Superior Group of Companies, Inc.

Good afternoon, and welcome to the Superior Group of Companies Fourth Quarter 2024 Conference Call. With us today are Michael Benstock, Chief Executive Officer, and Michael Kemple, Chief Financial Officer. As a reminder, this conference call is being recorded. This call may contain forward-looking statements regarding the company's plans, initiatives, and strategies, and the anticipated financial performance of the company including, but not limited to, sales and profitability. Such statements are based upon management's current expectations, projections, estimates, and assumptions. Words such as expect, believe, anticipate, think, outlook, hope, and variations of 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 our caution not to place undue reliance on such forward-looking statements. The company does not undertake to update the forward-looking statements except as required by law. And now I'll turn the call over to Michael Benstock. Please go ahead.

Thank you, Operator. Today I'll review our consolidated full-year and fourth-quarter financial highlights along with the discussion of our three business segments. I'll then turn the call over to Mike. who will take us through a more detailed financial discussion and provide our outlook for 2025. After that, we'll open the lines to take your questions. Fourth quarter results came in largely as expected, placing us within our full year 2024 outlook ranges, which as a reminder, we had raised after the first quarter. Our full year consolidated revenue and diluted EPS were up 4% and 35% respectively over the prior year, and we are pleased to have achieved this result under the current macroeconomic conditions, which have presented numerous challenges. Market conditions continue to reflect customer hesitancy, given the uncertainty around inflation, interest rates, geopolitical conflicts, the new administration, and the general economic direction. While we cannot control these external factors, we are committed to tackling the aspects of our business that are within our control. Our team has shown resilience and adaptability focusing on cost management, maximizing our operational efficiencies, enhancing customer experience, and driving innovation within our product lines. This presents us with tremendous opportunities for growth, even in a more prudent spending climate. During the fourth quarter, consolidated revenue was down 1% versus the prior year, which, if you recall, had been a strong quarter for us. Positive growth in healthcare apparel and contact centers was offset by a decrease in our branded product segment. We generated fourth quarter diluted EPS of 13 cents relative to 22 cents last year. Again, this put us within our full year outlook range and, as expected, was a tough year-over-year comp given the outsized strength in the fourth quarter of 2023. We also generated positive operating cash flow, enabling us to maintain a strong leverage ratio. Our solid financial foundation provides us the opportunity to make strategic investments in our three very attractive end markets while also opportunistically repurchasing our shares, which Mike will speak to. Starting with branded products, we did achieve modest growth in the promotional products channel driven by a combination of both new and existing customers. We are investing in sales leadership to expand our share of wallet with existing customers as well as to add new customers at a faster pace. Overall, our expanding market share should result in strong growth over time, especially once economic uncertainty lifts. Turning to healthcare apparel, while overall market conditions remain soft, especially for the brick-and-mortar wholesale-related channels, we look to grow our digital channels over time, both wholesale and direct-to-consumer. We're also investing in sales, branding, and marketing to further drive weak brand awareness. As for contact centers, which remains our highest-margin segment, We are encouraged by the revenue growth potential, especially now that we have a sales team in place for the first time since launching this business in 2008. We did see a positive contribution from brand-new customers during the quarter, which more than offset a decline with existing customers due in part to end-of-year seasonal adjustments. Our contact center strategy is to continue growing our customer cap with our new internal sales capability by targeting small and medium-sized enterprises with greater marketing support. Most importantly, we're implementing some of the very latest technology to not only enhance the customer experience, but to optimize our own costs and long-term profitability. I'll now hand it over to Mike for a detailed walkthrough of fourth quarter results, as well as our initial outlook for 2025 before we take your questions. Mike?

Thank you, Michael, and thanks, everyone, for joining us today. On a consolidated basis, our fourth quarter revenues were down 1% relative to the prior year period. completing what was, again, as anticipated, a back-half-weighted year for SGC and placing us within our outlook range. I want to again emphasize that we expect a similar pattern for 2025. Looking closer at top-line performance, starting with branded products, revenue was off 5% year-over-year. Sales of promotional products grew while branded uniform sales with existing customers were down year-over-year, primarily due to stronger uniform program rollouts. in the year-ago quarter. We grew healthcare revenue 8% over the prior year, primarily driven by growth in our digital channels, as well as some favorable sales timing in our non-digital channels. And for contact centers, we drove 4% top-line growth. We now have a sales force in place, as Michael just mentioned, and while we saw a decline from existing customers, this was offset by an even stronger contribution from new customers that also provide the opportunity for future seat expansion. Turning to margins and profitability, our consolidated gross margin for the fourth quarter of 37.1% was down just 70 basis points relative to the year earlier quarter, despite the tough comparison. And SG&A as a percent of revenues at 34.4% was about a percentage point higher. This resulted in consolidated EBITDA of $7.3 million versus $9.9 million in the fourth quarter of 2023. On a segment-by-segment basis, branded products' fourth quarter gross margin was down a percentage point to 33.9%, driven by sourcing mix and lower volume related to our branded uniform programs. As we have said in the past, The sales and margin mix of uniform programs can vary on a quarterly basis, depending upon the timing of program rollout and sourcing considerations. SG&A as a percent of revenues for the fourth quarter increased about a percentage point to 25.9%, mainly driven by deleveraging. As a result, branded products EBITDA was $8.9 million for the quarter, down from $11.7 million the prior year. Turning to healthcare apparel, while our fourth quarter gross margin of 33.7% was off three percentage points due to higher sourcing costs related to manufacturing in Haiti, we did achieve better leverage on SG&A as a percent of revenues by more than a full percentage point on the 8% sales increase. As a result, our healthcare apparel EBITDA came in at $1.1 million relative to $1.4 million in the year earlier period. As for contact centers, which is our highest margin segment, we drove a stronger fourth quarter gross margin of 54.7%, up more than 2.5 percentage points from last year. SG&A as a percentage of revenues at 44.9% improved slightly from 45.1% in the year-ago quarter. This resulted in EBITDA of just over $3 million, up from $2.3 million in the year-ago period. Our fourth quarter interest expense was $1.5 million, which improved sequentially and also marks a significant improvement from $2.1 million in the prior year period. This improvement was driven by lower weighted average debt outstanding, as I'll discuss in a moment, and a more favorable weighted average interest rate down 130 basis points over the past year. Our fourth quarter net income, reflecting the EBITDA trends already discussed, was $2.1 million relative to $3.6 million in the very strong fourth quarter of 2023. And we generated earnings per diluted share of 13 cents relative to 22 cents. Our balance sheet has continued to strengthen with year-end cash and cash equivalents of $19 million at year-end, compared to $20 million at the end of 2023, despite completing more than $7 million of share repurchases during the year as well as a small acquisition completed during the fourth quarter. We also reduced our outstanding debt to $86 million at year end, improved from $93 million a year earlier. For the year, we produced strong operating cash flow of $33 million, supporting our net leverage ratio, which ended 2024 at just 1.7 times trailing 12-month covenant EBITDA, improving from two times at the start of the year. Providing an update on our share repurchase plan introduced last August, during the fourth quarter, we repurchased approximately 72,000 shares for $1.1 million at an average price of $14.96 per share. We ended the year with approximately $2.6 million remaining under our initial authorizations. Today, we are announcing that our board has authorized an additional $17.5 million share repurchase plan with no program expiration, and we intend to continue buying back shares depending upon a number of market factors. In support of the new repurchase program and reflecting our improved financial profile, our bank syndicates agreed to amend our credit agreement to increase the annual amount of permitted payments for shareholder distributions share repurchases, and the like. I'll wrap up with our initial outlook for 2025. As Michael mentioned in prior calls and spoke of in his opening remarks, there are lingering factors resulting in customer hesitancy and overall economic uncertainty. Taking these factors into consideration, we look for full-year revenues to be in the range of $585 million to $595 million. suggesting year-over-year growth at the high end of 5%. And we look for full-year earnings per diluted share to be in the range of 75 cents to 82 cents, suggesting 12% year-over-year growth at the high end. As mentioned earlier, we expect a back-end weighted cadence to 2025, similar to what we have achieved in each of the past two years. And with that, operator, if you could please open the lines Michael and I will be happy to take questions.