Superior Group of Companies, Inc. Price & Performance (SGC)

During the fourth quarter, consolidated revenue was down 1% per versus the prior year, which if you recall had been a strong quarter for us. Positive growth in healthcare, apparel and contact centers was offset by a decrease in our branded product segment, generated fourth quarter diluted EPS of $0.13 relative to to $0.22 last year. Again, this put us within our full year outlook range and as expected was a tough year over year comp given the outsized strength in the fourth quarter of twenty twenty three. We also generated positive operating cash flow enabling us to maintain a strong leverage ratio ratio. Our solid financial foundation provides us the opportunity to make strategic investments in our three very attractive end markets while also opportunistically repurchasing our shares which Mike will speak to. Starting with branded products, we did achieve modest growth in the promotional products channel driven by a combination of both new and existing customer We are investing in sales leadership to expand our share of wallet, with existing customers as well as to add new customers at a faster pace. We Overall, our expanding market share should result in strong growth over time, especially once economic uncertainty lifts.

Turning to healthcare apparel, we overall market conditions remain soft, especially for the brick and mortar wholesale related channel, [indiscernible] We look to grow our digital channels over time both wholesale and direct to consumer. We're also investing in sales, branding and marketing to further drive weak brand awareness. As for contact centers, which remains our highest margin segment, we are encouraged by the revenue growth potential especially now that we have a sales team in place for the first time since launching this business in 02/2008. We did see a positive contribution from brand new customers during the quarter, which more than offset a decline with existing customers due in part to end of year seasonal adjustments. Our contact center strategy is to continue growing our customer cap with our new internal sales capability by targeting small and medium sized enterprises, with greater marketing support. We Most importantly, implementing some of the very latest technology to not only enhance the customer experience, but to optimize our own cost and long term profitability. I'll now hand it over to Mike for a detailed walk through of fourth quarter results as well as our initial outlook for 2025 before we take your questions.

Mike? Thank you, Michael, and thanks everyone for joining us today.

On a consolidated basis, our fourth quarter revenues were down 1% relative to the prior year period completing what was again as anticipated a back half weighted year for SGC and placing us within our outlook range. I want to again emphasize that we expect a similar pattern for 2025. Looking closer at top line performance starting with Branded Products, revenue was off 5% year over year. Sales of promotional products grew, while branded year over year primarily due to stronger uniform program rollouts. In the year ago quarter. We grew healthcare revenue 8% over the prior year primarily driven by growth in our digital channels as well as some favorable sales timing in our non digital channels. We now have a sales force in place, as Michael just mentioned, and while we saw a decline from existing customers, this was offset by an even stronger contribution from new customers that also provide the opportunity for future seat expansion. Turning to margins and profitability. Our consolidated gross margin for the fourth quarter of 37.1% was down just 70 basis points relative to the earlier quarter despite the tough comparison.

SG and A as a percent of revenues at 34.4% was about a percentage point higher. [indiscernible] This resulted in consolidated EBITDA of $7,300,000 versus $9,900,000 in the fourth quarter of twenty twenty three. On a segment by segment basis, Branded Products fourth quarter gross margin was down a percentage point to 33.9%. Driven by sourcing mix and lower volume related to our branded uniform programs. As we have said in the past, the sales and margin mix of uniform programs can vary on a quarterly basis. Depending upon the timing of program rollouts and sourcing considerations. SG and A as a percent of revenues for the fourth quarter increased about a percentage point to 25.9% mainly driven by deleveraging. As a result, Branded Products EBITDA was $8,900,000 for the quarter, down from $11,700,000 the prior year. [indiscernible] Turning to Healthcare Apparel, while our fourth quarter gross margin of 33.7% was off three percentage points due to higher sourcing costs related to manufacturing in Haiti we did achieve better leverage on SG and A as a percent of revenues by more than a full percentage point on the 8% sales increase. As a result, our healthcare apparel EBITDA came in at $1,100,000 relative to $1,400,000 in the year earlier period.

As for contact centers, which is our highest margin segment, we drove a stronger fourth quarter gross margin of 54.7%. Up more than 2.5 percentage points from last year. SG and A as a percentage of revenues at 44.9% improved slightly from 45.1% in the year ago quarter. This resulted in EBITDA of just over $3,000,000 up from $2,300,000 in the year ago period. Our fourth quarter interest expense was $1,500,000 which improved sequentially and also marks a significant improvement from $2,100,000 This improvement was driven by lower weighted average debt outstanding as I'll discuss in a moment, and a more favorable weighted average interest rate down 130 basis points over the past year. Our fourth quarter net income reflecting the EBITDA trend already discussed was $2,100,000 relative to $3,600,000 in the very strong fourth quarter of twenty twenty three. [indiscernible] And we generated earnings per diluted share of $0.13 relative to $0.22 Our balance sheet has continued to strengthen with year end cash and cash equivalents of $19,000,000 at year end compared to $20,000,000 at the end of twenty twenty three despite completing more than $7,000,000 of share repurchases during the year as well as a small acquisition completed during the fourth quarter.

We also reduced our outstanding debt to $86,000,000 at year end improved from $93,000,000 a year earlier. For the year, we produced strong operating cash flow of $33,000,000 supporting our net leverage ratio, which ended 2024 at just 1.7 times trailing twelve months covenant EBITDA improving from two times at the start of the year. Providing an update on our share repurchase plan, Energies last August, during the fourth quarter, we repurchased approximately 72,000 shares for $1,100,000 at an average price of $14.96 per share. We ended the year with approximately $2,600,000 remaining under our initial authorization. Today, we are announcing that our Board has authorized an additional $17,500,000 share repurchase plan with no program expiration and we intend to continue buying back shares depending upon a number of market factors.

In support of the new repurchase program, reflecting our improved financial profile, our bank syndicate agreed to amend our credit agreement to increase the annual amount of permitted payments for shareholder distributions share repurchases and the like. I'll wrap up with our initial outlook for 2025. As Michael mentioned in prior calls, and spoke of in his opening remarks, there are lingering factors resulting in customer hesitancy and overall economic uncertainty. Taking these factors into consideration, we look for full year revenues to be in the range of $585,000,000 to $595,000,000 suggesting year over year growth at the high end of 5%. [indiscernible] we look for full year earnings per diluted share to be in the range of $0.75 to $0.82 suggesting 12% year over year growth at the high end. As mentioned earlier, we expect a back end weighted cadence [indiscernible] similar to what we have achieved in each of the past two years. And with that, operator, if you could please open the line Michael and I will be happy to take questions. We will now begin the question and answer session. Our first question today comes from Jim Sidoti with Sidoti and Company. Please go ahead. Hi, good afternoon.

Thanks for taking the questions.

Just moving to the cash flow statement, it looks like you did an acquisition dollars 4,000,000 acquisition in the quarter. Can you let us know what that was?

Hi, Jim. This is Mike. Thanks for the question. Yes, we did a small acquisition in December. Of this past year. And we really, I would consider it really a small opportunistic acquisition. It enabled us to add a few new, what I would call, blue chip customers that we really feel could really provide us with some growth with those new customers. And it also enabled us to add some experienced talent as well. So we identified an opportunistic transaction and really took advantage of it and will again provide us with some growth here in 2025.

And so it sounds like it's a branded products business?

It is a branded products business. Okay. And the overall guidance seem pretty much in line with where I was, where the Street was. EPS a little bit lower. Are you seeing higher material costs or labor costs or can you just give a little color on what's going on on the cost side?

Sure. As I mentioned in my prepared remarks, we saw for the quarter was a slightly lower margin rate in the healthcare business again. Due to some higher costs associated with our manufacturing in Haiti Some of that has to do with the fact that with holidays, we've got some less production. So absorbing less of the cost, which which has put a little bit of pressure on margin in the fourth quarter. We took physical inventory, had some inventory that we had written off, not what I would call significant, but it kind of adds up along with some of the incremental production costs. So I'd say that the cost in Haiti again, incrementally drove a little bit more pressure on the margin which to your point then impacted some of the flow through on the sales that we had for the quarter. All right. And it sounds like you think cost is going to remain that level in 2025? For the most part, I think, again, part of part of our charge in Haiti was again associated with some year end inventories that we had taken wouldn't expect that to to repeat itself. But in terms of just the larger production costs, we'd expect that to continue into 2025.

And then the last one for me. I know you did raise price on the contact centers business, and I think you might have raised prices your other businesses as well over the past twelve to eighteen months. Are those price increases sticking? And do you think you have an additional pricing power in the future? What's the pricing environment look like?

We're in a little bit of a crazy this is Michael. We're in a little bit of a crazy environment now where everybody is expecting prices to go up So yes, we will be continuing to raise prices. We have continued to raise prices as was necessary. We also found some efficiencies along the way where we didn't need to in some of our products and services. To not raise prices, but we do expect price increases in the future. But for the large part, because I'm sure there's a question in here that's going to come about tariffs. We might as well lay it out there. We are very well positioned for whatever is going to happen from a tariff standpoint. We contemplated a lot of what has already happened and has already been announced. And we feel we're in a but we're still waiting and watching because it's a very fluid situation. We know what's been announced. We know what's pulled back. We know what's been announced again and pulled back. But we diversified our supply chain greatly over the last few years. During the first Trump administration, we started doing it because of our thoughts that tariffs were going to increase further.

And not knowing whether he was going to get elected a second time or not. We pulled back and we went to other countries that have much less risk. To us. But we certainly have been watching it. We We have already proceeded with negotiations with all of our vendors That has worked out very, very favorably. We won't get into it by product by product what's happened because it does differ by product for each product even with our logistics vendors. We've seen some our ability to put pressure on them to reduce some costs there. So we're in good shape. I think to the extent that we're going to see cost increases, we're going to be able to pass those on.

And the fact you're buying back another, I think it was $17,000,000 in shares It sounds like you're pretty confident that cash flow is going to continue to remain strong. Over the next few quarters.

We would expect to continue to generate good cash flow. And as it as it relates to the the share buyback as we've done in the past, we'll monitor the market going forward and based on a number of factors we'll obviously make Hi, Michael and Mike. Hi, how are you? So my question was just on the branded products segment.

I know you guys recycling what you said more uniforms from or branded uniforms. I was wondering if those customers are still around in your business and you're just waiting for and you're recycling like a big contract or what we're looking for in growth there?

Sure. On the branded uniform program side, there's been no turnover in customers.

Retained all the large customers that we have. What I was really referring to in the prepared remarks is that with our existing customers, they will from time to time roll out new uniform programs. And of course, the timing of that can vary from year to year or within the quarter. And so what we saw in comparing the fourth quarter this year to last year last year was we had a rollout begin to take place in the fourth quarter of last year, which was beneficial to the quarter and the timing of the new program did not occur in the fourth quarter of 'twenty four, but is going to take place in 2025. So again, just a difference in the timing of when our existing customers are rolling out programs.

That makes sense. Thank you. And then just a follow-up. It seems like margins are pretty strong in the contact center business. I was wondering if you guys are seeing any labor cost increases there overseas or at home? Not to the extent beyond what we reported about a year ago. We've kept a pretty steady state of being able to keep up with the pressure that we had When we raised our rates a year ago, I think we raised them to a level that made us extremely competitive. And we haven't had to do much since then. There's spotty places and particular jobs that we've had to do things for, but we certainly have been able to recoup that through price increases.

And we were happy, Keegan, with the the gross margin rate in contact centers at 54.7% was consistent with the third quarter and up from the first half of the year. So happy to see that we're maintaining that higher margin in the back half of the year.

Thank you.

The next question is from David Marsh with Singular Research. Please go ahead.

Hey, guys. Thank you very much for taking the questions and congrats on the quarter. [indiscernible] looking at the at the leverage, you guys have done a great job bringing leverage down. Would you say that at this level that you're pretty comfortable level or as you weigh uses of cash flow do you think that maybe you want to reduce it some more here? Just give us a little insight there?

Dave, I'll take that. We're obviously, we're very comfortable with where we are at our current leverage ratio With that said, we've mentioned before that with with a very strong leverage ratio that we have combined with the capacity in our current credit facilities we certainly have the opportunity share repurchases, potential M and A activity, etcetera. So we'll certainly look to utilize that capacity. If if there's compelling opportunities. In the past, we're of leverage taking into account some of the activities that I mentioned And then with free cash flow having that opportunity over time to get that back down to under two. But again, I think we're very comfortable and we're in a position where again we can use the capacity that we have to take advantage of some potential opportunities that might arise.

Speaking of acquisitions, you guys you pulled the trigger on a small one in the quarter in branded products Could you just talk about kind of more broadly the acquisition landscape and kind of maybe help us understand what your priorities would be in terms of the business lines around acquisitions?

Good question. It's one of the richest environments we've ever seen. Is plenty of opportunity. It's one of those things where you can imagine you kiss a lot of frogs along the way. Until you find what you're looking for. What we're looking for are almost immediately accretive businesses that don't put any pressure on our leverage ratios. And they've got to have great leadership with great culture. And easily integratable.

These are the things we look for And quite frankly, there's not one of those things. That isn't as important as the next.

We would not buy a business that was missing one of those components. And I think we're seeing some great companies out there. Some are beyond our capacity. But we're certainly very engaged particularly in the branded products business. And we're also more engaged than ever in call center business and looking for the right company. But that would get us into a geography that we're not currently in that would make us even more attractive to a customer base.

Okay.

And then just wanted to kind of dig into your comments, Mike, about $25,000,000 guidance just a little bit. I caught back end loaded, but what I didn't really catch was and I kind of was trying to derive it from some of Michael's comments early on, Just as we're starting the year, I mean, should we expect like a meaningful sequential slowdown and then a really heavy back end load or maybe not as much of a kind of more of a flattish to slightly down start and kind of a gradual build. I'm just trying to trying to model this here.

Yes.

Somewhere between there is the right number.

Yes. I would characterize it Dave, more as I'd say a more gradual build this year. So shifting a little bit more more back end weighted obviously there's a lot of uncertainty that's taking place right now. And so so our belief is that we'll things will will become clear as we move forward. And so we're expecting a little bit more of a gradual build this year than we saw last year. And then again, ramping up later in the year Third quarter is always an important quarter for us. It will continue to be an quarter But that's how I would characterize the calendarization at this point.

Okay. That's And then if I could just sneak in one more. Guys, you mentioned in the prepared remarks some comments just a quick comment really about healthcare apparel and the online channel. And this is something you've mentioned in the past, periodically on calls. Just wanted to see if if that online channel is quite to a place where it's something that you want to talk about more meaningfully or it just kind of a still a supplement to kind of the traditional brick and mortar and shipping and things of that nature?

I would say for competitive reasons, we really don't want speak about it too much. Share numbers and and strategies and where we're spending our money and what our return on advertising spend has been, but it's been very, very favorable. As favorable as as many of the consumer driven companies, even better than most So we're just going to sit tight with the numbers for a while more, sometime before we'll actually start reporting all of those metrics.

I get it. Thanks so much. Appreciate the color.

The next question is from Kevin Steinke with Barrington Research. Please go ahead.

Thank you.

So I just wanted to ask about the general tone among customers. You mentioned still some uncertainty obviously, but it felt like maybe there was a little more optimism about just opening up or expanding as we entered the year. So I don't know if you seen kind of a increase in uncertainty over the last month or so or kind of are we kind of just wondering if there have been any kind of fits and starts in terms of demand environment.

I think that's a good characterization fits and starts. But let's take it one segment at a time. So on the branded products segment, we're certainly seeing positive signs of incremental spend among our clients in the fourth quarter. Resulted in increased bookings, strong backlog headed into the New Year, More recently, as you can imagine, we've noticed a growing sense of call it, uncertainty regarding the repercussions, particularly of tariffs on the overall economy and the consequent impact on the cost of our branded merchandise. There were worries that these tariffs could disrupt existing supply chains. Leading to potential delays increased costs for our clients. We're well positioned to weather this. As I said, we've actively diversified our supply chain out of tariff countries. We're also taking market share from our competitors who are not as well prepared as we are to handle the current environment. So that describes branded products. On healthcare apparel, we had a very strong Q4 across our omni channel mass and distributor channels. Demand for new collections that were introduced in the fall of twenty twenty four continues to grow. As consumers have increasingly asked for our retail facing brands, which are Wink and Carhartt Medical.

While we delivered a strong Q4, we're beginning to experience economic marketplace uncertainty even in this place where these are necessary item for people to buy. From both our consumers and and customers. Who are reselling our products leading to delays in purchasing. And installing new groups.

A strong inventory position with increased brand awareness to meet demand, takes share from our competitors across our portfolio and that's the good news as we brought in a fair amount of product early. In contemplating these tariffs. So we should be in pretty good shape. On the contact center side, it varies greatly across we're agnostic as far as who we serve and we have many, many different types of customers. I would say the prevailing theme of cost containment through enhanced efficiencies is absolutely consistent across the board. This is also, I would say, mirrored in our business pipeline. Which we believe has a tremendous opportunity exist for us capture additional market share. Prospective clients are looking for BPO partners capable of helping them reduce costs. And we believe with the innovative technologies that we employ, that and the other requirements that we can meet that we're in a very good position to take more market share. With that, we're still seeing slower decision making. Consummate new deals, got a great backlog. But there's also an uptick in price checking. Disguised as RFPs, but we're participating Okay, thanks. That's helpful color. And with regard to branded products and the gross margin in the fourth quarter, I I know you called out the the mix impact there.

But as we kind of think about 2025, do you think gross margin can kind of rebound on an annualized basis to something similar as to what it was in full year 2024 or Any other thoughts on the margin trend there in branded products? Yes, Kevin. I would say really over the course of the year balancing out As I mentioned in the question or in the prepared remarks, comes to some of the branded uniform programs, in any given quarter, the result could be skewed one way or the other depending upon upon again the timing of a program And so when you look at it over the course of the year, it's it's more balanced. And so and again, that's just the branded uniform program part. Obviously, you have a large promotional products business as well that's that's been driving good margins. So really if you were to look at that segment overall, for the balance of the year in 2025, I'd expect it to be fairly consistent year over year.

Okay. Thank you. And then any significant investments planned for 2025 in terms of just SG and A investments or do you think you start to get a bit of leverage there?

Off of the revenue growth There's no significant investments anticipated So as we've talked about before, I think you're alluding to in prior calls, we've certainly made we'll call investments in SG and A across each of our segments. And selling capabilities and we'd certainly expect to begin leveraging those investments as we move forward. Continue to grow the top line. So nothing I would expect as unusual from an expense perspective going into 2025.

Okay. Thank you. And just lastly, just wondering about what's embedded in the EPS guidance for 2025 in terms of more potential debt pay down and potentially lower interest expense or maybe you see more going to share repurchases and maybe less to debt reduction trying to balance out those factors when you're kind of thinking about interest expense I would expect interest expense to be improved from 2024 And I think that would be a combination of bringing our weighted average debt outstanding down combined with I'd say a little bit of rate increase, of course, that's uncertain as well. But we factored in a couple of those components. As we think about our interest expense going forward.

Okay. Thanks a lot. I'll turn it back over. Thanks, Kim.

This concludes our question and answer session.

I would like to turn the conference back over to Michael Bensstock for any closing remarks.

Thank you, operator, and thanks everyone for joining today's call. In closing, I'd like to thank our employees for their unwavering dedication our customers for their loyalty and our investors for their trust in our vision. We are focused on navigating these challenges and seizing opportunities that will allow us to deliver long term value. Look forward to updating on our progress as we move through 2025 please feel free to reach out with any additional questions. Enjoy the evening and thanks again for your in SGC.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.