Superior Group of Companies, Inc.

Good morning and welcome to the Superior Group of Companies second quarter 2026 conference call. With us today are Michael Benstock, chief executive officer, and Mike Koempel, president and chief financial officer. In addition, Jake Himelstein, president of the company's branded products segment, will join today's 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 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 in 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.

Thank you, operator, and thanks, everyone, for joining us. We are proud to have delivered a strong quarter with consolidated revenue up 3% year-over-year, a 160 basis point improvement SG&A, EBITDA up 27% to $7.7 million, and adjusted diluted EPS of 21 cents, more than doubling the second quarter of 2025. Excluding the non-cash trade name impairment that Mike will discuss and reflects the progress we're making on mixed margin and earnings power, our results highlight the benefit of our diversified business as we continue to navigate a choppy demand environment. Our outlook remains favorable given our longstanding and solid customer relationships, the strength of their brands, and our ability to support them with advanced technology, a flexible supply chain, and stellar service. Turning to our segments, I'll start with Branded Products. Our largest business revenue grew 6% year over year, driven primarily by higher volumes with existing customers. We drove gross margin expansion along with SG&A improvement as a percent of sales. Taken together, this led to a 25% increase in branded products EBITDA. As we look ahead, we believe our growing backlog and ongoing investments in sales talent, marketing, and technology will drive continued long-term growth. Our Hofstra apparel revenue declined 4% and gross margin decreased by 260 basis points, largely due to a non-cash inventory write-down tied to our recent strategic decision to accelerate the shift to a more focused product offering. While we were able to reduce SG&A, SG&A's percent of sales increased slightly on the lower revenue base and segment EBITDA declined by $1 million year-over-year. The quarter was undeniably challenging, but we view the shorter-term margin pressure and the transition under new leadership as necessary steps towards stronger, more sustainable margins and a more efficient use of working capital over time. Finally, in contact centers, as expected, revenue was down 4% year-over-year, but improved sequentially for the second consecutive quarter. The year-over-year decline reflects client attrition in 2025 Whereas the more recent sequential improvement is driven by a net increase in agents here today and stronger conversion from our significantly larger pipeline of new business that we had a year ago. Growth margin was lower due to higher human capital costs as we prepare for stronger growth ahead, which is more than offset by improved SG&A, leading to stronger EBITDA for the quarter. To sum it up, we had a strong quarter and we see clear opportunities ahead for both growth and margin expansion. Our solid balance sheet and growing operating cash flow give us the flexibility to invest strategically across each of our segments. I'll now hand it over to Mike to walk through the financial details before we open the call up for questions.

Thank you, Michael, and welcome again, everyone, to the call. Second quarter consolidated revenue was $148 million, resulting in a 3% year-over-year increase for the second straight quarter. The revenue increase was driven by branded products, which increased 6% to $98 million from volume increases with existing customers. Revenue for Healthcare Apparel was $27 million, down 4%, compared to the prior year due to tariff-free funds. And lastly, revenue from our Contact Center segment was $23 million, also off 4%, but sequentially improved from the first quarter's 8% year-over-year decline. Our second quarter gross margin of 38% was down 40 basis points compared to the year-ago quarter, Branded products grew a gross margin of 36.5%, up nearly a full percentage point from the year-ago quarter driven by customer mix. The healthcare apparel gross margin was 32.9% due to a $2.6 million incremental non-cash inventory rate down, partially offset by a $1.8 million net tariff refund benefit. The contact center's gross margin for the second quarter of 50.9% was down 170 basis points as Michael previously described. Second quarter SG&A as a percent of sales of 34.7% improves 160 basis points from last year driven by expense leverage in branded products on a 6% sales increase and an improvement in credit loss expense in the branded products and contact centers segments. Putting this all together, our second quarter EBITDA of $7.7 million improved from $6.1 million in the year-ago period. Moving further down the income statement, our net interest expense of $981,000 improved from $1.25 million in the second quarter of 2025 due to a lower weighted average interest rate and a decrease in average debt outstanding. In terms of bottom line performance, Second quarter net income was $1.2 million, or $0.08 per diluted share. In the second quarter of 2026, the company recognized a pre-tax non-cash impairment charge related to trade names in the healthcare apparel segment of $2.6 million, or $2 million net of tax, translating to $0.13 per diluted share. The charge does not affect the company's cash position or cash flow from operating activities. on an adjusted basis, which excludes the impairment charge. Second quarter net income was $3.1 million or 21 cents per diluted share, up significantly from net income of 1.6 million or 10 cents per diluted share for the year-ago quarter. Turning to our balance sheet, we ended the second quarter with $23 million of cash and equivalents after generating first half operating cash flow of $18 million. and we remain well positioned to strategically invest in growth opportunities while returning capital to shareholders through both our attractive dividend yield and opportunistic share repurchases. Specifically, we paid $2.2 million in dividends during the second quarter and we have approximately $9 million available under our share repurchase authorization. Turning to our full-year outlook, we continue to expect 2026 net sales of $572 million to $585 million and look for adjusted diluted EPS of 54 cents to 66 cents, well above the prior year's diluted EPS of 46 cents. Once again, our guidance reflects the back half weighted cadence again this year, both top and bottom line. And now, operator, if you could please open the lines, Michael, Jake, and I would be happy to take questions.