Hi, good afternoon, and welcome to the Sidoti & Company September Virtual Investor Conference. The next company up is Superior Group of Companies. We have with us the CEO, Michael Benstock, and the CFO, Mike Koempel. This presentation will be a fireside chat. We have about 30 minutes. We'll start with some questions from me, but we will be able to take some questions from the audience. So if you do have a question, you can type them into the tab at the bottom of your screen. But good morning. Thanks for presenting both, Michael and Mike. Could you start out with just for anyone new giving a brief description of your three business segments? Good afternoon, Jim, and good afternoon, everyone. Thank you for joining us. My name's Mike Koempel, as Jim said. I'm the CFO for Superior Group. So I'll just give you a brief overview of our three different segments, and maybe just as a reminder, we do have a presentation on our website that you can certainly read at your leisure, in more detail. So I'll start with the largest segment. I'll work my way down. Our largest segment is our branded products segment. About $350 million of annual volume, and our branded product segment is composed of promotional products, products that our customers might give to their associates for loyalty or gifting, or that our customers may give to their customers, to drive the loyalty with their brands. Think about Taco Bell as an example. Taco Bell's a company that we provide a lot of promotional products to, again, both for their associates as well as their customers, and the second component of our branded product segment would be branded uniforms. Again, using Taco Bell as an example, again, another customer where we provide the uniforms for their associates, and we have a number of other companies, recognizable brands, again, highlighted in our presentation, a number of brands that we support, retail brands, airlines, a lot of brands that you would recognize as a consumer. The branded products business segment operates in a very large market, about a $24 billion TAM. We're the eighth largest in that segment, and there's about 25,000 providers, so it's highly fragmented. A lot of opportunity for organic growth and growing market share. It's a profitable business with a high single-digit EBITDA, and a single-digit sales CAGR over the last five years. The growth in that segment's been a combination of both organic growth, as well as acquisitions. We've done a number of acquisitions, over the last, four to five years, and it's a segment that we'll continue to evaluate for potential acquisitions going forward. Our second segment is our healthcare apparel segment. In this segment, we offer a wide variety of apparel for both acute and non-acute settings, so caregivers, doctors, visitors, patients. It's a combination of what I might call more institutional healthcare apparel that you might see in a hospital setting, you know, your basic scrubs that, again, patients, doctors would wear. And then we have another segment of our healthcare apparel business, which is more retail-oriented, where we're selling again to various healthcare providers, where we design, develop, and sell to again various consumers. There's some seasonality. There's some fashion to that product that we're introducing throughout the year, and we sell in a number of channels. We sell to, in case of institutional, we sell to laundries, who again provide that to hospitals. We sell wholesale to customers, both in-store as well as through the digital channel, and then just last year, we launched our own direct-to-consumer business to complement our wholesale business. We're now selling again direct to the consumer on a digital basis. Again, in that market, it's about a $4 billion market. Again, plenty of opportunity for growth, so we're excited about the launch of our D2C channel last year, which gives us a new channel of growth. Here again, we have a history of profitability in the healthcare apparel segment, as well as growth in the top line from a sales perspective as well. Lastly, we've got our contact center segment. It's a business that really we created through our own needs in supporting our business. It's our fastest-growing business. It's our highest margin business. The 5-year sales CAGR is 26%. It's about a 14% EBITDA business. And the contact center business is a nearshore call center business, largely based in El Salvador and Belize. We've got about 10 offices across a few countries and a smaller office footprint in the state of Florida. But here, again, we cater to small to medium-sized companies, where we might provide anywhere from 10 to maybe upwards of 100 seats to provide services to our customers, and we have the opportunity to grow those seats over time, so as we get a customer in and as they expand, we can provide more services to them, and then there's plenty of opportunity for us to add new customers, which is why we've had such a high growth rate in that business. Again, this segment operates a very large market, over $100 billion in the U.S. alone. Our sales in this segment were just under $90 million in 2023, so again, plenty of opportunity to grow within this segment as well, and have plenty of runway for growth. So those are just a few of the highlights of each of the segments, and you know, happy, Jim, to take more questions that folks may have. Okay. All right. Well, I think I'll start with some general questions, and then we'll dive down to the three segments. But, you know, you know, the big story is, you know, about six or eight weeks ago, you reported the second quarter, and right after a very good second half of last year, a good first quarter, your numbers in the second quarter were a little below Street expectations, and the shares really took a hit. They were trading up around $20. When you reported the quarter, they got down to less than $13. And, you know, it sounded like there was a lot of one-time items there. You did repeat your full year guidance, you reiterated that. And, you announced a share buyback. Michael even started buying back shares, but you know, stock is still way below where it was when we reported. So you know, can you talk what happened in that June quarter, and if you still expect the business to get back to its historical growth in this year? Yeah, in the June quarter, as we talked about in our earnings call, we began to see some softness in the back half of the quarter. And, to some extent, that was driven by some supply chain delays that we were seeing, and not having expected inventory receipts, which had a negative impact on sales for the quarter. We were seeing anywhere from a two- to three-week delay in our receipts, mainly coming from Asia. And so, we expect those receipts will be coming in here largely in the third quarter, to some extent, the fourth quarter. So we'll see that sales shift from out of the second quarter and again, benefiting the back half of the year. In addition to the supply chain delays that we were experiencing, we did have some shift in customer orders. In healthcare, there were a couple of customers who traditionally had a lot of their orders in the first half of the year, and those orders, again, shifted to the third quarter and to some extent, the fourth quarter. For those reasons, Jim, we were still comfortable with our full year guidance, just given the shift that we saw in the revenue pattern. As you mentioned, following our second quarter earnings release, there was a drop in the share price, and so we pivoted quickly to get authorization for a share buyback, given that we felt that the price was undervalued and was a great opportunity to purchase the shares. The price has since come back to some extent from that point, but certainly still view it as a good value at the price that it's at today. Yeah, and I know you can't control when the customers order, but you do have a little more control on the supply chain. Are you seeing some of those issues that impacted Q2, are you seeing some of those subside in the second half of the year? I'd say a couple of things. Seeing it subside to some extent, but more so than that, we adjusted, you know, our plans, obviously, to make sure that, to the extent that there are delays, that we've made the appropriate adjustments in our, you know, buying patterns and our tracking of the receipts to make sure that we don't run into a similar issue here in the back half. And of course, we made those adjustments as we saw them in the second quarter to protect the back half of the year. So, we feel like we've mitigated that for the balance of the year. All right. All right, and when you describe the three segments, it sounded like, you know, you're still a fairly small player in all three of those segments. So can you just talk about, you know, what you do to grow in those segments? You know, are those segments in particular growing? And within those segments, you know, how do you capture share? Yeah, I'll, I'll jump in here. You know, in The Office Gurus, which is our call center segment, it really comes down to you know, finding new customers and getting in front of them, and being able to explain our value proposition. Up until about a year ago, we didn't even have a sales force in that business. Every piece of business we got was through a broker, word of mouth, referrals, SEO, through our website. We didn't have any salespeople. As we've grown, we realized that's not a strategy that's sustainable, that we needed to put together a sales force. We put on our first salesperson early last year. We did a lot of proof of concept with him over the last year, and now we actually have a sales team, more than one. I'm not gonna disclose how many, but we have a sales team that's supported by other people as well. And the amount of people they're getting in front of, and the amount of opportunities we're doing, and tours of our facilities that we're doing, is unprecedented. We expect to be able to, as a result, to be able to continue to accelerate our growth beyond what it's been. And the strategy working so well, we would expect to even accelerate the growth of our sales team to be able to bring on more customers, 'cause there's very little in our way in terms of how many customers can we onboard in any given time. Infrastructure is not an issue for us. We still have a lot of our employees working from home. The infrastructure that we had prior to them working from home is still there and ready for them. We've got this remote strategy that Mike spoke about, in the countries we're in, where we have no problems finding agents, so I think we're in the best place possible to grow that business, and there is no shortage of customers. As a matter of fact, when you look at it, you know, in the call center business, we're a small call center business, but among the small call center business, we're probably one of the most financially stable, and we are able to make the investments in technology that these smaller customers might need, and these are people who are largely ignored by the larger call center businesses. So I think we're the safe choice for a lot of people when they're looking to outsource. And when we do head-to-head, you know, challenges with other centers, where customer might say, "Okay, I'm going to split the business between the two of you, whoever does the best is going to win the business," we win the business every time. So I believe that we have a great strategy. We're doing marketing now for the first time. We never spent money on marketing before, and except that we had a website. If you look at our new website, our website, the front page of our website actually is more focused on what technology we can bring to your account, not just the agents, but also the technology we can bring to your account to help you give your customers a better experience. So that's the call center business. In the branded products business, for the longest time, we said that the way to, you know, grow that business was to hire salespeople, competitor salespeople. It doesn't cost as much. They come as commission only for the most part. We put them on, we give them a ton of support from our India and El Salvador offices, taking away from them, you know, responsibilities that they had at our competitors', location, in our competitors' business, and freeing them up to sell more. Well, we're employing even more and more technology to free up even more and more of their time. If we estimate that over the next couple of years, we will be able to, from our current sales force, get double the output from them because of all of the support we're gonna give them, which is going to basically double the amount of time that they're able to sell. Other ways of growing that business is just, you know, in my opinion, is not just through. You know, we built up our recruiting staff to be able to recruit more salespeople, but that's not. We're more successful than we've ever been in recruiting salespeople, but that's not the beginning and the end of it. We also are starting to spend money on marketing, which we've never done in that business. We're also looking at digital channels, which we have not looked at in that business, and to become more omni-channel for our customers. So I think there's a great runway, talking about a $24 billion-$25 billion market, for which we have a very, very small share of. And then you get into the healthcare uniform business. The healthcare uniform business, you have to divide that into two pieces. You have to divide it, the institutional side, where we're selling into laundries. It's a very mature business. That business is the business that we started in 1920, when we were Superior Surgical back then. And that business is mature. It's not going to grow to any great degree. A couple percent a year is the best we can hope for, and there's only four or five players, meaningful players, in that business, we're one of them. We have a meaningful share, who most of the laundry systems around the country would come to, to buy their uniforms. And ours, I think, have probably, because we're the oldest, probably, you know, has the best reputation for quality and longevity, which is something the commercial launderers care a great deal about. On the other side of that business, which is a larger part of that business, is, you know, the apparel that caregivers wear, whether it's scrubs or lab coats or whatever it may be. It's fashion apparel. You know, you got to be in the right place at the right time with the right fashion. And up until, you know, a year and a half ago, we were selling, or two years ago, we were selling primarily to retail stores only. That was our only channel. And we started drifting from that and selling in other digital wholesale channels like Amazon.com and Walmart.com and others. And then last April, we launched our direct to consumer, and it was a very successful launch. It has exceeded our expectations. We have not reported on how large that is, but it is growing, and it's growing rapidly. We're making all the proper investments in that business to grow it, to accelerate its growth, and to lead us to even greater profitability in the future than we're seeing now. So, I think there's just a ton of opportunity in each of these businesses that we haven't even begun to realize, you know, how great that is. Okay. All right, can you talk a little bit about the balance sheet? You know, it feels like it was just maybe about a year ago, your leverage ratio was up close to four times, now it's down to less than two times. You know, now that you're in this much stronger position, can you walk us through your capital allocation priorities? Could you think about increasing the dividend, will you expand the share buyback program, will you look towards deals? You know, all of the above, or, you know, what's the priority? The short answer would be all the above. But I would articulate our priorities, mainly around three pillars. You know, one is, we obviously recognize the importance of the dividend. We've paid a dividend consistently since 1977. We have, on occasion, increased the dividend rate. I think it's been a little over two years since we had our last increase in the annual dividend. So again, we recognize that that's an important aspect of our capital strategy. Secondly, we'll continue to invest organically in our business, our capital expenditures on a normalized basis, about 1%-1.5% of revenues. Occasionally, every, you know, I'll say four to five years, we may have a larger investment if the need arises. Most, the last significant investment was back in 2021, where we had a more significant investment that year in automation in our largest warehouse. Again, otherwise, in that 1% - 1.5% range. Thirdly, we will evaluate and continue to evaluate accretive M&A opportunities. We've had a history of acquisitions, as I mentioned before, in the branded products space, particularly in promotional products. With our improved balance sheet and the significant amount of availability and liquidity that we have available to us, we can certainly take advantage of a strategic M&A opportunity, you know, if that, in fact, is an acquisition that we identify. And then, as you mentioned, Jim, you know, we'll obviously look to other avenues. We again post our second quarter earnings release with the change in our share price. We obviously felt it was a great opportunity to invest some capital in purchasing, repurchasing our shares, and we'll continue to evaluate that, as well as the dividend, and again, these other priorities as we move forward to optimize the return. With regard to acquisitions, you know, what is the board looking for when you look at deals, and how's the pipeline? I'll jump in. You know, well, in my 45 years, I don't even know how many acquisitions we've done, 15 maybe. We've done some great ones. We've done some ones that probably, in retrospect, weren't the greatest, and I think we've learned a lot of lessons accordingly, and one of the lessons we've learned is that, you know, we want a business that is easily integratable. We don't wanna buy broken businesses. While you may be able to buy them less expensively, the distraction from your core business is really something that we can't afford to have right now. We think we've got a lot of momentum going, and it's the last thing we want, so we want a business that's easily integratable. Secondly, we want a business that is quickly accretive. You know, I say immediately, and Mike says quickly. We'll split the difference somewhere in the middle. I think from a cultural standpoint, we want something that is a good culture fit to us, that brings us either great people or great capabilities that we don't currently have, or adds to the capabilities that we already have, in a positive manner. You know, we generally don't wanna overpay for a business. We tend to structure deals in a manner between cash upfront and earn-out, and stock, so that whoever we buy from is incentivized to stay with the business and help grow it, and only really benefit if they hit the targets that they set out during the acquisition. You know, I think we're somewhat agnostic as to which business would buy another business, but let's face it, the call center business has 25,000 competitors. There's a lot more businesses for sale at any given time in the branded products business than there is in any of our businesses. But we'd be very open to an acquisition in the call center business as well. If it gave us a new geography or new capabilities or into a line of business, from a contact center standpoint, that made sense to us, that would be... it would accelerate our ability to jump into a market and grow it, we'd be very interested, and that's pretty much the criteria that we and the board are aligned on at this point. I would just add, Jim, you know, the other aspect of M&A that we've very focused on is not to distract the business. You know, our number one priority is organic growth. We feel like there's a lot of opportunity in every one of our segments, and so as we contemplate a potential M&A transaction and the associate integration of those, we're very much focused on how to support that in a way that does not distract the management team from the growth opportunities that we have in front of us. All right. When you talked about capital expenditures a little while ago, you talked about some of the investments you made in automation and software. Do you think those investments paid off, and are you continuing to make those investments? Oh, yeah. For sure, yes. They have paid off, and we're continuing to make them. Some of them are longer-term investments that, you know, we will see a payoff over time. But, you know, we have the capital to make those choices. And look, we think about our business long term, Jim. You know, we're 104 years old, almost 105 years old right now. You know, we're not in this for a particular quarter. We're in this for the long run. So the investments we make, just like the investment we made in robotic warehousing in 1994, way before, you know, people in the apparel business had adopted robotic warehousing, was something that, quite frankly, you know, it changed our business. It helped our business grow over the years. I don't know what would've happened if we hadn't invested, and we just reinvested again in updated robotics last year and the year before, that we feel, you know, gives us a competitive advantage from a distribution standpoint. Yeah, and I mean, it feels like the gross margins, you know, have remained pretty steady, even when you had that little bit of a hiccup in the second quarter. Do you think that's a result of some of these investments? Yes, I mean, it's helped us manage, you know, to some extent, our supply chain costs, you know, some of which is sitting in the G&A. But I think, in terms of these and these investments, it's helped with speed, accuracy, you know, as we process orders. And then obviously, it just alleviates, you know, some of the challenges that come with variability in labor. We all know how it can be difficult to ramp up and ramp down labor, and so as we've been able to automate, it's helped alleviate some of that risk and concern within the business. All right. And on the brand and product side, you talked about hiring additional sales folks. Has that been easier as you get bigger? And is that something you think continues going forward? It actually is easier when the economy is better, so you know, we talk about the fact that, you know, we have absolutely grown our market share during these uncertain last two years. We reported last quarter that our order count was up by 20%, which means we're taking more orders from more customers, but the average order size was down concomitantly about the same amount. When we come out of this, we should see a nice bump in sales when spending comes back to normal. In the meantime, you have to remember that our competitors and their salespeople, the people that we'd like to hire, are basically... You know, they've gone in a fetal position during this time, and their business is down, where ours is up. This isn't a time when their business is down, that they generally want to jump ship. So their business might be down 20%, but they're not, and the market has shrunk a little bit because of that, from the $25 billion, maybe down to the. We don't know the exact number. We've seen reports that it might be $23.5 billion. But everybody's market share has come, you know, the amount of spend has come down, so everybody can expect, unless you're growing share, for your business to be smaller. We find that salespeople in this business are, during uncertain times, don't wanna leave. It takes a mammoth effort to pry them away from their current employer and get them to come. During better times, they're more willing to do it. Look, our experience has shown us when they come to work for us, we're able to to more than double the amount of time they spend selling. Over time, with some of the technology that we'll be employing, we're already employing some, but we'll be employing even more so over the next couple of years, we should be able to even double that, meaning that they can spend four times more selling when they down the road with us, than they could at their current employer. And that's mainly because most promotional product distributors rely on their salespeople to find the prospects, sell the products, source the products, place the purchase orders with the vendors, and so on and so forth. So they're the entire, you know, manager of the entire supply chain. Whereas all we ask our salespeople to do is go in and find a client. We'll help direct you, help you find leads. Very aptly, we do that. But once you get in front of a customer, just sell the customer. It's all you gotta do. We'll take care of the rest. You don't need to do anything more after that. Go find another customer. We have ways and some technology that we have developed that we believe is going to be very much, you know, a gift to our salespeople, and that they're going to be able to free up even more time than they currently have to sell, as opposed to doing administrative tasks. Okay. All right, we're getting close to the end, but I think I have time for one or two more. On the contact centers business, do you see the growth there more from new customers or expanding your business with your existing base? You know, last year, our growth was from existing customers, primarily. This year, our growth is from new customers. It's a pretty good mix. You know, there's puts and takes all the time, Jim. There are customers who are seasonal and want you, towards the end of the year, to start ramping down. There are customers who want you to start ramping up. I can tell you right now, we've got the largest amount of customers that we've ever put on in one month, being put on over the next 30 days. I sat with Dominic, who is our president of that business, this morning, and it's really encouraging what this new sales force that we've put together has been able to do, because that's all they're doing. So we're excited that we'd like to see it come from more new customers in the future, not to say that we're not willing to grow with our existing customers. But look, if we're gonna grow double digits, and we've got roughly, you know, 5,000 people in that business right now. So if we're gonna grow by 500 people a year to get to double digits, we're gonna need to have a high customer retention, which we have, but we're also gonna need to grow both existing customers and new customers. It's just a fact. And, and- But new customers is where it needs to come from mostly. How does AI impact that business? Is it a risk? Is it an opportunity? I mean- Sure Do you use AI at all in that business? We do. If you go out to our website, you'll see that we're promoting AI everywhere right now. We're using it all. We have so many AI tools that we're using for different customers right now, it's amazing. Some are ones that we've helped develop, some are ones that we're beta testing, some are ones that we've white labeled. You know, there's all kinds of scenarios there. But yes, we offer AI technology to all of our customers. Not all of our customers want it, by the way, but you know, it's a great sales pitch for us when we walk into a customer who's already using call center, and they're not using any AI technology to create a better customer experience. When we walk in and we can show them how their customers can have a better experience by the combination of our agents and AI, and how we can save them money as well, it becomes a very, very good value proposition for them. All right. Well, we are out of time already. I know there are several questions in the queue that weren't answered, so if you like, you could email those to me, and I'll forward them to Mike, or you could email Mike directly. I'm sure he'll respond to you. But, Michael, Mike, appreciate your time today. I know we're keeping you busy with meetings, we appreciate that as well. So, Thank you, everybody. T hanks for your time, and, we'll talk to you soon. All right. Thanks, Jim. Thanks, everyone. All right. Bye-bye.