Superior Group of Companies, Inc.

Good morning and welcome to the Superior Group of Companies first quarter 2026 conference call. With us today are Michael Benstock, Chief Executive Officer, and Mike Kemple, President and Chief Financial Officer. Jake Himmelstein, President of the company's branded product segment, will join today's call for the Q&A session. 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 on 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 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.

Thank you, Operator. Good morning and thanks everyone for joining us. We had a good start to the year. First quarter revenue was up 3%. Gross margin rate improved by 30 basis points. SG&A came down as a percent of sales by nearly a full point. And EBITDA increased to $4.8 million from $3.5 million last year. EPS was 6 cents compared to a 5 cent loss in the first quarter of 2025. What I'm pleased with is that the improvement didn't come from just one place. We saw progress across the business, and that tells us the work we're doing is starting to show up in a meaningful way. The environment is still uncertain, including the added uncertainty around the Iran conflict, but we're staying focused on execution, and we're encouraged by what we're seeing. Overall, the company is in a strong position. We have a broad business mix, good customer relationships, and supply chain flexibility. Those are all important in a market like this, and that gives us confidence in our underlying strategies. Starting with branded products, which is our largest segment, Revenue grew 5% year-over-year for the second quarter in a row, driven by volume gains within existing customer accounts. We also improved gross margin and held SG&A near 27% of sales, which helped EBITDA grow nicely versus last year. Our pipeline and backlog remains strong, and we'll keep investing in sales talent and technology to support growth in this part of the business. Moving to healthcare apparel, I want to welcome Chris Hine, who recently joined us as president of that segment. Chris has deep multi-channel apparel experience and a strong history of building successful teams and driving results. We're excited to have him with us and look forward to what he brings to the business. In healthcare apparel, revenue grew 5% versus last year's first quarter. That was driven by volume growth in existing wholesale accounts, and continued progress in direct-to-consumer. Mike will discuss in more detail our lower EBITDA for the quarter. We continue to see good potential in the segment and are focused on improving execution from here with new strategies and leadership in place. Turning to contact centers, revenue was down 8% versus the first quarter of 2025, mainly because of prior year client attrition. On the other hand, revenue did improve sequentially from the fourth quarter, helped by existing customer expansion. The opportunity pipeline is still at a historical high, and with easier comparisons ahead, we're focused on converting the pipeline into year-over-year growth. We also made real progress on the cost side, with SG&A down more than 200 basis points as a percent of sales compared to the year-ago quarter. This reflects the benefits of last year's cost reduction work, including our continued focus on implementing AI and other technologies. As a result, contact centers EBITDA was down only slightly year over year, but the margin rate improved, which should help profitability going forward. We also maintained a strong balance sheet, which gives us the flexibility to keep investing where it makes sense, while also repurchasing shares when we see the opportunity. So overall, this was a solid start to the year. We're encouraged by the progress we've made, and we think the work underway across the business is putting us in a better position as we move through the year. With that, Mike will walk you through the first quarter financial results, and then we'll open it up for questions.

Thank you, Michael, and thanks, everyone, for joining us today. We grew consolidated revenue by 3% in the first quarter to $141 million. As we have mentioned before, our business is typically back half-weighted, with sequential improvement through the year, and that's reflected in our 2026 guidance. Looking at the segments, branded products, our largest segment, grew 5% year over year to $91 million. Healthcare apparel, our second largest segment, also grew revenue by 5% to $29 million. Contact centers revenue declined 8% year over year, as anticipated, to $22 million, but we did see improvement sequentially from the fourth quarter, and we expect that to continue as the year goes on. Our pipelines remain solid, and we're continuing to invest in sales talent and marketing to support future growth. We expect all three segments to contribute to our growth trajectory in 2026. Our growth margin rate improved 30 basis points on a consolidated basis to 37.1% for the first quarter. Granted, products posted a growth margin of 34.1%, consistent with the fourth quarter, but up 210 basis points from last year due to a weaker margin related to customer mix in the year-ago period. The healthcare apparel gross margin rate was down 160 basis points to 35.6%, mainly because of growth with lower margin customers. The contact center's gross margin was 52.2%, down 140 basis points due to higher labor costs. SG&A as a percent of sales improved to 35.8% in the first quarter, compared to 36.5% last year. Total SG&A expense for the quarter was $50 million, including $1 million in severance costs, and was essentially flat year over year, despite our pipeline growth. Our resulting first quarter EBITDA was $4.8 million, up from $3.5 million a year ago, with EBITDA margin improving 80 basis points to 3.4%. Net interest expense came in a little over $900,000 for the quarter, down from more than $1.2 million last year, driven by our improved net debt position and a lower weighted average interest rate. All the factors that I just mentioned contributed to net income of about $800,000 in the first quarter, versus a net loss of about $800,000 in a year-ago period. Therefore, diluted EPS was $0.06 compared to a $0.05 loss per share last year. On the balance sheet, we remain in strong shape with $23 million of cash and cash equivalents at the end of March. We generated more than $9 million of operating cash flow in the quarter on top of the $20 million we produced in 2025. Between cash on hand and availability under our revolver, we have sufficient liquidity to support the business and return capital to shareholders. During the quarter, we paid $2 million in dividends and repurchased $700,000 worth of stock. We ended March with $9.4 million still available under our share repurchase authorization. To close, based on the solid start to the year, we're maintaining our full year guidance. We expect 2026 net sales of $572 million to $585 million and diluted EPS of 54 cents to 66 cents. That would be meaningful improvement versus the 46 cents we generated last year. And as a reminder, we still expect results to be weighted toward the back half, similar to previous years, both for revenue and EPS. With that operator, Michael, Jake, and I would be happy to take your questions.