and get it to the targeted levels that we're really focused on achieving by the end of the year. I think that we're making progress, but it's early. I think still, as we talked about, even the guidance in healthcare, we expect the first half to still be somewhat soft, the market somewhat soft, and to accelerate as we move throughout the year. So, I think at this point, from an inventory standpoint, we're making the progress that we expected, recognizing we have more to go. And, again, still focused on really driving turns and reductions through year-end to achieve our target.

Okay, thanks. And then I believe a year ago, PPE revenue was north of $4 million. Just curious how much that was in 1Q this year.

Mitch, our P&P sales were really, you know, fairly immaterial this year. So the first quarter of last year, really probably the last year where it was a meaningful number for the business.

Okay, thanks. And I know on the BAMCO segment, clearly you continue to see some softness there. But when we look at the guidance, it's obviously assuming a meaningful pickup in the second half of the year. When we look at BAMCO, for example, are you expecting the new sales reps to have a meaningful contribution towards that goal?

Sure. It's a couple of things, Mitra. Obviously, our guidance assumes that we have an improvement in the market as we move forward, and we're seeing some of the tech companies who are reporting more favorable earnings this quarter, which which are important customers to the branded product space. And so we're anticipating that there will be some opening of the budgets, if you will, to move forward. But then just in terms of, again, focusing on the things that we can control, we're happy with our rep recruiting at this point. We're ahead of last year. And it does take a little bit of time for new reps to begin adding incremental sales. And so as we're adding those reps at a faster pace this year, it'll drive additional sales for us as we get to the back half of the year.

Okay, thanks. And contact center is another really nice quarter. Just curious how the new center in the Dominican Republic is coming along.

Yeah, Dominican Republic is still in the beta stage. We actually have some new customers who We'll be making use of that and give us a little bit more eyesight to what the future of that is. So far, it's going well. But, you know, it's early. And I think we, as I said on the last call, we have probably 18 months until we're certain about that being a place that we want to invest more money. But we should know in the next couple in the next six to eight months, have a fair degree of certainty with respect to that. In the meantime, we're moving ahead as though it is going to be important to our future. As I said on the last call, it's a little bit less important than when we first opened it or we first conceived of it because we still have a fair amount of our agents working from home. And that seems to be a dynamic that our customers are very happy with, to have a percentage of their their workforce working from home in the event of any kind of future disaster.

Thanks. And how should we think of interest expense and tax rate for the remainder of the year?

Interest expense, you know, if you look at the first quarter, interest expense was just about $2.6 million. I'd say that's a fairly good proxy as we move forward. Obviously, we're focused on bringing debt down over throughout the year, offset somewhat by interest rates continuing to tick up. So I think the first quarter is a pretty good proxy. And from a tax rate perspective, Mitra, I would say if you look at our effective tax rate over the last couple of years in our 10K, you know, The majority of our earnings have been with our contact center, which is offshore. I think the last couple of years would represent a pretty good proxy of how we think about interest or, I'm sorry, tax expense as we move forward.

Okay. Thanks for taking the questions.

Thank you.

Our next question comes from Kevin Steinke with ESG. Barrington Research. Please go ahead.

Good afternoon. I wanted to start off first by asking about healthcare apparel. You mentioned you expect first half in aggregate to be fairly soft and then pick up in the second half. Can you just talk about the expectations that you believe will drive that pickup? Is it, you know, more about inventory clearing out of the market? Or, you know, how much do your own internal efforts factor into that in terms of, you mentioned, the soft launch of the direct-to-consumer? You know, just any comments on how the ramp plays out in healthcare apparel this year, as you expect?

That's a good multi-part question. Hi, Kevin. Thank you. I'll take that. As we said, we continue to see some economic headwinds and downward pricing pressure, and we certainly will even see it into the second half of the year. You know, what it really comes down to, it's manifesting to a really smaller basket size, as consumers seem to be taking advantage of a very promotional marketplace, their comparison shopping, really to find the best deals. The market will work its way through, all this excess inventory, we expect to see, you know, increased demand for newness of product and full-price products during the latter half of the second half of the year. We're focused on controlling what we can control. The relaunch of the Winx scrub brand on our DSE website, you know, launched very, very successfully, exceeded our expectations and certainly elevated our spirits with respect to this marketplace. And, you know, there was a great elevation of our team in accomplishing this and a great elevation in our technology to accomplish this. And we pulled it off pretty seamlessly. As we've said in the past, we have new executive leadership in place. They all got swelled heads when I called them the dream team on the last call, but they are focused on transforming the business. and executing against a strategic plan that we believe is achievable that we released in early 2023. We're going to continue investing in this team and the technologies to drive our brand and digital efficiencies, as well as our product innovation. We believe the potential of this marketplace is huge. And so that's... that's it in a nutshell. I think I answered all parts of your question. If I didn't, please come back to me.

That's good. Thanks. So, yeah, you touched on it there and you mentioned the prepared comments that first quarter results reflect investments you're making. Can you just walk us through some of those various investments? Are we talking about Salesforce and branded products and You mentioned healthcare. What other investments should we be thinking about, and do those taper off as the year goes on? And I assume you start to get some leverage of those investments in the back half of the year as the investments perhaps start to drive some growth. Is that the right way to think about it?

That's somewhat the right way. I mean, we'll continue to make the investments beyond the end of the year, you know, for further growth. Understand, you know, we did We did a soft launch to the D2C. So you can understand all that goes on around that is a big investment in branding, a big investment in analysis and digital site, direct-to-consumer sites, consumer studies that we did and everything else. Obviously, a lot of that's an upfront investment, but much of that is also an ongoing investment. And it'll be ongoing as we see how the digital marketplace grows for us. We'll continue to make investments in marketing and in talent an analysis and so on to be able to you know take full advantage of the marketplace uh as we're growing it uh you know do i expect that to to be more creative to the bottom line as time goes on yes of course i do otherwise we wouldn't do it uh so we should get some leverage from that as time goes on okay thanks and then on

The contact center's gross margin you mentioned in the higher labor costs there sounded like you implemented some price increases to help offset that maybe later in the year. Is that something where you think you can fully recoup the higher costs? Or did we think about maybe gross margin in that segment being a bit lower than it was historically?

I'll jump in and then I'll let Mike finish for me. But, yes, we feel very confident that, you know, we lagged in price increases and a number of reasons for that. One is, you know, we had some contractual obligations with customers that we couldn't raise their prices until the time was right within the context of the contract. I have to tell you, too, we had never seen a cost increase as drastic, I would say, as our costs went up. in a very short period of time. And probably not anticipating that, not having experienced that before, we lagged a little bit in notifying our customers of a price increase, and it was a requirement that we notify them and then give them time for the implementation of that. So we weren't able to implement those until March. Had we taken all the actions that we could have and should have a few months earlier, we might have been able to recoup much of what we were not able to garner in the first quarter as a result of that lag. So, you know, it's a learning experience for us. Quite frankly, we're in some very unusual times, and I'm just trying to be as transparent as possible that it won't happen again that will lag that greatly. We will begin our budgeting process, which really is what triggered the price increases to begin with. We will begin it earlier. with respect to the office bureaus to ensure that we know what kind of price increases we should be giving and we give them early enough so that it doesn't impact our financials.

And Kevin, I would just add, you know, it really ties back to I think Michael's prepared comments where we obviously we looked at it from two sides. One was where price increases, which Michael just described, and In the team as well, we looked at where could we garner some efficiencies and how we're organized, providing the service, maybe certain benefits that we had built into some of the cost structure that perhaps we felt were no longer needed. So we really looked really across the P&L, and so I'd say it's a combination of implementing price increases as well as driving some efficiency in the cost structure as a way of trying to recruit what we had seen the decline in the first quarter.

Okay. Thank you. And could you just touch on the market dynamics that I guess drove that sounds like rapid and somewhat unexpected increase in labor costs? I mean, is this the labor market or more competition and contact centers for labor or What was going on there?

If you look at the jobs numbers and the unemployment in the United States and the shortage, the disparity between 13 million open jobs and only 5 million people to fill those jobs, you start to understand that people looking for entry-level employees, which are typically the agent level that we hire, aren't able to find them in the United States. And I think there's an awakening, too, that going into an inflationary period or being in an inflationary period, perhaps going into recession, that people can get their act together. And I think Nearshore has become a very viable, a more viable than ever solution. It's been viable for a lot of people, but I think a lot of people who were not open-minded to that possibility of even outsourcing before or outsourcing to a foreign country have realized they don't have much choice. So the demand for workers in each of the countries that we're in has been raised. And as the demand has been raised, you know, this only is not, I would say, an unlimited supply of people. You know, there's a large supply of people who want those jobs. You know, we demand a very high-level proficiency in English. And so it is more limited. And we've had to pay to make sure that we recruit the best of those for our clients. And there's been signing bonuses and referral bonuses and higher levels of pay that we've had to institute in order to do that. That's not a bad thing. I mean, inflation always isn't the worst thing that can happen. We'll be able to raise our prices. We'll be able to improve our margins over time because of that. but it is the driving force behind what's happening. And it's not, we're not alone in this in the regions where we operate. I don't think we're alone in this in the call center world period. I think the demand is going to get greater and greater if we don't figure out a way to take care of those 8 million jobs in between that we can't seem to fill in this country for many reasons.

Okay. Yeah, it makes sense. But yeah, as you mentioned on the other side of that, the demand is, environment is very strong. I think you, I think you said you onboarded as many new customers in the first quarter and contact centers that you did all of last year. Is that correct? And, you know, does that, yeah. Yeah. Okay. And does that, that kind of change the growth trajectory or, you know, what's, how should we think about the growth trajectory, you know, over the next several years, I guess.

We're on a steady path to grow the business by 20-plus percent. Just as we said in the last quarter, we need to do it diligently. We need to be careful about how we do it with the right customers, pick the customers to make sure that we can make similar kinds of margins that we've made previously with new customers and that they're ultimately the right customers for us. So we're not changing our guidance with respect to our growth. We feel very good that that 20-plus percent is something we can hit. And, you know, should we feel in the future that we can beat it, we'll certainly give guidance to that.

Okay. Thanks for taking the questions. I'll turn it over.

Thanks, Kevin. Waiting for the operator.

Hello? I turned the question over to Tim Moore with EF Hudson.

Thanks. The gross margin was good in the quarter, and it was nice to hear about the covenant amendment in place. A few of my questions have already been asked, but let me just start out maybe with a two-part question about healthcare. You know, how should we think about maybe your history of possibly being able to monitor the institutional side as possibly a leading indicator ahead of the retail side pickup? You know, if you think of our punishments, Does the institutional side tend to kind of start picking up three to four months maybe ahead of the retail side?

That's a really good question. Nobody's asked that in a long time. Typically, you know, healthcare on the wholesale side, the institutional side, which is civil laundries who are servicing the hospitals, the buying tends to be reduced later in a period, anywhere from three to six months later than Other buying, retail buying is reduced. And it tends to come out of recession sooner. And the explanation that we've gotten for that over the years is that when there's a looming recession, that people tend to make sure they see their doctors, make sure they avail themselves of healthcare under their insurance. because they're concerned that in a bad recession that there'd be a lot of layoffs, that it was a job, that it was their health care. And so that is what we've experienced in the past. Now, you know, understand we've never been in a recession where we had the Affordable Care Act in place. So we don't know if that will still follow suit. We believe it will because there's still plenty of people who you know, were they to lose their jobs, would lose a lot of their better access to health care, even though they could certainly go into one of the different plans that's out there. And, you know, their co-pays would be higher and everything else. So the way we're looking at it is that when we start seeing the institutional side coming out of it, we would expect within six months to see the retail wholesale side as well as the consumer side coming out of it. And we're seeing the light of day on the wholesale side now. The wholesale side for us is not as pressured as the consumer retail side. And we're hoping that, you know, the past models of three to six months work out this time as well.

Michael, thank you for that. That's a really helpful color. And the other part of my healthcare apparel question is, You know, as you look at maybe the discounting more so, obviously, on the retail side and industry-wide, have you seen it calm down a bit in the past month or two? And how well do you feel, you know, your position or Catherine feels your position with your attractive pricing relative to Pierce for some of the new launches and items coming out, you know, as you add some more items and features to the apparel offerings later this year?

We haven't seen a slowdown in the discounting. Discounting is still pretty heavy. A lot of the discount buyers are full of merchandise right now. So it's slowed down a little bit. And quite frankly, oftentimes for certain products, there's no price that anybody would want to buy them at this point. I mean, you've got to see a diminishing of some of those inventories at retail before you know we'll see a big impact but we expect at the end of the year to be where we planning to be you know we took some big write-downs last year which is supporting giving us a little bit of breathing room on but we you know it's not stopping us from from developing new products you know we're we've got it especially with our direct consumer we've got to engage in customers with a fair amount of newness now. We're being conservative in how much newness we bring out. I mean, a lot of it we're just trying to align our brand strategy so that we're able to handle, you know, every single manner in which somebody might buy from us and at every single demographic that might want to buy scrubs as well, that we're able to handle that as well. So we're just trying to be, you know, as omnichannel as we can be. spend marketing dollars wisely, spend money on technology wisely, and get the quickest return on the investments we're making that we can.

Thanks for that, Collar. And just switching gears to BAMCO, and it's related to city areas, you know, how – are there any things that they're doing to stay engaged, specifically maybe with, you know, the technology – and some other end markets that pull back from layoffs, but it seems like some of those layoffs started leveling out, you know, the last few weeks or months. Are they doing anything to kind of go get in touch with the customers who might have had kind of a buying moratorium or at least a budget cut, you know, at the end of the year last year?

For sure. They are on their customers like white on rice. I mean, they've been in touch with their customers all throughout the last, six months as buying habits have changed, and even through the layoffs. And obviously, you know, some of the people that we were dealing with got laid off, so they've had to make new connections with new people as well. And as I said on the last call, we're not losing customers. We just have customers who are buying less. You know, we can't necessarily create the demand for them to buy more if they don't have the marketing or HR dollars to spend. But we can stay in front of them. And in some ways, there's, you know, what we're looking for, what are the other paths? What are the areas we're not dealing with? And that comes down to, you know, oftentimes, I mean, we have customers who might have 20 different departments buying branded merchandise and branded uniforms. And we might only be dealing with three or four of them. So this is a time for us to get really aggressive and try to pick up a couple more of those departments through the connections that we have. So we haven't slowed down one bit. and our recruiting, whereas last year, I made the statement that I was a little disappointed in our recruiting. I'm not at all disappointed this year. We're right on track to where we budgeted and where we plan to be, and it will make a difference in the latter half of the year in particular and certainly in the next year.

Great. That's helpful to hear. My last question is just about the contact centers and the office gurus. When you think about kind of maybe It's just a phenomenal business, by the way. I feel like investors are underappreciating it. I always write about that in my reports. But if you think about maybe the two headwinds to EBITDA margin this year, one being the cost inflation, and it's great that you got the pricing in March, and that'll come through soon. And the other just being sensible growth spending for infrastructure and hiring. You roll out the Dominican Republic and expand some of the other areas. Do you think that, you know, I know you're not giving guidance for next year, but it would seem like there's 200 to 300 basis points EBITDA dragged this year. And when you kind of look out to next year and you start lapping that and maybe the Dominican Republic investments come down a little bit, do you think you can recover a lot of that margin next year?

I think so. some perspective on this. I'm going to let Mike jump in after this, but Dominican investment was pretty small to, you know, it was no more than, than, than a few hundred thousand dollars, quite frankly. And a lot of that was capitalized over, over the course of our leases. So, you know, as we said, you know, we didn't go in full bore. We, we went in viewing it as a, as a beta opportunity and, and so you know we spent very little uh getting there uh i wouldn't blame the dominicans or any of our infrastructure uh moves uh on why we're at where we're at right now uh really we're at right now is cost got ahead of us and they went up very very quickly and uh and we couldn't respond quickly enough uh that's not completely our fault but that's on us uh and now that we've uh We have readjusted, as Mike described earlier and I described. We're on the right track at this point. I think there is, as we grow, the opportunity to leverage what we've already done and leverage the fact that I think a certain percentage of our workforce is going to continue to work from home for many years, and that should help us from a need-to-do standpoint as well.

Mike? I think you said it well, Michael. You know, I would just say, Tim, you know, obviously, you know, we talked, you know, just on this call about some cost pressure that we're seeing from a labor standpoint, difficult to predict, you know, what it might look like next year. We certainly feel like we have a level of pricing power. At the same time, we also recognize we need to remain competitive. So, we'll obviously keep an eye on that going forward. And that'll be obviously a key determining factor as we get past 2023. I do think that as the business continues to grow, we will obviously get leverage on the operating expense side. If you go back to last year, you see a steady growth in operating expense dollars in that segment for obvious reasons. Last year growing, you know, certain quarters in excess of 30%. There's just certain things we need to do to build out infrastructure. we're making those investments, as you've seen, quarter to quarter. And as the business continues to grow at double digits, we would expect to begin getting more leverage out of those investments as we move forward.

Well, thanks for clarifying the contact center's net pricing realization and the readjustment there over cost inflation. So that's it for my questions. I'll turn it back over.

This concludes the question and answer session. And I would like to turn the call back over to Michael Benstock's closing remarks.

All right. Thank you again, operator. As we progress while navigating some pretty uncertain times, what you need to know is that our team is extremely energized. I hope you're feeling that on the call about the opportunities ahead and the investment we're making to drive growth and future profitability. Thank you, everyone, for joining us. Look forward to updating you again on our next call. And please don't hesitate to reach out with any questions. Thanks again.