Q1 2020 Earnings Call

18 the quarterly was

Report on form 10-q for the quarter ended March 31st, 2020 and the 8-k filed recently 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 wage update the forward-looking statements contained herein that conform to actual results or changes in the company's expectations weather is a result of new information for future events, except as required by law. Please note that all growth comparisons that management makes today will relate to the corresponding period in 2019 unless otherwise noted and with that I will turn the call over to Michael.

Thank you for the very long Safe Harbor statement. Good afternoon everyone and thank you for joining us to discuss q121 or forward business album before providing an update the quarter. Yes, you see family would like to thank all the front-line workers for their heroic efforts and selfless dedication to others in these tumultuous times. Our hearts go out to those directly impacted by covid-19. I would also like to expressly thank SGC family whose passion and tireless dedication on behalf of the company and our customers has been absolutely extraordinary off today. I will discuss execution of a strategic response to the ongoing pandemic share performance highlights and discuss the current macro environment after which Andy will provide operational Financial details during his remarks. Well then have some closing thoughts on our Outlook.

As I stayed into my April 2nd communication. The shareholders are Global operations performed exceptionally well during a time of extreme pressure and uncertainty while safeguarding the health and safety of our team to early intelligence from our team on the ground in China. We took an aggressive posture and evolved our business structure worldwide to a work from home environment and an unprecedented Pace. I was just well continuing to achieve exceptional service levels.

All righty support team was extremely proactive executing business continuity measures to equip Martins appropriately beans in the central business. We mobilized our global resources to be extraordinary level of customers evolving demands clients are reaching out to us to help them support protect and Elevate their brands. They understand we are more than just a company that supplies their name or the face of their brand with their daily attire. We are a valuable brand partner additionally our distribution and Manufacturing team members demonstrated operational strength and flexibility long as we adapted to an evolving normal or Executives have worked tirelessly showing passion for our company and our customers. Well, our board has demonstrated governance security and dedication to all stakeholders. We maintain business continuity demonstrated organization-wide resilience all while delivering increased sales and earnings as I look back at the business investment you made over the past eighteen months to strengthen our

Our leadership optimize our organizational structure improve our systems and processes and Elevate our Innovation automation. I can say in absolute terms of the foresight vision and proactive implementation.

One of those Investments were critical to Our Success today those Investments mitigated significant risk and brought us to this historic time in a position of strength a redundant manufacturing and Chef resources business model have served us extremely. Well, our redundancy model meant that as shutdowns were taking place in some countries. We were able to coordinate product movement and shift manufacturing to Alternative contract facilities. Just as we have done many times before when circumstances required our distribution efficiency and Logistics management process also excelled during the crisis. Thanks to Dedicated team members and excellent execution by our shared resources to

Are focused on achieving sustainable profitability in this current macro environment requires elevated business performance-enhanced risk mitigation and balance austerity measures. There were many decisions to be made they were not easy decisions, but prudent given the severity of the situation we maintained a sharp focus in our liquidity and we've engaged in regular discussions with our banking partner. We have faith in you to fortify our balance sheet little proactive steps to increase available cash on hand including but not limited to Target of reductions in discretionary operating expenses and through a substantial pay off a debt during the quarter. Andy will outline these actions further in his comments and review our overall cost saving actions including a reduction in our Workforce. Now, let's take a closer. Look at how how our operations teams rallied in service to our customers needs for our uniform segment fastest still Healthcare and CID unified and collaborated on every major opportunity resulting in business with new customers new products. Yep.

Increase sales and excellent service for our customers are products such as isolation gowns lab coats and scrubs are selling at an astonishing Pace in the last month. We booked in products warned by caregivers. What we normally would expect to book in a nearly four month period of time producing record sales via our traditional laundry distributor and retail brick-and-mortar sales channels as well. As our retail would be to see internet sales channels. We also have supported our retail Channel Partners at CID by implementing strategies to ease their burdens of operating jobs are essential businesses. Additionally. Our uniform sales force is reaching new customer prospects to offer critically needed personal protective equipment or PPE and as a result of agility of our Global sourcing teams ab apko and the uniform group, we quickly added to our Focus sourcing the necessary products to support essential businesses as well as the production of people fishing.

Not deemed essential that will require these products. Once they reopen as a result. We have significantly expanded both our capabilities and actual supply of needed PPE to those in need be we expect continued high demand in our Healthcare offers through the second quarter with potential for these sales to begin waiting in the third quarter assuming some resumption of normalcy within the next 6 to 8 weeks, We're also still planning our on our wonderwink Indie scrub line launch tracking for the third quarter and are already seeing favorable Market receptivity to this much-needed retail Focus, but need help with laundry capable scrub much of our competition is dealing with weaker inventory levels supply chain hurdles and the inability to adequately service their customers off. This is our new opportunity pipeline in a position of strength. We want to know that we maintain price Integrity throughout this crisis while we were heard of others participating in price gouging wage.

Value our reputation which to continue to be trusted and reliable Partners to our customers as we have explained before we also have a very Diversified customer base within our employee ID business.

Our largest channels hbi which we have some dominant Market positions to name a few are big box retailers grocery chains and pharmacies their purchasing power and Thursday employee count has increased significantly and we are supplying these essential businesses with products at much higher levels and prior and expect to continue to see robust sales Trends over the near-term conversely non-essential businesses, including travel dining and entertainment or a smaller portion of our employee ID business understandably their order flow declined dramatically birth to a halt as a testament to our complimentary businesses and shared resources hbi has been able to augment traditional product offerings to include PPE items servicing existing customers and new customers in our Prospect pipeline overall. It's really too early to determine or predict how the offsets will eventually impact our results. It all depends on the rate of birth.

For those businesses as I mentioned Vamp go along with the uniform group global sourcing team pivoted to lead our efforts four people. Production using our web development team. We develop a website and sporting marketing materials for PPE equipment our teams on the ground focused on ensuring product quality and reliability at the highest level backhoes. Also working with several essential meal and grocery delivery is producing safety gifts for their Shoppers and drivers while new promotional product or is that have currently nearly halted the ability to Pivot and provide critical supplies in a time of need all set much of that reduction in the short-term to note in April. We sold and delivered $13 in Mass to one of the world's largest fast food chain, which is currently own not a uniform customer of STC, but it's a valued partner Vasco. We now have a path to further develop a convert this opportunity others into a wider relationship with our other business segment.

And for babsco to further penetrate adapter the traditional branded merchandise market returns as a result of this many other smaller orders in this we expect a record second-quarter Thursday. We discuss on past calls promotional products industry is very fragmented. It's very competitive field with over 22,000 Distributors, and we anticipate the current crisis will challenge the industry issue with many competing companies closing their doors. This will expand our access to talented sales resources who will bring with them long customer relationships much of which is easily adaptable by us. We already have a strong pipeline of sales talent, but we're taking a cautious approach with new hires until there's more of a level of certainty on their opportunity to drive sales. This will likely not occur until the end of the year. It is still too soon to know the long-term impact of the pandemic defend ghosts business at is typically event-driven and a question remains regarding timing of a return to New Jersey.

Let's see around large gathers. Now turning to the office Guru segment or tlg the effort to shift to work from home for the second was a significant undertaking as I discussed in my c e

Carousel doorstep with several simultaneously with the unexpected government declaration for shelter-in-place and we Seth successfully lobbied the El Salvador government to live off as preventing our employees from working from home over a two-week period was mobilized and ship computers to employees to their homes to facilitate business continuity our team in El Salvador Thursday. We lost a beat currently we're operating with 86% of our billable staff and that is for various reasons and 86% off 86 and that is improving daily on the flipside. We're working and running training classes for many of those agents who are not engaged with new and existing clients who lost service from other purchase rupted centers and need our services. Now we anticipate we back to previous operating levels at T O G by the end of Q2

The shift to the work from home model has produced great results employees are engaged and we see this as an opportunity to expand business capacity without significant future infrastructure Investments needed over the next few years in the near-term. We do expect to see a short bone growth of t r g but estimate sales will likely still be up for the year. The global macro environment is not offering much Choice. There will be an eventual recovery from this pandemic. The timing is uncertain and the overall impact will be determined in part by the duration of this disruption the financial Market recovery may be may be shaped or u shaped and may differ geographically. No one knows yet will continue to focus on things that are within our control which puts planning for various scenarios and rely on are experiencing a resiliency Innovation and entrepreneurial spirit in the face of the formidable challenges ahead of us will now turn the call over to Andy and then I'll return with my closing remarks. Thank you, Michael and good job.

Soon everyone. I hope you and your families are safe and healthy has noted earlier. We filed our form 10-q for the quarter this morning. So I'll begin with a quick review of business process Investments and Integrations summer our financial highlights for the quarter and review in more detail financial implications from the current covid-19 crisis as well as actions. We've taken to strengthen our financial position over the last two years. We execution several strategic initiatives that have transformed our operations with more efficiencies Innovation and processes that greatly enhanced our resiliency to manage through such unprecedented times.

I cannot understate understate the superb responsiveness of our team serving our customers while at the same time successfully executing sap implementations at both CID and HPI with minimum wage options are integration of HPI, and the rest of our employee ID group is also complete in our teams are operating synergistically across the organization. We are experiencing a pause in construction or Eudora Arkansas Warehouse due to weather delays and manufactured delays related to the coronavirus. This is afforded us to quarters of deferment on our Capital expense plans and another opportunity to conserve cash, but we do intend to get back on track with plan technology Investments is this is a key part of our modernization upgrades to support our shared resources strategy.

Now under our financial highlights we closed the first quarter with Consolidated net sales up 8.9.

Sent the ninety four point two million dollars bamco led to sales increase contributing 6.7% with our uniforms and related products business contributing 1.6% And the office gurus are wrong Vin Solutions segment contributed 6%

and the segment level uniforms quarterly net sales were up by 2.4% to 60.1 million dollars of note ASC 606 Revenue recognition accounting standard had a minimal impact on current quarter revenues as expected while we do not give quarterly guidance. We do have visibility in the next quarter. We are seeing increased demand for health care products at both fashion seal Healthcare ncid off to support uniform and other essential needs and we and weaknesses and uniform purchases and some employee ID channels that are considered non-essential and that are impacted by closures.

So there will be an offset to an extent as many of our customers in Food Service are asking us to stock up on people and go out for their employees for their reopening.

The office gurus reported positive results and grew sales by 6% The division was tracking well with sustained customer demand prior to the disruptions from the pandemic as Michael said in compliance with a local government mandate a real sell El Salvador operations went into shutdown mode for a week and half before being able to ramp up remotely outside revenues were negative negatively impacted by approximately $500,000 in the quarter as a result of this shutdown under this mandate. We were obligated to pay employees, even though they were not yet prepared to work could not work from home chose to not work from home. Yeah because our customer longer needed them to work.

Bamko delivered a strong first-quarter with net sales significantly by 28.6% the 26.2 million dollars. However bamco has been the most impacted by the crisis and his commission. We are seeing significant declines in opportunities in traditional branded merchandise, that would have been expected to have been converted to sales later in the year.

The team is orchestrated a tremendous shift in operations to service PPE product orders and are filling significant orders in this area to help build the revenue shortfall from traditional personal business.

For the first quarter SEC Consolidated gross margin improved 35.5% compared to 35% a year ago. The slight uptick was generally due to customer and product mix home as a percent of net sales Consolidated sg&a expenses decreased to 29.2% compared with 29.9% in q1 2019.

It's the Improvement is largely from sales growth leverage within all business segments changes in sg&a reflect Severance costs and increased bad debt Reserve recorded in q1 2013 provide some detail related to these expenses in order to conserve cash and manage Workforce costs be reduced our Workforce and implemented payroll reduction actions. We accrued nearly $400,000 in Severance related to a reduction in Workforce that will account for about two point nine million dollars in annual payroll reduction beginning of the start of Q2 additionally senior Executives took a 20% salary reduction May apply a 10% payroll reduction for employees earning $52,000 or more this amounts to approximately two point four million dollars in annualized pay cuts reinstatement a full salaries will be returned. As soon as we navigate our way through the pandemic and its effects on our financial position. We also also recently made the difficult decision to furlough additional warehouse workers in our uniform segment. This is

ways to an additional analyze reduction in related

payroll cost of approximately 2.8 million dollars

We also amended our employer 401K matching contribution policy which consists of two parts as of April one. We suspended our match of employee employee contributions just reduce expenses by approximately $250,000 on an annualized basis separately our annual discretionary contribution of 3% which had been accrued during 2019 and which was scheduled to be paid in April of $1,000 was eliminated and reversed.

Additionally, we do not expect to make a discretionary contribution for 2020 and as a result, we did not make an accrual for this amount on a comparative basis in total this reduced resulted in approximately 6.5 million dollar reduction in expense and Q 12020 in comparison to q1 2019. This will result in a total reduction of expenses and full year twenty-twenty operating results of over $2,000 in comparison, 2019. These initiatives are key to maintaining our financial spring as we navigate on certain times ahead overall reductions in payroll and work for costs incurred cost in excess of eight point five million dollars net of severance costs are expected to be realized over the next year.

Lastly we took a more conservative approach to accounts receivable booking over seven hundred thousand dollars more bad debt expense in q1 2020 as compared to q1 2019 specifically created to non-essential channels in our employee ID uniform offering in our promotional products segment. We believe this is a prudent approach given near-term uncertainty in our expectations. These businesses will have a choice ramp up with potential difficulty meeting payment obligations.

Income from operations increased to five point seven million dollars and operating margins greatly improved to 6.3% for the quarter compared to 5.1% in 2019 dead.

Overall, we delivered Strong net income of 3.4 million dollars a forty 1.7% increase compared to 2.4 million dollars in the year-ago first quarter and diluted earnings per share increased by 37.5% to $0.22 compared to $0.16 per diluted share in q1 2019.

Or effective tax rate for the quarter was 27.1% compared to 20.2% a year ago. The change in the rate was principally the result of the effect of foreign and state and local taxes between the copper bowl. May as well as non-deductible losses on assets held related to deferred compensation programs.

We also paid a regular quarterly dividend of ten cents per share given the varying depth and duration of these unprecedented circumstances are born has elected to suspend our regular quarterly dividend off until we have clear visibility on improved macro conditions. As you know, we have consistently paid a quarterly dividend since nineteen seventy-seven and longer-term the board continues to view a sustainable recurring dead and there's an important component of sgcs value proposition in accordance with a previously filed 10 b51 plan which will expire on his terms in early. May we repurchased 43458 shares during the first quarter. We do not plan to execute further share BuyBacks given our austerity measures until we have more Market Clarity and financial conditions improve.

Turning to the balance.

She too far The Preserve our liquidity we were early in our discussions with our banking partner and are pleased to have entered into a debt deferment agreement as a March 30th 2020. This is allows us to defer principal is payments for a three month period from April 1to, June 12020 under our long-term debt obligations. We continue to be in close contact with our bank exploring options to adjust amortization schedule going off. Additionally. We utilize operating cash flows including the large deposits received under contract obligations for PPE orders to pay down eighteen point two million dollars of debt during the quarter off.

Traditionally we take a long approach on inventory as well as aggressively manage working capital to yield the best overall results for our business as we have previously discussed CID was in an Overstock position that was addicted to take an extended period to work down to more appropriate levels. However, the current crisis has greatly accelerated working through this to bring inventory to normalize level in the second quarter full movie through this large excess quantity of on hand inventory will significantly reduce the need to offer deep deeper promotional pricing and potential write-downs in our operating results in the future while also am getting critical Goods to meet the needs of health care workers on the front line of this battle against covid-19.

Additionally, we plan to continue to utilize cash generation expected in the second quarter to further leverage our balance sheet for the quarter working capital decrease to 129.7 dollars off from 140 2.4 million dollars compared to last year over all our financial help destroy long. We ended the first quarter with approximately 5.8 dollars in cash and cash equivalents while we should be forward with key Capital Investments. We are improving our debt structure and prudently planning to ensure we can withstand a variety of potential scenarios that may emerge over the coming months as Michael stressed out by business model is a true strength in times like these finally. I would like to reiterate the through this extraordinary situation situation one that can rapidly change and create unforeseen additional options. Our teams have stayed focused flexible and determined to continue to service our customers and communities exceptionally well on now turn the call back to Michael for his closing remarks and review page.

Look for 20 20 Banks an overall. We're extremely impressed and proud of the level of planning and execution across our organization from the beginning of this covid-19 Healthcare crisis, the decisions and actions taken by our teams have been Guided by three principles doing what's best for the health and well-being of our team members supporting our customers as their needs evolved maintaining our organization's financial help our teams respond with Innovation resolved immediate needs of our customers and communities the global lead for healthcare supplies. And for Grace's Healthcare professionals is off now than at any other time in our lives.

our company still

Nature is an important part of our Rich Legacy. We are eager to support our health care workers and the communities in which we work and live in now more than ever. We have allocated at retail value aged inventory be worth approximately 5 million dollars for donations in support of our Frontline caregivers. We have designated donations to our communities in Arkansas, Florida, Texas bought a New York El Salvador en Haiti. We are proud of our ability to contribute in the fight against covid-19. And while we are tightening our belts in many ways. We're also supporting our Global employees and their families by providing the appropriate prepaid paying employee Insurance co-pays and increasing hourly pay for hourly distribution and Manufacturing employees to watch crisis developments unfold and as local authorities days in return to work guidelines, you will take a measured approach lagging behind to reduce as much health risk to Arthur's.

As possible. We're also actively implementing strict health safety measures at all locations to protect our Workforce before returning to work in addition to providing PPE for each employee pack protocols include their own frequent sanitizing procedures through work throughout the worksite employee temperature checks and physical distances to keep everyone safe and mitigate risk. We're being highly proactive. Our internal responses informed the crisis management team tasked with overseeing contingency plans across all locations, including distribution warehouses. So we are prepared as needed to the crisis for a prolonged period or there are times when must quickly adapt and shipped back to evolving conditions.

Even prior to the rise of covid-19. We have been very intentional on our strategic planning goal setting and scenario analysis as we set our cars for long-term growth. We're actually taking account instructions and economic downturns and adjust. Our priorities is needed admittedly. No one could have been prepared for the challenges of this crisis, but we acted and reacted with Speed and Agility to weather the storm. Our near-term Outlook takes into consideration that there's still a great deal of uncertainty ahead and we will be negatively impacted in our uniform related products business in the second chapter twenty $20 additionally while we entered into increase sales of the products that I mentioned earlier. We do not yet have clear visibility on the timing of the market recovery with bamboo shift sales strategy the team that group that's growth Cadence and achieves solid double-digit rates in 2019 and through the first quarter of 2020. We expect a record second quarter, but there are a number

Variables that will negatively impact promotional sales in general the rest of the year and could offset next quarter's expected significant gains as noted earlier competitive disruption gives us access to new hire the book of business. The question is whether they have the capability Drive enough sales to offset the Gap as they in their customers ramp back up their marketing efforts forty of e g in the short time. We expect lower growth rates than what the market is used to for twenty twenty but should be well on our way in Q3 and forward to accelerating the faster pace. Of course, we are closely monitoring Marco drivers and we will revisit our long-term Outlook at your end when we expect to have more clarity on the impacts of the pandemic. Our priorities are wavering as we transport Transport company is not even strong brand partner resource for our customers focused on leveraging our Innovation and entrepreneurial Drive executing our growth strategies and thoughtfully deploying Capital our strength. Yep.

From the hard work and dedication of our Global Associates. That was true when we started the business 100 years ago this week and it remains Saturday. We're a guided by our house brewed in these back.

Values and and our ability to overcome adversity. And in fact come out of each crisis. We have experienced in our hundred years stronger than ever. We are incredibly proud of the resilience and Ingenuity that team and their ability to rise to the challenges. We Face even in the most turbulent of times as an organization. We remain focused on our long-term value-creation and sustainability projects all stakeholders with that. We'd like to open the call for your questions.

Thank you, sir. We will now begin the question-and-answer session to enter a question into the question. Can you please press star then one under touch-tone phone? If he's in his office phone, please pick up your handset and press the star key and the number one through a dryer question, please press * then two.

At this time, we'll just pause momentarily to Assam our roster.

And our first question comes from Kevin Steinke a branch in research, please go ahead.

Hi, good afternoon. Hope you're all well. So just you know thinking about the uniform segment month specifically here to start off with it. Seems like at least for the second quarter.

You know you you've should the businesses are going to balance themselves out pretty favorably to where you might not see a dramatic fall-off you sure you got Linked In the health care business strengthen sales tear essential customers and you know, then that that's offset by some of the more economically sensitive areas. So I mean, is that a fair way to to look about it? Maybe some protections of the second quarter in the uniform segment and then I mean, I guess that kind of bite you some time until we get closer to a recovery.

I I I think you you know, you find the midpoint of all the different stress testing and models that we've done Kevin that is how we see it. And I think you're you're pretty accurate your assessment.

Okay. All right, that's good. Do you think the

I mean it it's hard to tell I guess it's but but do you think you've got the wonderwink launch still coming in the third quarter? I think from what you're seeing now, or is it too early to tell that there's continued legs and in the healthcare demand and and fashion seal Healthcare and see I am excluding that that wonderwink the laundry friendly launch.

Let's take take it in pieces here, you know fashion seal Healthcare on the institutional side. I think will do quite well in the future. I can't speak specifically the third quarter or you know, what kind of when this thing's over and everybody goes back to work and elective surgeries begin again, what kind of demand there's going to be for reusable products, but there was a a mentioned by vice president Pence on one of the channels last week or one of the one of the press. Uh, uh,

Breathing. Thank you very much that he didn't watch the words not often with respect to the fact that you know, shouting out to the reusable industry long as they're doing and that, you know there needs to be a a movement as much of this product as you're going to use in the future is often as you're going to change this product in the hospital while they're in the office whether it's an isolation down whether it's a scrub no matter what it is even patient apparel. Uh, there's going to be a higher rate of of changing making people change their clothes often during the day that bodes well for us, that's our business. Keep in mind too that most of those products profess to see a healthcare are made near shore. So our turnaround time, is that great it, you know, if I were trying to react to an off something that was being made in Asia or Africa or wherever, you know, I'd have a a five six month turnaround of that product. It wouldn't really help me in third-quarter wage.

We think the best health Care's got pretty good one way to to sustain those quarters the you know, see I use business ideas making a lot of deals with a lot of different levels and a lot of different channels, uh, you know, we're worried about the independent retailers and particularly the smaller ones and how they're going to come out of this. We're doing all that we can support them. They're important us. They're not the Lion's Share of our sales. But you know, that's how the company got started and those were a lot of those people were very first customers and see how they lived and they're they're great brand ambassadors for us. But you know, my fear is that many of them won't make it and so we won't have them as customers anymore. But is there going to be a demand for products at retail sure there will the internet channels have I think you know done quite well in a lot of those retailers have their own internet channels some of those are them

Some of those are Amazon but related but I I think the health care business, you know, if we're we're we're going to be okay in our health care business throughout the year off my is my own sense of the models that we've done modeling it from every customer in every scenario, you know, a start-stop scenario A A A continuing scenario that slow come back to work scenario health care business looks good. I think where the where the stress is going to be is on the while we seen great results from Summer largest customers in some of the largest verticals that we serve and in which we're dominant in we spoke about those Pharmacy and grocery big box and auto parts stores incidentally, which has been down most of this. We you know, they they hired a lot of people, you know hundreds of thousands of people all good for us were selling them more uniforms or if they're subchapter.

Like movie theaters as we spoke about that. We don't expect them to have strong sales in third-quarter a fast.

Who knows if if we all went back to work, you know next week or two weeks from now fast food could pick up a lot of it depends on whether they're still serving just at the window home or whether customers actually can go inside or whether they're afraid to go inside or not. But certainly by third quarter. I think most of this will flush itself out. It's also summer time when a lot of people are traveling and you know, there may be more road trips than ever. So I would expect some of the smaller hotel chains to get busy. I don't know what the amusement parks are going to do. And I I don't know that they know what they're going to do at this point. So that that the business is a little bit tougher to predict but HB eyes were working really really hard selling their existing customer even those that don't have a date to go back to work the equipment because they know they're fifty thousand employees or a hundred thousand or half a million boys are going to have to have people equipment dead.

Let me go back to work. You're going to have to be Masters loved on at the very least and we've been supplying a lot of those products to it.

Right, right. So the

increase the large

increase in PPE sales that's going to benefit bamco and and at least they'll have a a strong second-quarter become boss and then you know afterwards and unless we somehow get a quick snack Snapback and large events, you know, we should expect to see that fall off in the in the second half of the year, I guess.

I would expect some but will fall off some people going to trail behind and then realize they got enough to get started but not enough for replenishment, you know, it's important to know life and you know, maybe I should have put it in the script but we've sold over sixty million dollars of PPE equipment which what we're trying to give divisional credit for it. You can spread between our uniform divisions of Banco with the Lion's Share of it being a bomb go but our our uniform divisions have done quite well and quite frankly everybody's collaborated with collaborated with everybody to make it happen because of the different sources Supply in the different relationships we have in the uniform group and in the promotional group,

Right, okay.

So in the office gurus, you mentioned you expect to be back to previous operating level by the end of the second quarter. What what gives you kind of a line of sight being able to return to those levels?

Good question are available agents working 86% in the reason why we're not working more is because there are some customers we have who need in life feeds on the Mad before because their businesses are down. There are some customers who didn't meet seats at all. The president. We have a travel customer who did not seats at all the smaller travel customer and there are some customers you need more seats, but the net effect of that is, you know, 14% of our Workforce is not currently engaged at home a small percentage of those are people who can't work from home. They don't have internet. Uh, they uh, they their conditions at home or too crowded for them to work from home in a call center of type of environment of quiet environment they need but here's the good news. We've already run classes for a couple of customers new customers and expanding customers for a new at home ages.

that they want going forward so

We believe that you know, you most people in the school of Midtown the Kuwaiti the president of that business, you know, he says by the end of second-quarter will be there. And so far he hasn't been wrong in any of his predictions over the years and quite frankly it might even happen sooner. The line of sight of that is that we have a lot of customers who want us to put out more seats now and we're doing cell and we have customers that are telling us who either had to reduce or back off completely off that as soon as this is over they're coming back. So the only very very good about that.

Okay, good. Just following up on pp&e. What what sort of margin do those home sales generate. I mean should we think about it as kind of a normal margin in line with the promotional products or or you know, what? Is that going to have any impact one way or the other?

I would say the the larger deals tend to be at margins maybe even a little bit less than the promotional business but keep my name don't have to handle any of this but a lot of these are full containers, uh, a lot of these we took prepayments on so we're not chasing money on them so we can afford to take it at lower margins, you know, we should discuss this a lot of times that you know, we don't we don't chase gross margins. We Chase net margins and we really have modeled all these deals out to make sure in the end that we're making the money we deserve well the same time making sure we're not overcharging anybody and I would say that the margins will be slightly higher for bamco on these items and they have been in the past.

Okay. All right. Got it. You think you mentioned that the new opportunity pipeline is a strength or a actually remains a strong. I guess your ability to continue sourcing and and very effectively would be one point in your favor. At least you mentioned, you know, others might be price gouging but just maybe talk about the new opportunity pipeline you have now and and that might come to you because of this Earth Crisis, I guess across all of your businesses.

Yeah, you got a few hours. I'll give it to you. I'll give you the short version, you know, we've gone to the strategic planning in the last week or so and started at age divisions and higher levels. You planning and we've done just say, you know, where are the opportunities will competitors failed what opportunities will we have such a result and how has the world changed and so on so I start with with our uniform business HPI and you know, hpi's customers have been extremely impressed with the level of service. They've gotten from us during this crisis. I think we built a lot of loyalty we had loyalty to even stronger than ever. We have seen some competitors of h b is that have not been able to service their essential customers the people will remain in business and some of those people have come to us and we've been able to help here and there but our first choice

To take care of our existing customer base and we certainly have touched more.

Of hpi's prospect list by selling them PPA offering them p p then we ever would have imagined in this short of time that we've been able to do with it. Well, well having access to CPE many of the calls actually came to us. We didn't have to reach out they came to us and said look my our present uniforms bar can't get us to you happy and we we turned a lot of stones over to make that happen for them on the p peace. So there's a certain amount of gratitude for having done that you know, I I think you know when when their business comes back, you know, fortunately our biggest. Yeah, we have a little bit of Airline Business Jet Blue and Frontier Spirit are we we don't have that one percent market share the fortunately in the areas where we don't have a high market share the hotel business, uh, you know, fine dining or Cruise Lines off.

But you know, it's not going to impact us at all. And we think that the the markets that were in are going to continue to strengthen, you know, the very strong essential businesses, but I think is more people have come to rely on the during this period of time. We should see an improvement. Is there going to be in some case the fall off yet? I'm not really hard to to figure out the offsets of that Kevin. We have done this so many different ways and if I if I told you I I knew or believed one way or another strong in the other I would I would not be telling you the truth. So that's for them on the on the health-care side, uh feel strongly about their business. I mean that business should not fall off. In fact, it's it's possible to imagine that our health care business overall between CID and fast and Healthcare will be up this year and month.

And that's what we're planning for and we'll plan to put in more purchase orders and bringing more product to bring it in sooner in order service will we believe is going to be dead, you know hospitals taking the different view as I mentioned earlier all those products.

When you get the bamco vampiros business is very very driven. And you know, they're event-driven businesses is almost nil now cuz there aren't many events page. I you know, is there going to be a pent-up demand for events afterwards? We don't think so. Not immediately. We don't see there being a lot of events, uh until uh, you know, the first part of next year and certainly even to a greater extent once once there is a vaccine hopefully there will be but you know, Vamp Goldberg are probably some of the most resourceful people. I know when they have found, you know, many other products on to offer their customers. There will be a lot of marketing dollars still left on the table when this is over and it could be off the more essential businesses who have been able to operate the date and and operate really at a higher level than they've ever had to operate with more people and more revenue and and so on that they'll spend more and more.

their brands and mind that you know, we bamco sells to to some of the the

Country's largest Delivery Services for food and Grocery and their business is quite robust with us. So again, I'm not able to tell you know, Mike namco's business be off from what we budgeted likely will it be off from what last year sales work off at least going to come pretty close? It's it's just really too early to tell

Okay. All right. Got it. So you mentioned some delays in the Eudora facility filled out. Um, what what does that do for your capital expenditure plans for the year? Not only that but maybe just trimming back or delaying in other areas of life. Well

Yeah, Kevin. We that particular project the delay in that by probably quarter quarter and half maybe two probably will reduce capex expense. This year's a million and half to two million dollars. Additionally. We are taking a very hard look at all of our Capital expenditures for items that were things that if there wasn't too long payback relatively soon. We've delayed some of that. I would expect that where we originally budget somewhere around twelve thirteen dollars for capex that we probably will spend somewhere around eight thousand eight nine million dollars would be my expectation.

Okay. All right. Thanks and then you know, you had some really nice operating cash flow in the first quarter. We're able to pay down some debt off you talked about the concept before if sales are coming down and this type of environment maybe that doesn't happen right away in the second quarter because some of the items talked about but you know, if sales do indeed come out down later in the year it does. Yeah, you've talked about the balance sheet starts to turn to cash a you start to generate for cash flow temporarily. I mean could could you see an opportunity to pay down more debt in a scenario like that?

Yeah, I do see that opportunity Kevin. I think that the balance sheet typically whenever you're in an economic downturn. It does start turning back to cash with the sales rep mentioned in my discussion with some of the significant sales and CID of what would the excess inventory during the month of April that that will generate that's not inventory that we're going to reserve we just had we had more than we needed to have so there would be some significant cash from operations for that the part that you really can't evaluate effectively yet, you know touched on it with the fact that we added another $700,000 in bad debt Reserves.

some of your not assist

Businesses that aren't operating right now are going to slow down paying for the receivables that they have that will have some drag on cash flows. I would expect your guests on how much that is good news is probably about as good as mine. But then at the bulk of our business where Michael talked about p p e and a lot of those we have required some substantial down payment on those goods so that that we're not in a position of having to tie up a lot of our liquidity to be able to service that business. So I expect that you go through the year that the we will continue to pay down that as you get into the third and fourth quarter and business slows down a bit more, you know, I mean, you could see a potential there that we could borrow a little bit more towards the end of the year song.

But I think we're in a good position overall.

Okay, got it. And then I think all the various cost-saving measures you outlined is totaled about eight million and am I correct? It was in late and half million 8 and 1/2. Okay. Are there other things potentially beat if you had to cut further is there other are there other leverage levers you can pull hopefully it doesn't get to that point. But I mean, yeah there there are other things that you know, we talked about generally that we're discretionary spending. Obviously. Our travel expenses are down significantly our our marketing expense in service parts of our business will be down significantly. There are other things that will generate cost reductions in addition to what we we listed out specifically in that area.

Okay, I think lastly you mentioned upfront Michael how the Investments of the last 18 months have been critical to what you're doing today. What you you know kind of been able to accomplish or how you're able to manage through this situation. Can you just maybe touch down on some of the benefits of those Investments not only in the near-term but longer-term as you see it sure start with leadership changes that we made is binding HPI and spirit day together finally on one sap computer system with one of the leaders on both the sales and executive leadership and everybody underneath them. We're able to achieve a great deal of economies and operating efficiencies and wage.

Forward is one unit as as opposed to a fragmented units after so many years. It's really refreshing and I think we've seen the benefit of that already with the opportunities that they've been working on them. And the way they they have they have succeeded and Thursday and that really has been an incredible collaborative effort on every single level sales marketing everything, you know, operations Source has been faxed to watch my it's a it's a very Dynamic group of people stronger than they've ever been feel very good about that. And also remember we went live in sap in February and I'm so glad we got it done before this and the fact of the matter is, you know, when things slow down and very beginning of this a lot of people already working from home and it gave more time to train.

no, and

You know, we've got a very very dedicated Workforce are sourcing groups, you know, some of the changes we made there with the collaboration between bamco sources a group and and our uniforms or some group has has certainly paid dividends and you know, there are so many different levels. We we've you know clothes carrico last year that was doing web development for us and shifted all that to India step most of last year and you know, the incredible sources we've had we've been able to get people up on what we call Bam, which is our e-commerce solution and being able to get all of our customers up on that and I think we had I think we have two or three customers left and we're basically done with that project at much lower cost and really in a higher degree. I think of Excellence dead.

And we were able to achieve before at least just some of the things there there have been so many. Uh, I just can't name them all and you want to jump in and I think we're also you know with the new Warehouse project in Eudora did will provide significant improvement in our efficiency ability to to handle the volume off the uniform business. We've also combined a lot of the distribution capabilities of the uniform sector to be able to help serve bamco in some of the market that Michael referred to earlier with some of the home home delivery companies. And in other areas like that that we carry in service that inventory for them now where they weren't capable of doing that in the past like all of those things are paid significant buildings.

Okay, great is this lastly? I'll say thanks for putting out that shareholder letter in early April. I thought that was very useful and very thorough and Kolb framing what you're seeing in the market and and relative to your business, and these are extraordinary times. So, thank you and thanks for taking all the questions. Thank you and be safe.

You too.

The next question we have will come from Mike distler of a menax.

Yes, good afternoon. Gentlemen, I hope you all are well as a long and multi-decade holder and accumulator a multi-generational holder off with your family Mister been stock and there's a long-term former textile guy. I want to laud the company the company's prescient agility in these days and times you guys really putting out a letter but is is the least of it although Mister stanky answered most of my questions you you he directed him for you. I just wanna say that I don't think there are many companies that speak with such direct Clarity to their fundamental issues as you all do and I'm really proud to be a shareholder many of my cohorts. The only thing I wanted to ask in retrospect is since that 1977 Mark and this does not reflect on Thursday.

it certainly makes no difference in my

Lifestyle at all. My only concern is on a go-forward meaning three to five-year basis the choice of capital allocation. Whereby you go from, you know, ten cents G20. Even General Electric is paying a penny it puts you on a different list in terms of access to Capital down the road. So my question really is not did the board way this clearly they did is it was it a covenant decision with debt, or was it merely just a board decision to say? Oh, let's suspend rather than go to a penny a share. I'm just only looking for the next 3 5 10 year. In terms of your ability to access Capital markets.

Thank you. Sure. I think as we went through the process and discussed. It really would be significant amount of uncertainty in our markets right now. I mean that we felt it was best right now to go with the suspension route. We we did I guess temper that a little bit probably got a little bit with the language that we the the company and the board certainly recognize that a dividend is an important part of our Capital allocation and it in value proposition for our Chef holders and and I would expect in the long term. That would be back paying a healthy dividend.

It's just right now. It's it's not a specific color that issue at this point. We're we're in compliance with all of our covenants. I mean, I think that one of the factors that the bank loan whenever they're looking at where we're at and when they came back with their three-month department on principle, they looked at all the different factors that we were had steps that we were taking at that point where we were talking about suspending the dividend for a period of time management taking pay cuts employees taking pay cuts board of directors taking reductions in their fees. You know that everybody Hearing in for the time being and that gave them comfort and it just puts us on solid footing should we need to do anything else with the bank. I just think it's prudent would be level of uncertainty right now to go this way. It's I mean, we'll certainly evaluate that after we get out of this quarter and see where we're at. And hopefully this thing turns out that the economy is starts improving a little quicker and does not dead.

So deep recession coming out of this, but we just don't know right now and I just to follow up just to say I have no objection personally at all. So your decision, I'm looking towards the company. What would a newer to the benefit of the company for the next five to ten years in terms of that where you're you're just on a you you end up being on a different life as far as those in the where I live up here in New York area put you guys on and I I just don't want that. I'm sure you all considered that I'm terrific and I know it's everything's a drop in the bucket, but it's not a hundred fifty thousand bucks a quarter on a dividend out of penny is a bunch of salaries or a bunch of co-pays for your employees and I'm logged every everything you've done and I I don't want to dismiss it and sound like a a petty fellow from New York. I I I really just called to make sure that you know off.

eyes were dotted and T's crossed and

I I don't mean to sound Petty in any manner. So thank you all for the hard work and for protecting your employees your customers all the people and please stay well and keep doing the job you're doing we really appreciate it. Thank you very much. I don't think we have any more questions at this point Dewey.

No, sir. I was going to go ahead and conclude so I had it over to mister been stock great. You know what I'm saying here. It's a hundred years. In fact, I've been doing this for 41 my father God blessed, you know his he's still in good enough Health to worry about the company every single day his 90th birthday is actually on with our hundredth year anniversary on May 7th. We're scaling way back in our celebrations. Obviously, we don't want to spend the money and we don't want to do large Gatherings home. So nonetheless, I think it's quite an achievement for a company to achieve what we have over the years. We're very proud of our heritage. We're very proud of our home of our shareholder base and our customers are our customers, of course our employees. This is the most extraordinary group of employees and I have to tell

But I knew how extraordinary they were before but I never really understood how much they had to give as much as they given during this crisis and my hat goes off to all of them. I thank all of you for your trust and your support for the company will look forward to updating you on the 2nd quarter 2020 results in July, please stay healthy.

And we thank you, sir into the rest of the management team for your time. Also today. The conference call is now concluded at this time. We may disconnect lines. Thank you again everyone. Take care and have a great day.

Dead dead dead dead.

Dead dead dead.