Superior Group of Companies, Inc.

Good afternoon, everyone, and welcome to the Superior Group of Companies Third Quarter 2025 Conference Call. With us today are Michael Benstock, Chief Executive Officer, and Mike Kemple, President and 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, included 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 are cautioned 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 floor over to Michael Benstock.

Thank you for the introduction, operator, and welcome everyone to our call. I'll start by discussing evolving market conditions, followed by a review of our third quarter consolidated financial highlights, as well as our revenue performance by business segment. Then Mike will take us through a more detailed review of our financial results before we're joined by the president of our branded products business, Jake Himmelstein, to take questions. Our third quarter earnings were solid, came in as expected, and represent sequential improvement from the second quarter. Also, today we're adjusting our full year revenue outlook range to reflect a higher midpoint. As we pointed out last quarter, we had a significant pull forward of branded product revenues into the second quarter of this year. In addition, as you know, we had a very robust quarter one year ago for the many reasons we discussed at the time. Both these factors affect the year-over-year comparison we reported today, but again, this was as expected, and we continue to execute and show sequential progress with pipelines that continue to build. Currently, there is still a significant level of uncertainty and caution among our customers and potential new prospects across all of our business segments. This has caused a significant uptick of promising near-term opportunities in our pipelines. And as our prospective customers gain clear insights into trade policies, inflation, and interest rates, we will be well positioned to achieve stronger growth with solid margins. We remain committed to leveraging our sales capabilities effectively while maintaining tight expense management in this uncertain environment. Let's review our third quarter results today. which reflect our successful navigation of the demand environment just described. While our consolidated revenue declined by 7% compared to the same period last year, we also managed to reduce SG&A expenses by 7%, or $3.9 million. In fact, all three segments saw improvements in SG&A, which started to take hold in Q2 and have been fully realized during Q3. I applaud our business leaders for focusing on this while not losing sight of repeating our strong history of coming out of uncertain economic times with larger market share. In other words, we have encouraged our leadership team to be especially cost-conscious. However, in areas where we have significant opportunity to drive long-term growth, we continue to aggressively invest. Next, let's talk about our largest segment, branded products. We experienced an 8% revenue decline due to factors we discussed on prior calls, such as sales pull forward, lower employee turnover among customers, smaller average order sizes, and delayed ordering. However, when we consider combined second and third quarter results, branded products revenue has, in fact, increased compared to last year, supported by a stronger pipeline and order backlog. That is something truly remarkable when you consider the macro headwinds. As shareholders, you need to know, that we remain laser-focused on expanding our market share in this attractive, highly fragmented market. Our strategy continues to include recruiting more sales representatives, as well as developing and leveraging software automation to make sales representatives and customer interactions more efficient. These initiatives will drive the acquisition of new accounts and help expand our wallet share within our existing customer base. Next up is healthcare apparel. which saw a 5% decline in revenue relative to the third quarter of 2024 as macro uncertainty weighed on both our wholesale-related consumer channels and institutional healthcare apparel. Recognizing the softness in demand, we reduced expenses while continuing to invest in demand-driven activities to support our Wink and Carhartt licensed brands. These efforts are not only resulting in the growth of our own direct consumer channel, but also an increased footprint in the retail stores of certain wholesale customers that will provide an opportunity for further growth as the economy heats up when uncertainty dissipates. The healthcare apparel industry has significant secular growth drivers on which we are well positioned to capitalize over time. Turning to our third business segment, contact center revenue declined 9% relative to the third quarter of 2024. Consistent with the prior quarter, the downsizing and loss of existing customers outweighed new customer growth as prospective customers are slow to commit given the economic uncertainties that I described. Despite the short-term effect, our pipeline remains strong, and we're beginning to realize new customer conversions. I'll wrap up by mentioning that our balance sheet remains strong, which Mike will provide even more details on in just a moment. This allows us to wisely invest and strategically execute our plan to profitably grow market share across our entire business. With that, Mike will now walk us through a more detailed review of the third quarter results. Before Mike, Jake, and I take your questions. Mike?

Thank you, Michael, and thanks, everyone, for being with us today. Our third quarter consolidated revenues came in at $138 million, off 7% relative to the year-earlier period. Branded products, our largest segment, produced revenue of $85 million, down from $93 million in the year-ago period. As we mentioned in August, this was due to $8 million in timing of orders delivered in the prior quarter in order to navigate the tariff environment, as well as lower sales volume and pricing related to certain customers. These decreases were partially offset by a $2.9 million increase resulting from revenue generated by three-point following the acquisition in December 2024. Our next largest segment, healthcare apparel, had revenues of $32 million, a 5% decline relative to the third quarter of 2024 from lower volume with certain customers due to heightened wholesale and retail customer uncertainty. Revenue for contact centers was up 9% to $23 million for the quarter driven by lower volume, as Michael previously described. Despite the short-term challenges, our sales efforts and competitive differentiation across all three of our businesses continue to make for robust pipelines of business, and we're confident that once market conditions normalize, we will be able to capitalize and drive profitable growth, leveraging our existing investments and recent cost reductions. Our consolidated third quarter growth margin of 38.3% was down from a peak of 40.4% in the year-ago quarter, but sequentially consistent with the second quarter. The branded product segment's growth margin rate of 34.8% was down 140 basis points, driven by customer sales mix. The healthcare apparel segment's growth margin rate of 38.5% was down from a peak margin of 41.8% in the year-ago quarter due to product cost reductions last year, but its margin rate is up sequentially from the first and second quarters. While the gross margin rate for contact centers of 52.9% was consistent with the prior quarter, it was down from 54.9% last year driven by higher agent costs and unfavorable margin mix associated with the closure of our Jamaica Center. Overall, we improved third quarter SG&A expenses year over year by $4 million to $48 million, resulting in SG&A as a percent of sales of 35%, flat to the year-ago quarter despite the quarterly sales decline. SG&A costs declined across all three segments, driven by lower employee-related costs, cost reductions initiated in the second quarter, and a credit loss reserve recognized in the contact center segment in the year-ago quarter. Based on these results, our overall EBITDA of $7.5 million was up sequentially from $6.1 million in the prior quarter, although still off from $11.7 million in the prior year. Again, our growing pipeline of new business enterprise-wide suggests that as sales conversion improves, we should be able to generate attractive, profitable growth given our improved cost structure. Moving on to net interest expense, this was $1.4 million for the third quarter, improved from $1.6 million a year earlier, reflecting a lower weighted average interest rate. And turning to the bottom line, we generated net income of $2.7 million, up sequentially from $1.6 million in the second quarter, but down from $5.4 million in the strong year-ago quarter. This equated to earnings per diluted share of 18 cents, up from 10 cents in the second quarter, but compared to 33 cents in the third quarter of 2024. Our balance sheet remains healthy, as we continue to maintain a strong cash and cash equivalents balance, which was $17 million as of the end of September. Therefore, the combination of our cash and cash equivalents plus the available capacity under our revolving credit facility provides SGC with over $100 million of liquidity to execute our growth plans while continuing to return capital to our shareholders, such as through our quarterly dividend and our share repurchase authorization, which had approximately $12 million available as of September 30th. I'll close our prepared remarks with an update to our full year outlook. Specifically, we're tightening our revenue outlook, resulting in a new range of $560 million to $570 million, compared to the previous range of $550 million to $575 million, translating into a higher midpoint and slight growth year over year at the high end of our range. As we've mentioned earlier, while the growth environment remains subdued across our three businesses, our pipelines remain strong and we are focused on converting these pipelines while maintaining expense discipline. The investments that we've made to date have positioned us for growth as economic uncertainty dissipates and will enable us to capture additional market share across our three attractive lines of business. With that, operator, Michael, Jake, and I would be happy to take questions. If you could please open the line.