Superior Group of Companies, Inc.

Good afternoon and welcome to the Superior Group of Companies second quarter 2025 conference call. With us today are Michael Benstock, Chief Executive Officer, and Mike 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 MQ. 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 except required by law. And now I'll turn the call over to Michael Benstock. Please go ahead.

Thank you, Operator. We appreciate everyone joining us today. I'll start with an overview of current market conditions, and then I'll review our consolidated financial highlights for the quarter, along with a discussion around our three business segments. I'll then hand it over to Mike to take us through a more detailed review of our financial results. After that, Mike and Jake Himmelstein, President of our Branded Products business, and I will be happy to take your questions. We've seen modest improvement in the economic-related customer hesitancy that I spoke about on our last call. While many customers still await better certainty around inflation, interest rates, and tariffs, our branded product segment in particular has successfully managed the economic ambiguity by taking market share, negotiating cost relief with vendors, and leveraging a diverse supply base in order to provide our customers and prospects with a compelling value. However, the administration's policies can occasionally be to the detriment of a particular segment of the economy, an example being one of our larger call center customers in the solar business that filed Chapter 11 during the second quarter. This was the last of our customers benefiting from significant government subsidies, and I'll share in a moment our contact center pipeline is full, suggesting these customers will be replaced. Our diversity across our three business units, and the different industries in which we operate plays to our competitive advantage and acts as a significant cushion in the face of macro uncertainty. During this fluid period of both tariffs and duties, we derive a similar benefit on the cost side of the equation as our diversity of sourcing has long been a priority. This involves strategically positioning our sourcing in multiple countries across the world based on a redundant sourcing strategy, leveraging our own factories in Haiti, taking a multi-pronged approach to vendor negotiations and working with our customers to consider alternative product categories. In essence, this real-time flexibility has served us well over the years, and SGC will remain nimble as international trade negotiations continue to evolve. Regardless of macro conditions, we remain hyper-focused on expense management. As we mentioned on our last call, we launched our initiative to reduce budgeted expenses during the second quarter and And we are seeing the benefit of those cost reductions, which has and will continue to position us for stronger profitability. Turning to our second quarter results, we grew consolidated revenue more than 9% year over year, even in this uncertain economic environment. Our largest business, Branded Products, significantly picked up over the past couple months and generated 14% growth during the quarter, followed by Healthcare Apparel, which grew 6%. revenues for our contact center business declined 3% versus the prior year period. On the bottom line, net income per diluted share of the second quarter was $0.10, resulting in strong sequential improvement from the first quarter and up from $0.04 per diluted share in the second quarter of last year. Versus the year-ago quarter, a higher profitability stemmed from the stronger top-line results, while maintaining a healthy gross margin and driving a slight improvement in SG&A as a percent of sales. As Mike will discuss more, we maintained a strong balance sheet during the quarter, which puts us in a position of strength to make strategic, long-term decisions around the use of capital. In fact, we actively repurchased our own common shares during the second quarter, which we consider a compelling value. I'll conclude my remarks today with a review of each of our business segments, beginning with branded products. As I mentioned, we saw meaningful pickup later in the quarter. The good news is that for branded products, our pipeline of business opportunities and our order backlog both remain very strong. Looking ahead, our growing sales team is winning new accounts, growing our wallet share with existing customers and prospects, and therefore we expect to continue expanding our still modest market share in this attractive, highly fragmented market. As a reminder, we're in the top ten largest branded product providers nationwide out of more than 25,000. Turning to healthcare apparel, again, we're able to grow top-line revenues despite the economic uncertainty felt by our customers, which impacted our institutional healthcare apparel and our wholesale-related channels. We are carefully and strategically investing to grow both of our digital channels, that's wholesale and direct-to-consumer, and also to further spur demand for our Wink and Carhartt licensed brand products across all our channels. Similar to Brandon Products, we have single-digit market share in healthcare apparel that continues to expand in this attractive long-term growth industry. Wrapping up our business segment discussion, our contact center segment has been more recently facing a couple of headwinds. First, as I mentioned a moment ago, one of PHE's largest customers who operates in the solar industry recently filed for bankruptcy, negatively impacting both second quarter results and future sales. Secondly, we are continuing to experience slower decision-making from prospective customers. While our new sales team is making good progress with RFPs and generating a record pipeline, the pace of revenue from new customers has been historically slow. With that said, we are encouraged by the record pipeline of opportunities and the strong interest from a variety of companies and industries in near-shore outsourcing. Our opportunities are at various stages of customer diligence and negotiation, and we are working diligently to close those opportunities as quickly as possible. I'll now hand it over to Mike to take us through a detailed look at second quarter results, and then we'll open the lines for Q&A. Mike?

Thank you, Michael, and thank you, everyone, for joining us today. On a consolidated basis, we grew top-line revenues 9% in the second quarter, our strongest year-over-year growth since the third quarter of last year. Our largest business, Branded Products, grew revenues by 14%, driven by the timing of orders delivered, organic expansion with existing large enterprise accounts, including higher tariffs, and revenues generated by three points following its acquisition in December 2024. For healthcare apparel, we grew revenues by 6% over the second quarter of last year from volume increases in Wink and Carhartt products. Our contact center business saw a 3% decline in revenues versus the year-ago quarter as continued macroeconomic headwinds resulted in customer downsizing and attrition outpacing new customer acquisition. While our sales activity has picked up and our sales force drove the pipeline to a record high, we are experiencing a slower pace of new customer acquisition due to the delay in decision-making from prospective customers that Michael previously mentioned. Our consolidated gross margin was about flat versus last year's second quarter at 38.4%, but up 160 basis points sequentially. SG&A at 36.3% of sales improved from 36.9% in the year-ago quarter, despite recognizing $1.8 million in credit loss reserves across the branded products and contact center segments during the second quarter due to customer bankruptcies. The SG&A rate improvement was driven by leverage on the 9% sales increase, as well as the benefit from cost reduction actions that we disclosed in the prior quarter. Putting together our stronger revenue with steady gross margin and improved SG&A performance, we generated EBITDA of $6.1 million, up from $5.6 million in the year-earlier period. Turning to performance by segment, for branded products, we saw a 100 basis point improvement in gross margin to 35.6%, driven by favorable customer sales mix. The SG&A rate for branded products also improved to 27.5%, versus 28.3% in the second quarter of last year, benefiting from leverage on the significant sales increase for the quarter. As a result, branded products drove strong improvement in quarterly EBITDA to $9 million, up from $6.7 million a year earlier. As for healthcare apparel, our gross margin of 35.5% decreased from 38.4% a year earlier due to higher cost of goods, including the recently enacted higher tariff costs in advance of price increases to our customers. Conversely, we were able to hold the line on controllable expenses, and SG&A came in at 35.7% of sales, which was 150 basis points better than the second quarter of 2024, driven by higher sales during the quarter. Overall, our healthcare apparel EBITDA of $800,000 was down modestly from $1.3 million the prior year. Moving on to contact centers, we drove a slightly higher gross margin of 52.6% of 40 basis points year-over-year. However, the SG&A as a percentage of revenues increased to 48.4% as compared to 42.4% in the year-ago quarter, primarily due to a $1.1 million credit loss reserve resulting from the solar customer bankruptcy during the quarter. Therefore, contact center's EBITDA of $1.6 million was down from $3.2 million a year earlier. Turning to net interest expense, the second quarter was $1.3 million, which compares favorably to $1.5 million in the second quarter a year ago, benefiting from a lower weighted average interest rate. Putting it all together, we returned to profitability this quarter with net income of $1.6 million, up from the prior year's second quarter's net income of $600,000. On a per-share basis, we produced earnings per deleted share of $0.10, up from $0.04 compared to the year-ago quarter. Moving on to the balance sheet, at the end of June, we had $21 million in cash and cash equivalents, up from $19 million at the beginning of the year. We continued to actively buy back our own common shares during the quarter as an attractive use of capital, repurchasing about 390,000 shares for approximately $4 million, resulting in an average purchase price of $10.26 per share. We ended the quarter with $12.3 million remaining under our current buyback authorization of $17.5 million. Taking into account our operating cash flow, share repurchases, and consistent dividend, our net leverage ratio at the end of June was 2.2 times trailing 12-month covenant EBITDA, consistent with the first quarter and up from 1.7 times at the start of the year. We have significant liquidity to execute on our growth plan while continuing to return capital when possible to shareholders, and we remain well within our covenant requirements. I'll wrap up with our full-year outlook, which is unchanged from last quarter, as we still expect revenues to be in the range of $550 million to $575 million, suggesting year-over-year growth at the high end of about 2%. While our clients across all three business lines continue to face uncertainty regarding inflation, interest rates, tariff duties, and other macro factors, we're well-positioned to support their needs regardless of the economic environment, given our strong liquidity and the costs we've already removed from the business, while continuing to invest in our own favorable growth prospects. And now, operator, if you could please open the line. Michael, Jake, and I would be happy to take questions.