Q2 2020 Superior Group of Companies Inc Earnings Call
[music].
With us today.
The company's Chief Executive Officer.
<unk>, It's chief operating Officer, Chief Financial Officer and Treasurer.
After the speakers opening remarks, there will be acuity session.
Call is being recorded and your participation implies that you agree to that if you don't than simply drop off the line.
No I will turn the call over to Hala Elsherbini.
Senior managing director of report Advisors, who will read the Safe Harbor statement. Please go ahead.
Thank you. Good morning. This conference call May contain forward looking statements about superior group of companies that company within the meaning of the Securities Act 1933 Securities Exchange Act of 1930 for the private security budget.
Litigation Reform Act that 1995, and all rules and regulations issued their under.
Such statements are based on upon managements current expectations projections estimates and assumptions words, such as well expect believe anticipate sake outlook Coke and variations of such words and similar expressions identified such forward looking statements which include statements on the impact of.
Cobot 19 on the company's business, including inventory supply chain manufacturing capacity at the company owned and contract manufacturing facility.
Capacity and customer demand for.
Forward looking statements involve known and unknown risks and uncertainties that may cause future results to differ materially from those suggested by the forward looking statements.
Such risks and uncertainties include but are not limited to the following the effects of the cobot 19 crisis on the U.S. in global markets, our business operation customers suppliers and employing general economic conditions in the areas of the United States in which the company's customers are located changed.
In the markets, while uniforms are worn where commercial products are sold and were Coke Center services are you the impact of competition. The companys ability to successfully integrate operation following consummation of acquisition and the availability unmet of manufacturing material as well as the risks.
Uncertainty disclosing the company periodic filings with the Securities and Exchange Commission, including the company's annual report on form 10-K for the year ended December 31, 2019, the quarterly report on form 10-Q for the quarter ended June 30, 2020 and be eight.
Hey 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.
Company does not undertake to update the forward looking statements contained herein to conform to actual results or changes in the company's expectation, whether as a result of new information future events or otherwise 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 with that I'll turn the call over to Michael.
Thank you all I'm personally. Thank you for all listening to that long as forward looking statement harvest Safe Harbor statement, we've ever had to put out there, but it is a sign of the times a good morning to all of your thank you for joining us discuss our record setting Q2 2020 results.
We have prepared a supplemental slide presentation to augment our prepared remarks today don't bring more clarity to our current results in future potential. If you are falling more now you can go to the presentation on our website in the Investor section anytime during or after the call.
Before we get started the bike to acknowledge and thank our frontline healthcare workers and the employees, who are supporting them and the continued fight against scope in 19, Yes, you see family extends our deepest gratitude and our commitment in support of your heroic efforts.
[music].
We're proud of what we have accomplished during the second quarter, posting a 72.7% increase in consolidated net sales and remarkable 456% increase in diluted earnings per share.
Really epic results for a company's hundred your history I'm sure you agree that we were probably around our name as a superior group of companies.
We'll take a close look at segment performance highlights and then Andy will follow with operational financial highlights well have some closing remarks of course before we open the call for your questions.
Our uniforms and related products segment is comprised of both health care and employee yet I D divisions with each on a normalized basis, making up approximately 50% of the segment sales through a wide variety of uniform offerings. The diversity of our end markets and distribution channels, coupled with an intentional more than deck.
Long strategy to focus on more recession resilient sectors have served us well during the pandemic, while we support some very loyal and noteworthy customers in businesses that are that we're operating at far less than capacity would still are if at all the overwhelming majority of our uniform Division services Center.
So businesses that remained open and likewise are experiencing demand pressures, we never measured it this way before but to give you a clearer view with the state of our current business. Let me share this would you.
Health care uniforms from fashion seal healthcare and see I'd be resources and what is categorized now is essential workwear apparel from Hbr account for on a normalized basis, approximately 80% of our total uniform business.
H.B. I was down mid end markets are the essential sector as a pharmacies hardware grocery stores auto supply and big box retailers.
H.B. I does have exposure to nonessential hospitality German businesses, including travel foodservice and entertainment. These weaker business Chelsea will make up approximately 20% of H.B. ice normalize business. Our overall uniform results were enhanced by the strength of health care products NPP sales activity mitigating most of our downside.
We expect sustained strengthen these essential business channels that we'll continue to provide an offset to challenge businesses that are slow to recover.
Our health care divisions are driving with even more collaboration and realized synergies between fashion seal healthcare and see I'd resources as well as Hbr, let's walk through this tremendous channel in sales leverage opportunity.
Our hundred year old Division fashion seal healthcare as longstanding customer relationships some that spend more than 50 years, our team demonstrated flexibility and quickly pivoted to the high demand for traditional well respected pbteen uniform offerings, which include isolation Gan scrub shorts pants warm up jackets.
Rob Capps and barrier codes, we saw tremendous boost to see ideas fashion oriented retail scrub offering with the influx of hiring at the health care systems.
Third quarter launch of the Wonder week commercial wander. Both indeed line has garnered significant interest in the marketplace and from our largest health care laundry customers was preorders and commitments already made for this product. We feel this is a game changer in this space than we have taken long positions on this product to be more expected cost.
Track wins, the high demand for see I'd products led to strong retail and E. Tail account sales. In addition to sales through our fashion seal healthcare partners, which in total drove record see I'd results. Additionally, fashion sales customer base of distributors laundries, now retail stores as well as etailers.
As tapping into see I'd offerings to penetrate healthcare institutions around the country given spending habits are more conservative in the current crisis. We're also seeing the market shift to see I'd strength as the leading designer of high value fashionable functional and great fitting scrub apparel.
From a channel perspective, we are meeting the changing needs of our existing customers throw moyle health care laundries dealers brick and mortar sales channels as well as via Amazon other b to B resellers.
We're essentially building out a BBB omni channel strategy across our uniform divisions that includes synergies with age guys brand Ambassador workwear and Bamkos branded products and sourcing expertise there is such a blend between our divisions, where each sales many different products through all channels product lines are becoming more.
Are you Beckwood us and are being sold across all businesses, it's truly a differentiated strength.
We also expanded our inventory positions and select traditional pp product wise and have taken larger product positions to meet our existing customers growing demand as well as from new customer opportunities in fact, each of our uniform divisions as well as bad go now has a supplemental offering a P.P. pro.
Alex that include these new resource base mass wipes goggles gloves and hand sanitizer.
Andy will outline a breakdown between her traditional product sales MPP sales further in his remarks. These non traditional pp product doors are places needed in many cases shipped directly from the factor to our customer.
Turning to the truly performance and 217.8% sale growth at BAMKO. The team showed acuity as always leadership and remarkable sourcing aptitude executing our pivot to BP procurement production since the onset of the pandemic close to 80% of.
PB sales were to new customers, the Banff or not previously worked with many of these new customers had already transitioned to traditional for most promotional product customers.
Further back go benefited immensely from strengthen the getting economy sector recording record sales to companies and the grocery meal delivery service sector and at home fitness solutions.
It is estimated the motion products industry non P.P. revenue. This is for the industry fell by between 60 and 70% in the second quarter 2020, well BAMKO is not immune to this decline due to die then cancellations and budget cuts, we fair far better than our competitors in both PPV and non PPD sales.
This slide shows the monthly shift from traditional business offset by improvement from PB sales. We noted last quarter that in the first few weeks after the pandemic at promotional product bookings were down nearly 80% in April may this rebounded to promotional product bookings being down around 50% by June.
Down just 30%, we continue to uncover new opportunities and widen relationships with existing customers to augment our substantial backlog of scheduled future shipments.
As anticipated many companies in the highly fragmented promotional products in industry are facing serious financial challenges due to the ongoing crisis BAMKO was able to leverage is competitive disruption by adding nine season represent additives easy for me to say representatives within existing book.
A business from a competitor at close their Canadian Division.
This move expands our strong branded solutions offering and sourcing capabilities to the Canadian market.
BAMKO also was recently recognized as a night largest branded merchandise company in the industry in 2019 ranking that we expect to place much higher in 2020 as they were also recognizes the fastest growing company in the industry I'd like to illustrate the success, we've seen with as a BAMKO acquisition since year before we acquired.
In 2016.
This slide shows Bamkos revenue growth from $31.5 million for fiscal 2015 to 107.5 million in 2019, a 35.9% cagar they have almost.
Already what their 2019 full year sales with a $101.6 million in that sales and the current six month period ended June thirtyth.
More importantly, we proved our investment thesis that bad goes operating infrastructure was built to optimize profitability as the company scale larger.
Certainly proved true with Bamkos operating margins at 13.5% for the second quarter Vasco is uniquely positioned to continue to capitalize in customer demand for PPG and as we've said earlier is already converted many of these pp customers to traditional promotional product customers that being said.
While Q2 will be hard to replicate we do expect to sustain comparative levels of accelerated growth in earnings on a long term basis. In spite of the short term uncertainty in the promotional products business and the potential for moderation MPP product demand.
Now turning to the office growers division, our remote staffing solutions, our entire team returned to full force in a pre pandemic operating levels in June while still operating from home Geologies business continuity ability, but high quality customer service during the goals or disruption drove increased business with existing customers as well.
As new customer acquisitions. Additionally, we're all seeing high demand for near shore call centers. We're currently executing remote training for new agents have end of Onboarded over 200, new agents to meet our growing customer demand.
Our work from home solution is proving effective and we see it as an excellent opportunity to grow the business.
With minimal capital infusion. Some TRG agents have recently returned to offices as required by customers, but we're doing this at a slow pace to ensure the safety of our employees as well as to protect business continuity. The office grew has also received recognition being named first place call Center and one of the best companies for young professionals.
Why employers for you as an organization that seeks to recognize the best companies for young professionals in Latin America.
Overall breast you see the global macro environment continues to be uncertain dynamic make no mistake.
Under these unique circumstances, we have demonstrated the flexibility of our teams and of our business model. We're continuously in the state of review and planning for a wide range of potential business and financial scenarios, our long term approach to the business, including investments in technology operating efficiencies redundancies and.
Sourcing manufacturing and shared resources prepared us well to meet challenges, we face today and going forward I will now turn the call over to Andy and then I'll return with my closing remarks.
Thank you Michael and good morning, everyone. As noted earlier, we filed our form 10-Q for the second quarter ended June Thirtyth 2020 earlier. This morning before I begin with a review of our operational and financial highlights I would also like to acknowledge a tremendous amount of workforce productivity collaboration and superior.
Customer service across our entire organization. During these unprecedented times. Our continued focus has been on the health and safety of our employees and their families supporting our customers are communities and ensuring strong financial liquidity.
Our second quarter and six month results played out better than our expectations in terms of both our results and our ability to further improve our liquidity and debt leverage position.
I don't know this slide we're very pleased to see our debt to EBITDA ratio dramatically improve from four tied the December 30, Onest 2018 to 1.9 times at June Thirtyth, well under our five times covenant ratio.
First significant cash generated from operations and an accelerated inventory turn on excess the product, we reduced outstanding debt by over $60 million during the quarter year to date, we've reduced outstanding debt by approximately $34.3 million.
Our new ERP implementation at Sea I'd completed in February greatly enhances our ability to manage inventory more effectively and we expect improved inventory turns to continue further supporting our liquidity.
We are maintaining or aggressive posture on controlling operating expense levels and prioritizing key capital expenditures to protect our profitability and fortify our balance sheet position. Additionally in June we announced the consolidation of our Georgia age distribution centers under the company's expanded Eudora, Arkansas distribution Center.
The consolidation is expected to yield approximately $2 billion of annual savings as well as provides significant advantages, including updated material handling technology decreased average receiving it shipment times lower distribution cost and the ability to scale and handle aggressive growth plans.
No the enhancements for automation that testing are expected to be completed during the first half of next year.
We are extremely proud of our overall net sales growth of 72.7% once again BAMKO live tremendous sales increase contributing 56% with our uniforms and related products business contributed 16.4%. The August the rooms are most staffing solutions segment contributed point.
8%.
Foreclosure review of our record sales growth. This slide illustrates year over year net sales growth, where the breakdown between core product offerings and PPD sales across our segments.
Second quarter uniforms and related product net sales increased 24.9% or $15.1 billion compared to last year high market demand for core health care uniforms, and both backfill health care and see I'd represented net sales increases of approximately $17.1 million and PV products to health care costs.
Summers increased by $6 million as Michael mentioned certain sectors in our employee I'd channels were more severely impacted by cobot 19 disruption and absent PB aquatic sales these rigor channels decline by roughly 44%.
Overall HP as legacy sales were down approximately 33%, partially offset by PPG products sales of $2.1 million.
Galvanizing disrupt has also impacted our uniform production facilities in Haiti, resulting in downtime between three and five weeks, depending on the location the interruption created minimal headwinds due to our large inventory positions and our redundant manufacturing model, which allowed us to ramp production there now in our facilities elsewhere.
There was an extraordinary quarter for BAMKO with sales up 217.8% driven by PPD sales a $49.7 million during the second quarter.
This included a notable mix of branded PPG products for certain customers as well as the fulfilling general orders for base mass gloves wipes in hand, sanitizers as well as record sales to customers in the gig economy sector.
While we expect Q3 revenue of traditional promotional products to trend downward year over year. This will be all said to an extent by continued pp product orders to both new and existing clients BAMKO total backlog at June Thirtyth was $54.2 million, primarily consisting of products to be delivered in Q3.
Thank you for of this year.
Well this backlog almost 60% represents traditional promotional product revenue with the balance being for PB.
We expect continued strength into the fourth quarter, however to lower rate of growth and we saw in Q2.
Now operating at full capacity the office Gurus reported net sales growth of 3.6% eight.
$8.1 million prior to the disruption from the pandemic TSG sales were $2.7 million in the month of February compared to the month of June sales of $3 million. We're now trending ahead of pre covered level and we expect to see double digit growth in the second half of this year in comparison with the second half.
2019.
Turning back to our consolidated operating results gross margins as a percentage of sales for the second quarter was relatively flat at 35.1%.
As a percentage of sales consolidated EPS DNA expenses for the second quarter decreased by over six percentage points, the 22.9%, reflecting leverage from higher sales volume across all business segments and the company's austerity measures to reduce operating expenses.
No as DNA for the quarter did include significant increases the provisions for bad debt reserves of $3.4 million, primarily related to non essential channels and the ongoing market uncertainty from the prolonged pandemic record sales growth. Although also led to a significant increase in sales commissions.
Income from operations significantly increased to $19.6 million and operating margins more than doubled to 12.3% for the quarter.
Our effective tax rate for the quarter was 19.6% compared to 23.8% a year ago. The change in rate was principally the result of the effect of foreign and state and local taxes between the comparable periods.
Second quarter net income increased a remarkable 446% from $2.8 million to $15.2 million or one dollar per diluted share marking our highest quarterly earnings in the company is 100 your history. In fact, the one dollar per share earned for the quarter is higher than any six month period and the company's history.
We continue to prudently manage our cash flow and at June Thirtyth, we had cash and cash equivalents of $5.1 million for the six month period ended June Thirtyth Capex was flat as approximately $5 million and is on track to be lower than our original plan for the year $12 million to $13 million.
Due to the uncertainty at the beginning of the pandemic, we previously announced last quarter that we were suspending our dividend and as a result, we did not pay a dividend during the second quarter.
As a result in a tremendous improvement in our operating results the cash flow generated from operations and the corresponding reduction and outstanding debt. The board of Directors announced this morning that we are reiterating our regular quarterly dividends of 10 to 10 cents per share and that we would also be paying a special dividend of 10 cents per share.
As you know we have consistently paid dividends is 1977 and the board continues to view us as the sustainable recurring dividend as an important component of stcs value proposition.
Ill now turn the call back to Michael for his closing remarks, and a general outlook for the remainder of the year.
Thanks, Andy.
I know it's been a lot of information, we give new here and I hope you take the time to absorb it gets good questions as a result.
During a time a great adversity, our team members pulled together remained extremely focused on the needs of our customers in delivering outstanding performance in abundance of caution last quarter, we altered many sales strategies well implemented deep cost cutting measures to ensure that we maintained our momentum no matter what unseen challenges were ahead.
Yes, I'm very proud of our record second quarter and six month performance and we will continue to manage our business in a thoughtful and conservative manner, providing critical services to our customers while supporting our communities. As we are no 400 crisis, we managed to de leverage as we moved into a better liquidity position.
We will continue to make every effort to preserve our liquidity and improve our balance sheet with debt repayment as a top priority. We anticipate strong third quarter results with very strong backlogs, including PB as of June thirtyth more than $50 million and robust continue sales for the first few weeks of the core.
Later, however visit visibility beyond that remains low due to the ever changing disparate impacts of the pandemic with our long term guidance on a five year look back.
It remains consistent.
While it remains consistent on our core business there are significant variables that could favorably alter our outlook as we navigate the coming months, we will continue to be very calculated in our strategic planning and scenario analysis and plan to revisit our guidance metrics. Once we have better clarity in the meantime, we hope we have for.
By an adequate transparency into our underlying markets operations and liquidity position.
We take our role as responsible corporate citizens very seriously those who know us long time, no. That's true doing the right thing as part of the fabric of our culture. It's just who we are and had been for 100 years, we are committed to continuously advancing diversity inclusion across our global organization different.
Respective backgrounds cultivate creativity and drive business innovation, we're pleased to share that we recently published our 2020 corporate social responsibility report.
We conducted immateriality scan across our peer group reviewed internal key performance indicators and consulted with key stakeholders and determine material environmental social and governance initiatives important to our stakeholders. We have always been committed to corporate responsibility and we will continue to enhance our disclosure and build upon.
He asked you metrics, we sent out a communication to our Investor email list earlier this week with a linked to the report which is posted to our website. We hope you take time to review it and welcome your feedback on our inaugural CSR report.
Sgc century long legacy of Entrepreneurism resilience and the ability rise from diversity is a stronger more fortified business is very evident during these times, thanks to the expertise and dedication of our superior team members with that we'd like to open the call for your questions.
Thank you we will now begin the question answer session.
If you ask a question you May Press Star then one on your Touchtone phone.
If you use that speakerphone, please pick up your handset before pressing machine.
To withdraw your question Press Star then too.
At this time, we'll pause momentarily to assemble a roster.
Our first question comes from Kevin. Thank you with Barrington Research. Please go ahead.
Good morning, everyone and congratulations on a really strong results.
Thank you.
So it's.
I wanted to dig more into the.
TPN eight ease sales you had in the quarter, that's really quite a remarkable transition that you made there from.
Having no pp sales.
For BAMKO in the year ago quarter to about 50 million.
In Q2 20.
Just I guess that speaks to kind of the strength of the company in the overall organization that you were able to make such a quick transition and capitalize on that opportunity, but maybe just talk more about.
The strengths of the organization in terms of the supply chain and also gaining all those new customers.
What what enabled you to make such a quick.
And rapid transition to capitalize on the opportunity you saw there.
Great.
Good question.
I think first and foremost is you know BAMKO has a lot of strengths.
In many respects.
You know there their world class in just about everything they do but they are sourcing is certainly one that sets them apart from most of their competition.
Lightly quite frankly most companies.
They they relationships that at any given time.
In over there working with in 150 factories around the world.
And they're managing those relationships and all the different substrates plastics, and steel and metals and glass and so on.
They are their strength is sourcing and when when the need came to source pp products.
With their people on the ground they knew where to go they know how to monitor the quality and know how to guarantee.
The shipment.
And how to make sure that that we set ourselves apart from all the other people, making promises to the same customers were making promises to that we could actually deliver.
And I tell you know I wish everybody had believe.
What they told them, but there were many instances, Kevin where we went to a customer we made an offer to them.
Maybe that prospect or customer Didnt know us that well wound up getting the business or thinking they were given the business to somebody else.
Turned us away told US we didn't get it and then a few weeks later, we're back at our door, saying.
The people I gave it to they were cheaper, but they can't deliver.
We had all our people on the ground monitoring freight costs, which went wild during this time, both ocean and air freight.
And making sure that we were able to secure space.
And aircard, when we needed and secure space in factories, it's not as easy as just calling an agent as most people do in the United States and have that agent out shopping for you send money and.
You hope it you get product and return on our people were able to guarantee that so it is a core competency, it's probably their greatest snacks and Banco could source anything.
So if he would just another product they can source and there was a tremendous need for it and there still is.
And it's why I think in the last call. We we said that we had booked.
That was middle of April or so we said we book.
$60 million.
Product already.
And you can see our backlogs are still way out there not only bamkos backlog NPV, but it's also HP eyes backlog MPP fashion seal healthcare.
Well well exceeding that that so.
We feel like we're in a great position I mean, there there are very very unique organization now to the second part of your question with respect to customers on a lot of people, they're reaching out to where people. They prospected over the years, if they weren't able to get in the door from a promotional standpoint, but when.
Those companies we're in trouble.
We reached out to them or they reached out to us.
Reached out to everybody quite frankly and.
And people. So I remember you guys try to do our promotional business. So well here. We are we can do this too.
Lot of US took a lot of them took us up on it and quite frankly, we've converted some of that to promotional business at this point not only the pp business. So I.
It's just testimony to the great organization and our sourcing teams and.
Florida from the uniform divisions, and and the teams of BAMKO withdrawal of the world.
Really work hand in hand, when I say hand in hand, I mean, they were working 24 seven.
With all the opportunities that were coming in the door.
Okay. That's that's great that's very helpful.
So it sounds like.
You referenced that there that this is opening up some new doors for you your ability to execute on pp. So.
Do you think that can be meaningful going forward you're demonstrated ability to.
Execute on this pp opportunity to add new customers in.
The non pp traditional promo products.
Space.
No no doubt I mean, we're going to be remembered.
That we took care these people in their time that need and these are the same people who are buying the PV products that are buying promotional products, so I have and oftentimes uniforms.
So I have no doubt that what's happened within the organization with the melding of all of our divisions strengths working together literally night day, that's going to bring much more opportunity to the company going forward.
Say it but.
It's crisis time, and it's a terrible time for our country.
But we certainly didn't waste any time coming out of the gate and making sure that we were relevant during this time.
Okay Yep got it.
And one of the switch to.
Yes, I'd dimension record sales for them there.
Demand for health care uniform related products being strong.
Yeah.
Absent the current environment.
Which is benefiting them.
Can you just talk about Cts positioning now are they in a position to grow sustainably going forward.
I know youve integrated them onto some new technology in terms of.
Sep and a new warehouse management system. So maybe just talk about we're Cie is from a long term perspective and their ability to.
Kind of grow and take market share going forward.
It's good question I think what's happened is that see I'd has become much more pain.
Panel.
During this period, certainly we had our our total debt.
Prior to covert, but as more people bought online.
We saw the potential to accelerate that and.
Our our internet sales.
Has grown substantially.
Multiplied from where it was before.
Theres weaker competition who's going to come out of this.
There are also might be some fewer customers.
We know customers are struggling we're doing all we can to try to support.
The strongest of those to make sure to help them get through this.
But it's a time of.
No change and.
That market at how people buy is going to change and we will change along with it.
We have are indeed product coming out.
See I did not have a product that was wander will nobody did.
Prior to.
Prior to our introduction of Andy.
We have product actually arriving now.
And we'll be shipping over the next.
Seven or eight months, but quite frankly, most of our our early productions, which if you remember we're on an accelerated basis member we were actually delayed releasing the Andy product because we felt demands so great. So we raised the quantities.
Our initial production quantities of what we're going to produce and put on the shelf most of that is pre sold Laurie.
So.
Going even better and better and better than we thought.
We think now.
With what is going on.
With Covance 19, and kind of a new.
This being somewhat of a new error.
And how people think about their uniform and how it's meant to protect them and so on that that see I'd will will will benefit from that greatly.
We don't think one point and we probably seven sonicwall.
The that industry of.
Of caregiver that level caregiver things weren't price is quite as price sensitive.
We think there you know the.
The there's going to be a shift from some of the higher priced items to more core items.
Which is really our sweet spot online, it's 80% of Cie. These product is already in that spot. So we're well positioned to.
To grow that business in a it's going to take an omnichannel b to b strategy in order to accomplish that.
It's not an easy I mean that markets not going to grow by 25 or 30 or 40% of here.
But it should have steady growth, we've shown that in previous webcast.
Expectation for that industry, and it's not going to be any less.
And what we expected we did get some big bumps added this during the quarter because you know healthcare systems around the country. We're hiring hundreds of thousands of workers just a screen people at the doors and wanted them in scrubs and lamp goes.
In some cases barrier coats in isolation gallons for testing and all that other stuff but.
I'd is going to fair well.
Over the over the long term I think in the short term, they're going to be buying too.
Okay great.
Let's just can you talk about.
Business outside of health care, obviously, mostly serving essential businesses in that channel has been strong non essential.
Weak in this environment of course, but just.
Maybe step back can take a look at.
You know competitively where you stand.
For HP overall going forward and.
You feel about kind of the longer term targets.
You know there for that business.
Good question the.
Prior to cope with H. guys pipeline.
Was pretty much at record highs.
We're working on a lot of our fees, obviously, a lot of those got delayed or canceled or whatever at this point some have actually come back to life.
Some will take a little bit longer to come back to light, we will still continue to focus our business on the essential channels, which will grow.
It's pretty sticky business. So you don't.
Those contracts on actually come up for bid every year every three years or even every five years.
So we've got to be very vigilant to get in front of people.
Usually when they're having some pain.
And that's one when we can best strike and convince them to.
To look our way.
We have helped a lot of people who weren't customers.
During this cold.
19, getting their ppm zone, we're hoping that buys us some goodwill.
To be able to look.
Take more careful look at us.
On the uniform side.
[music].
There's.
There is.
We've spoken about in the past our market share.
Overall, we called about 6 million people, but.
Our market share is still.
So small that there is so much room for upside the competitive field.
At HP is going to narrow there's no doubt about it we we heard other uniform companies, mostly smaller uniform companies.
That were primarily invested in the non essential channels.
Who are doing business right now or very little business.
And are not sustainable.
There will come a time, where.
We will take a look at their customer while we're taking a look at their customers already but take a look at their salesforce and take a look at their business and see what could we absorbed that business into our business to be able to take those customers and put them onboard.
Yeah. This is not much different than what happened.
During the last recession, it's not much different than what happened during the cotton crisis.
We did the same thing and each time, we gain market share. So I think there is an opportunity to gain market share the market share maybe a little bit smaller on the non essential businesses, it's not going to get any smaller on the essential businesses I mean essential businesses I put another list. The other day of the the all the people in the United States.
Large companies, who are saying that they're going to be hiring and you go through that list and and a good amount of them dozens of them.
Listen with about 200 companies.
Our already our customers.
And they're hiring so one customers hiring hundred 50000, another customers hiring 30000, and they're going to be turnover.
Theres no doubt people been out of work companies come back to business their employees ex employees have found other work or going back score whenever they are going to do on there is going to be more turnover and I believe just like there was after the last recession, there was a whole movement to rebrand businesses.
And get in the public I, we're going to see a lot more rebranding.
Being done by people to help elevate their brands after all this would become.
First and foremost on People's minds.
Okay, Great and then so.
Moving on to this crisis.
It sounds like there's an opportunity to emerge stronger competitively.
Talked about.
Picking up some seasoned reps and BAMKO from another competitor who.
Close Canadian Division I mean, what.
Do you see potential acquisition opportunities coming out of this is maybe others are struggling or.
Do you want to stay focused on an organic growth strategy going forward and maybe this.
Ill pick up business Opportunistically from those kind of fall by the wayside or what's kind of the view of how you can capitalize on this.
Moments boat.
From an organic and inorganic perspective.
Kevin our target our long term focus as always.
Really going to be more on the organic side and looking to take advantage of opportunities to add reps are to pick up customers from troubled.
Competitors. However, as we always are we'll keep an opportunistic I out.
Situations, where there may be a probability that we could acquire that we would be able to enroll straight up under our company.
Not have to take on a lot of infrastructure.
We don't have a need to do it but at the opportunities come up I mean, we'll consider it certainly in a very good financial position to be able to do it.
Okay.
And.
What's the state of the.
The the upgraded.
Are you door facility in Arkansas, I know you did the consolidation there but.
What.
When does that project complete or.
Much more capex does it require going forward.
Okay.
We originally thought because the supplier of the equipment Didnt know how long they be hunkered down.
In Europe.
Building this equipment because of covert 19, so we'd put an expectation out there that it might not be until.
Second quarter of next year, but in fact.
We'll begin testing the equipment it will be in place at the end of this year.
Most of the most of the expense than will happen. This year, our capex will still be as Andy said.
Less this year.
Than we originally anticipated a little bit of that roll into next year.
There is other capex that we're we're pretty far along in considering with respect to some additional robots.
At one of our other warehouses, which will bring us some.
Much improved efficiency and service capabilities.
But as originally we had said that this year's Capex would be between 12 and $13 million.
It's going to be some number it's going to be less than $10 million. This year.
And.
Part of that additional two or $3 million will roll over to next year.
Okay and then.
For the office Gurus, you've had some success was.
Transitioning.
Your agents to working from home.
Longer term what do you think that this does for your.
Your need to build out call centers in the future I mean, what's what do you think the mixes going forward of.
People working in a center versus working from home and.
If you think those two channels can be.
Equally effective.
I think for.
Certain customers both channels can be effective some people need a in office solution in some people need and at home solutions, sometimes it depends on the use of private information security and credit cards and so on.
I will tell you this that.
[music].
At the rate that we believe Dominic can grow that business.
A few months ago, we were saying, okay. We can work from home on that.
It would be a long time before we have to build any infrastructure.
But if he keeps on put non seats at the rate he's putting on seats. Even if he has a lot of his people working at home will need more infrastructure.
Sure Okay for a couple of years now Kevin.
I don't see anything.
In the next two and a half years.
In terms of Capex related to infrastructure for the office skewers beyond that if we have to.
Vast it's only because we've accelerated our growth beyond what our well beyond what our guidance currently is.
Okay, Great and then.
On on the balance sheet scripts, you've been able to pay down some debt here with.
Some ongoing strengthen pp orders going into the second half of the year.
Would you like to try to continue to pay down debt.
Do you feel more comfortable at the leverage ratios you're you're at now.
Hi, Kevin I think we always like to be lower than we are.
We're always looking to drive it down.
We ended the quarter with little over 7 million outstanding on our revolver. So we're close to having that.
Pretty well paid off.
It really depends on what happens as far as opportunities where.
If we continue to get large pp opportunities that are ongoing.
They could require additional working capital on the balance sheet and short term.
I mean, we're in a position that.
We probably will still pay debt down a bit but.
It's kind of variable at this point is which way it ultimately goes but where we are clearly in a position now where our liquidity is.
No concern right now.
Kevin My My father, who is 90 years old now under 100 year old company and probably listening from home.
What we said cash is king.
And he is listening is probably smiling right now but.
We've said, we never enjoyed the where we were sitting.
As highly leverage as we were which for some people.
Didnt concern, then but but us.
It was just uncomfortable because it.
Restricted our flexibility to a certain extent, we have we have much better flexibility.
At our current levels.
I'm, hoping that we what we need capital to to accelerate the growth the business beyond need what our guidance has been.
And as Andy said, we'll be opportunistic when it comes to acquisitions.
That are that are priced correctly I mean, we're not we're not going to pay any any crazy multiple.
For an acquisition nor are we going to go into a business and try to fix it offline. It's got to be a business that brings a lot of value to us.
In one way or another so.
Yeah, we that other people asking for what's your comfort level with debt. We've always said is between one and two times.
We're below two times, so we're pretty comfortable right now, but we will pay down further.
Okay, great well, that's all I had for today and again.
Congratulations on the very strong results.
Thank you. Thank you.
Our next question comes from Fred Sockets with Boston University. Please go ahead.
Hi, guys, congratulations great quarter and being so.
Nimble and strategic and we're talking about your father I was a direct or Panera bread for a long time and the co founder. His father was on the board to is 102, it give us present the bank during the recession you always says don't go into debt delco into debt. So admire what you're doing on the balance sheet I have two questions on sort of your.
Contracts come up.
No it drugstore chain or hospital, whatever how do you sort of review it pretty much as recurring revenue I mean, how likely is what percentage of time do with new and then the second question as you're designing new products at more attractive uniforms et cetera et cetera.
Is there any input from potential customers in terms of their employees, who actually where them or is that people and purchasing who make the decisions on quality and price availability reputation and stuff like that so those are my two questions.
Okay.
Contracts coming all shapes and forms summer one year contracts to your contracts three year contracts five year contracts.
Lot of them have.
A.
Evergreen renewal on an annual basis.
If the contract is not put out RFP.
We got some contracts that are five year contracts that are in their fiftyth year of ever.
20 year contracts.
That just keep going going sometimes we have customers never go out to bid, but that's true of our competitors to.
They are satisfying them.
Changing uniform program can be a traumatic experience it impacts.
Your employees impacts customers impacts how you market you are so.
So you generally don't see a lot of turnover of contract business.
Right.
That would affect a company like HP I'm more than anything who's doing the employee I'd uniforms.
So the second point.
It's very rare that it's just purchasing that we're dealing with.
When we're designing new uniform program oftentimes there in HRS involve marketing is involved and I'm talking of of our customer.
And employee committees are involved.
Employees are very very invested in what they're going to where they want it to be comfortable they don't want to look like clown when they leave.
Patient with their uniform they don't want to be embarrassed by their uniform. They are the walking talking brand ambassador for that business and I think more and more companies are realizing that with all the branding they do with all the money they spend on advertising branding and trying to.
And.
Obtain allegiance to their brand.
The the best means of marketing.
Is the walking talking brand ambassador do they have working for them. It's the only means of direct contact that many of their customer said, so we're seeing a more and more.
That a lot more people are getting above there's a lot more consideration is lot more testing of.
The product once it's out there on the employees back they made to attend store test or 20 store test.
And get feedback and surveys and then we make adjustments fabric and fit all other thanks.
Satisfied what we hope is the majority of those employees.
Okay. Thank you congratulations again.
Thank you very much.
Okay, and if you'd like to ask a question. Please press Star then one.
Going no further questions. This concludes my question answer session.
I'd like to turn the conference back over.
To Michael Benstock for any closing remarks.
Thank you Sir.
Of course, we appreciate your time trust and support for the company.
These have been.
Crazy times.
And I'm sure you're listening to other calls on that are not quite as optimistic as ours and we we feel badly for everybody who's not doing as well as we are but our employees are safe and our customers are trying to.
Push through this as best they can.
I look forward to updating year with Andy on our third quarter 2020 results in October I want you to know, we recently posted and we'll continue to post marketing videos on our website that tell more about our companys long history is actually.
Go one that goes back to the history of the company started by Rose Benstock, Mike Great grandmother.
It's a little history on that and then there's a video that my father stars in.
Giving more of an updated history of the company and then there's a very slick video. All this was made in the house on with respect to what our capabilities are today. So I hope you get a chance to look at it please stay safe and healthy and we'll see you next quarter.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.