Superior Group of Companies, Inc.

Good afternoon, and welcome to the Superior Group of Companies fourth 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, 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 commissions, 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 call over to Michael Benstock.

Michael Benstock Thank you, operator, and thanks, everyone, for joining our call. I'll begin with an overview of our fourth quarter results followed by a discussion around market conditions. I'll also cover at a higher level how each of our business segments is performing along with some of our go-forward strategies. Mike will then walk us through a more detailed financial review before we open it up for Q&A, for which we'll be joined by Jake Himmelstein, President of our Branded Products business. For the fourth quarter, solid growth in our Branded Products segment helped drive SGC to an overall modest year-over-year increase in revenues. while we also lowered expenses despite this growth. As a result, we generated 19% higher EBITDA than the year-ago quarter, and our EPS nearly doubled to 23 cents. In addition, as expected, fourth quarter results reflected the back-end weighted nature of our business, with revenues up 6% sequentially and diluted earnings per share up more than 28%. Our outlook for SGC for 2026 that Mike will share in a moment reflects solid growth expectations for the year, again with a back-end weighted cadence due to expected order patterns and anticipated new customer growth in our contact centers segment. Turning to market conditions, there remained a degree of economic uncertainty amongst customers and prospects across all of our business lines. Nevertheless, we were able to grow consolidated revenues during the fourth quarter. Again, the progress we've made in driving efficiencies and containing costs, as you see from our bottom line performance reported today, should prove beneficial once macro conditions normalize and stronger demand returns. Taking a step back, our overarching strategy is to emerge stronger from these currently uncertain economic and geopolitical times with even greater market share as we have through past complex macro cycles. Our leadership team will accomplish this by continuing to strategically invest in growth while at the same time driving efficiencies and removing unneeded costs from the business. Moving on to our business segments, branded products, our largest segment, had 5% year-over-year growth during the quarter or 14% sequential increase, despite the challenging tariff environment's impact on customer order patterns throughout the year. Our pipeline and order backlog remains solid and have already generated some large new wins this year. Looking ahead, we'll be focused on growing our market share further in this attractive, highly fragmented market. Specifically, we anticipate further expanding our sales force as well as leveraging technology, to make new and existing reps even more efficient. Turning to healthcare apparel, revenue was off 5% year-over-year in the fourth quarter, which reflects macro uncertainty for both our wholesale-related consumer channels and institutional healthcare apparel. Similar to branded products, we're investing to grow demand, in this case to support our fashion seal, Wink, and Carhartt brands, while at the same time keeping a watchful eye on expenses. In fact, versus the year-ago quarter, despite continued marketing investments, we were able to drive a slight decline in SG&A, resulting in a positive outcome for EBITDA. Going forward, we see opportunities to grow our digital and brick-and-mortar wholesale channels, as well as our own direct-to-consumer channel, which continues to have momentum. Our third business segment, contact centers, represents 15% of consolidated revenues, and saw an 8% annual decline in the top line driven by the downsizing and loss of existing customers from earlier in the year that have not yet been outweighed by new customer growth. Prospective customers have been slow to commit given the economic uncertainties, but our pipeline remains solid even after producing customer wins earlier this year and should translate into further growth, particularly in the back half of 2026. In addition, we're again controlling what we can. We reduced SG&A for contact centers by nearly $1 million, or 10%, versus the prior year quarter, driven by streamlining our cost structure, including the strategic use of AI. In closing, we're cautiously optimistic about the year ahead, and our strong balance sheet that Mike will discuss allows us to intelligently navigate current market conditions while positioning SGC for long-term success. We also brought back a significant number of shares during the quarter, reflecting our belief that our stock has a compelling long-term value. Mike will now take us through a more detailed review of fourth quarter results, then we'll open it up for Q&A with Mike, Jake, and myself. Mike?

Thank you, Michael, and thank you again, everyone, for joining today's call. During the fourth quarter, we generated consolidated revenue of $147 million, which was up 1% year-over-year and up 6% sequentially from the third quarter, demonstrating the backend weighted cadence of our revenue as expected. Our largest segment, branded products, grew revenue 5% over the prior year quarter to $97 million, primarily driven by revenue growth from the three-point acquisition in December 2024, followed by modest organic growth. Sequentially, branded products grew quarterly sales by more than $10 million, fulfilling our backend weighted expectation. Healthcare apparel is our next largest segment, which produced revenue of $29 million relative to $30 million a year earlier, as the macro uncertainty for wholesale-related consumer and institutional healthcare apparel channels that Michael mentioned continue to weigh on growth. Rounding out our segments, revenue for contact centers was $22 million as compared to $24 million in the prior year period, as customer losses and reductions with existing customers exceeded gains from new customers, although we have started 2026 with early momentum driven by a few conversions of our pipeline opportunities, as Michael mentioned. We are cautiously optimistic that additional new opportunities will provide meaningful benefit starting in the latter part of the second quarter and drive year-over-year growth in the back half of the year. Looking at the bigger picture, continued tariff and economic uncertainty notwithstanding, our business pipelines across all our business segments remain solid to end the year, and as mentioned, we have yielded some important new wins in early 2026 thanks to our attractive, competitive positioning and the investments that we've made in sales talent and marketing strategies. Assuming macro conditions continue to normalize with some improvement in economic uncertainty ahead, We expect sales growth for all three segments in 2026, as I'll speak to in a moment. Moving down the income statement, our consolidated fourth quarter gross margin of 36.9% was nearly flat with the prior year quarters, 37.1%. On a more granular basis, our branded products gross margin came in at 34.4%, up 50 basis points versus the prior year, despite higher tariffs. Our healthcare apparel gross margin of 33.6% was nearly flat off just 10 basis points. And for contact centers, gross margin was down about two percentage points to 52.6% due to higher agent costs and a shift in our revenue mix associated with the July closure of our lower cost Jamaica center, which was more than offset by SG&A reductions. Overall, SGC made good progress reducing SG&A compared to the year-ago quarter by about $1.4 million, despite overall positive revenue growth. As a result, SG&A as a percent of sales came in at 33.2% for the fourth quarter, an improvement relative to 34.4% a year earlier. In fact, we were able to reduce SG&A across all three business segments. Putting it all together, our fourth quarter EBITDA of $8.6 million was up from $7.3 million in the year-earlier period, with our EBITDA margin improving by 90 basis points to 5.9%. Turning to net interest expense, it was $1.3 million for the quarter, an improvement relative to $1.5 million in the fourth quarter of 2024, benefiting from a lower weighted average interest rate. Lastly, our fourth quarter net income of $3.5 million was up from $2.1 million in the prior year period, and this equated to 23 cents of diluted EPS up from 13 cents in the year-ago period. Shifting gears, our balance sheet remained solid with $24 million of cash and cash equivalents at year-end, which was up $5 million versus the start of the year. We generated $20 million in positive operating cash flow during the year, and we remain well within covenant compliance. Our total liquidity, including cash and availability under our revolving credit facility, is over $100 million, allowing for the continued execution of our growth initiatives while also returning significant capital to shareholders. In fact, during the fourth quarter, we paid out $2 million in dividends and another $2 million to repurchase our shares, which we consider a compelling value. We ended the year with approximately $10 million still available under our share repurchase authorization. Turning to our outlook for 2026, we're setting an initial full-year revenue range of $572 million to $585 million, which assumes no significant change in macro conditions due to geopolitical or other events, and implies 3% growth at the high end. Taking these factors into consideration, we are also expecting full-year earnings per diluted share to be in the range of 54 cents to 66 cents, suggesting significant improvement over 46 cents in 2025. Consistent with prior year, we expect a back-end weighted cadence in 2026 for both the top and bottom lines. We feel confident in our outlook given our recent momentum, competitive advantages, growing pipelines of new business, and the attractive nature of the end markets we serve. And now, operator, if you could please open the lines, Michael, Jake, and I will be happy to take questions.