Q3 2020 Superior Group of Companies Inc Earnings Call
Good afternoon, everyone and welcome to the Superior group of companies 2023rd quarter Earnings Conference call speaking first today on behalf of the company is Michael Benstock, The Companys Chief Executive Officer as always upon the conclusion of the company's remarks, there will be a Q and a session. This.
This call is being recorded and your participation implies that you agree to it.
If you do not simply drop off the line now I will turn the call over to <unk> Elsherbini senior managing director of three part advisors, who will read the Safe Harbor statement. Please go ahead.
Thank you this.
This conference call may contain forward looking statements about superior group of companies within the meaning of the Securities Act of 1933. The Securities Exchange Act of 90 30 for the private Securities Litigation Reform Act of 1995, and all rules and regulation issue behind us.
Such statements are based upon managements current expectations projections estimates and assumptions words, such as will expect believe anticipate think outlook hope and variations of such words and similar expressions identify such forward looking statements, which which includes statements.
On the impact of COVID-19 on the company's business, including inventory supply chain manufacturing capacity at the company's own in contract manufacturing facilities service capacity and customer demand.
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 effect of the COVID-19 crisis on the U.S. and global markets.
Business operations customers suppliers and employees general economic conditions in the areas of United States in which the company's customers are located changes in the market, where you don't want a one well promotional products are sold into a call Center services are you there.
Impact of competition and be a company's ability to successfully integrate operations following confirmation of acquisition.
And the availability of manufacturing materials as well as the risks and uncertainties are disclosed in the company's 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 September 30.
<unk> 2020, and the 8-K filed recently shared.
Shareholders and 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.
The 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 it was all ideally pollination 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.
That I will turn the call over to Michael.
Thank you all for that very short Safe Harbor statement.
Hi, good afternoon, everyone.
And thank you for joining us to discuss your Q3 2020 results before I begin you'll note that in the <unk> is not able to join our call today and in its place I'm accompanied by J. Campbell shy.
Bamkos, Chief financial and Chief operating Officer, and Jeff have worse, Sgc corporate controller and VP of accounting, we both have a wealth of experience to do a great job supporting Andy in many of the operational financial aspects of our business Jake will give the financial commentary today and they will both be available to answer questions. After our prepared remarks.
[music].
First and foremost we hope that everyone continues to remain healthy and safe. We continue to provide critical supplies to those brought my workers in the central business since managing through the pandemic.
It is an honor to provide quality protection did those confronting this virus every day and we thank them in our 4500 associates supporting them for their steadfast dedication.
As anticipated our third quarter results continued a strong trajectory posting a 42.8% increase in consolidated net sales and a 142.3% increase in diluted earnings per share.
I will cover our <unk>, our outstanding segment performance and operational highlights and then Jack will follow with financial highlights I have some closing remarks before we open the call for your questions.
Our uniforms and related product segment performed very well, we continue to respond to surging demand in our health care and central retail business sectors, while not essential businesses are starting to show small signs of near term recovery, we expect to see sustained strength in the recession resilient sectors of our client base, which comprise greater than 80.
Percent of our uniform business as we told you on the last earnings call.
Fashion seal healthcare in CRT D are experiencing greater than expected demand across our diverse pp product offerings and our traditional healthcare uniform brand portfolio.
The collaborative synergies between or help your divisions are creating new opportunities capturing long term business ones and elevating brand awareness and digital customer engagement marketing programs and see I'd are also expanding to include a pull through approach creating opportunities for brand partnerships to reach a broader Todd.
<unk> consumer we're seeing robust activity coming from all see I'd sales channels with some surpassing pre covert levels. Additionally.
While our C O D International footprint small we are beginning to build a stronger international presence and we're implementing strategies as part of our long term plan to expand further into the European health care apparel market. Our teams have been watched synergies across customers markets and products as channels converged to deliver health care.
Products from Scrubs to reasonable protective apparel rpms, we refer to it our P.A. is the economical sustainable option to disposable protective apparel within this tremendous demand environment. We have also tapped into our supply chain to secure additional multibillion dollar inventory positions.
Our P.A. products, including reasonable barrier coach and isolation yards as well the scrub apparel to service our spectrum of customers in both acute and non acute markets. We expect an increasing shift to reusable products as the health care industry continues to seek ways to western bio hazardous waste and as the environmental impact.
Those boys apparel products becomes more widely understood.
As anticipated our first productions of our wonder we indeed why were very well received we've spoken about that on prior calls nearly every one of our major health care laundry system customers is currently conducting in house, Washington, where testing as noted last quarter, we took long positions in this truly differentiated.
Fashion scrub that can withstand the rigor of the health care and laundry process.
On the employee I'd side essential business activity has increased and H.B.I.'s responding to RFP to existing and new customers that include both PPD and traditional uniform sales.
We increasingly see a blurring between our product offerings SPP has become.
Standard part of any branded uniform program. We expect this will continue beyond the duration of the pandemic nonessential business activity continues to largely idle as I said earlier, though some companies are starting to reemerge.
As a pandemic and recession suicides history tells us we will likely see a flurry of activity as businesses rebrand refresh to engage with their customers eagerly putting languishing marketing budgets to work with the flexibility of our business. We are prepared to leverage these opportunities as industries recover.
We are always looking for ways to leverage our shared resources business model at the end of Q3, we reorganized our entire uniform product development merchandising and design teams under the dynamic leadership of two of our strongest product centric executives, we afford to collaborative teams one focused on ideation.
Planning and merchandising the second on execution under the structure, we have and we will be adding additional capacity a more creative capabilities to increase our success and take further market share.
And the promotion products segment of our company, yet again BAMKO delivered back.
Banco continue to provide much needed pp for companies in healthcare facilities across the country, while seeing increased traditional promotional product activity at a pace that accelerated over the course of the quarter, notably Napcos pp pivot is paying dividends with about 30% of new pp customers being converted.
Into traditional promotional product customers similar to what we're seeing at H.B. I. The preponderance of Bamkos Corby. He programs are being structured as larger longer term opportunities to meet sustained pp indeed, alongside traditional branded merchandise.
Currently activity is still robust in addition to nearly $19 million and bamkos quarter MPP backlog with additional opportunities still being worked on were even more pleased to reporting even stronger traditional promotional products backlog Jay will provide additional details about our product numbers.
Now turning to the office Gurus segment, our remote staffing solutions, our pandemic resistant billion business model has been a game changer for us and our customers. We now have more flexibility and as a result of our new work from home capabilities. Our long term growth is not is now not down why in office capacity.
Constraints.
We are scaling our growth profitably and customizing programs to customer preferences. During the quarter TRG added 130 billable seats to support new account engagements, including those that came back online. After a brief pause at the onset of the pandemic. The team ended the quarter with nearly 1600 billable seats.
And expects to finish out the year at nearly 1700 50 agents overall, we added over 350 agents since the beginning of the year. Although we are still primarily operating in a work from home model. We currently have approximately 10% of our agents safely working on site. Both our believes in El Salvador located.
On his combine and expect to have about 30% onsite by year end.
Now that I've covered the segment highlights I'll review key operational updates.
Our Georgia in Arkansas warehouse consolidation is approximately 90% complete and should be fully complete over the coming weeks. We are actively marketing the Georgia warehouse property and seeing promising interest.
We also will be relocating our administrative George employees into a smaller office for product development and administrative offices in the nearby facility in Dunwoody, Georgia.
Full modernization of our facilities one of the keys to harnessing the full potential of our shared resources business model.
As we've spoken about this in prior calls our continued investments in state of the art automation at our.
Arkansas centralized distribution center continues to progress. However, we have had some construction delays due to weather and additionally, our software vendors delayed due to setbacks related to cope in 19 shifting our expected go live to the third quarter of 2021.
Additionally, implementation of our new robotic picking system in our Dallas Basi I'd facility is scheduled during Q1 2021 and is expected to yield significant savings improved service levels to customers as well as position us to handle expected divisional growth.
Hi, Debbie too.
Our second location in Haiti exclusively serving see I'd continues to ramp up operations with now nearly 700 employees. Once the factory is fully staffed with over 800 employees. During the first half next year and the employees are fully train, which should be by Q3 2021, it will generate approximately 20% of CIA used.
Total production volumes.
As a reminder of what to what we've said on prior calls these products will be brought it to the U.S. duty free generating improved gross margin and will result in faster customer delivery.
Turning to the global macro environment.
Very dynamic as we all know and we were all navigating the unique challenges presented by the global health crisis as well as other geopolitical events, we're approaching that other wave of COVID-19 as cases spike globally. We're also seeing rather rapidly rising fabric prices from China due to shortages created by the extension.
Dads.
Fabric mills in India.
We believe the impact of our gross margins will be temporary with the falloff in price pressures expected once and he is back online we are well versed at managing through pricing pressures and are well prepared to mitigate mitigating increases needed as we have in the past.
As we've stated before.
We continuously conduct strategic planning for a wide range of operating scenarios remain focused as we adapt and continue to optimize our business deliver sustainable long term results for our stakeholders.
Now call turn the call over to Jake and then I'll return with my closing remarks, Jamie.
Thank you Michael and good afternoon, everyone I appreciate the opportunity to join our quarterly earnings call and happy to help fill in brand B as noted earlier, we filed our form 10-Q for the third quarter ended September Thirtyth 2020 earlier this morning.
As Michael indicated we continued our strong momentum into the third quarter and build upon our impressive year to date performance.
We continue to improve our liquidity and debt leverage position with our debt to EBITDA ratio down from four times at December 31st 2019 to 1.9 times at June Thirtyth 2020 to 1.5 times at September Thirtyth 2020.
Importantly, this is the second consecutive quarter in which we are in line with our desired range of one to two times debt to EBITDA and well under our covenant limit.
During the third quarter, we reduced outstanding debt by another $8.2 million year to date, we have reduced outstanding debt by approximately 42, and a half million dollars through.
Through targeted companywide expense controls, we continue to improve our cash position.
Third quarter net sales were $127.8 million, an impressive 42.8% increase compared to last years third quarter.
End of Q3, PE backlogs, both BAMCO in the uniform segment sort of just over $60 million of which 90% is expected to ship over the next two quarters.
Gross margin, which we define as gross profit as a percentage of sales for the third quarter increased to 37.1% from 35.2% in the third quarter of 2019.
This margin increase is attributable to higher margin sales based on product and customer mix.
As a percentage of net sales consolidated EPS DNA expenses for the third quarter decreased to 27.3% versus 20.2% last year.
That decrease is a reflection of our ability to leverage higher volume sales across all business segments combined with continued cost mitigating actions to control operating expenses.
This decrease in ESG today as a percentage of sales is even more impressive when taking into consideration the increase in our provisions for bad debt to 1.6 million in third quarter of 2020 compared to zero point $4 million in the same period last year.
This increase is largely due to the uncertainty around collections from customers severely impacted by that.
While we continue to believe that many of our customers in non essential business will be able to pay off as the economy recovers we are maintaining a conservative approach as it relates to inventory and accounts receivable reserves from these customers.
Income from operations more than doubled from Q3, 2019 to Q3, 2000 $20 million to $12.5 million and operating margins climbed from 6.9% to 9.8% over the same period.
Our effective.
The tax rate for the quarter was 17.7% compared to 15.3% a year ago.
The change in rate was principally the result of increases in compensation related items and the effective foreign state and local taxes between the comparable periods.
Overall third quarter net income increased to 153.6% from $3.9 million to $10 million, resulting in 63 cents per diluted share for the third quarter of 2020.
We continue to prudently manage our cash flow and that's a timber thirtyth, we had cash and cash equivalents of $5.7 million.
Through the nine month period ended September Thirtyth.
Next was $5.7 million and is tracking below our original plan of $12 million.
Our best estimate for full year 2020, Capex is approximately $8 million. This.
This decrease from plan is primarily due to delays in our Arkansas expansion as mentioned earlier.
This shortfall will carry over to next year's Capex.
As noted during our second quarter earnings call our board of directors Reinstituted, our regular quarterly dividend of 10 cents per share and we also paid a special dividend of 10 cents per share in the third quarter. This.
This puts quarterly dividends back on track at 30 cents per share for the nine month period were 4.6 million in cash dividends.
Moving to overview of our segments.
Provide a breakdown between core product offerings and PPD sales across our segments.
However, as Michael noted it is becoming increasingly difficult to separate ERP sales from traditional uniform or promotional product sales as many customers are placing orders that include PPD items, along with promotional products and uniforms.
We believe that the provision of pp items to our customers employees may become the new normal and thus a large part of our recurring business with key customers, particularly in the retail space.
For the third quarter uniforms and related products net sales increased 33.2% to $73.2 million.
$13.9 million of that with PPD versus $800000 in Q3 last year.
I'm pleased to report that we had another remarkable quarter at Balco with sales up 67% to $44.2 million in the third quarter compared to the prior year period.
Those results were driven by mix of traditional branded merchandise as well as continued demand for PPD that help contribute $19.4 million to that third quarter total.
Bamkos third quarter operating margins were 15.7% yet another testament to bamkos ability to opt right optimized its operating margins through scale.
We are seeing pp product orders starting to slow somewhat while traditional promotional product orders are gradually returning.
Further evidence of this is that the percentage of bamkos backlog comprising traditional promotional products was less than 40% at the end of Q2 versus greater than 60% at the end of Q3.
Bamkos results from the third quarter are all the more impressive against the backdrop of the promotional products industry. It.
It was estimated that the industry experienced a downturn that was greater than 35%. So far this year.
The office Gurus returned to high double digit growth and reported a net sales increase from third parties, 28.7% to $10.3 million a.
The combination of strong sales activity with our existing customers and the onboarding of new customers helped accelerate growth during the quarter.
I'll now turn the call back to Michael for his closing remarks, and a general outlook for the remainder of the year.
Thanks Jay.
I am extremely pleased with how our teams are executing we're showing tremendous resolve and collaboration seeking opportunities to maintain or consistently high level of.
Superior customer service, while also supporting our communities, we certainly exceeded expectations. So far this year.
We have become even more disciplined more responsive and more dynamic than ever and we are well prepared and capable of continuing to operate efficiently and effectively in this changing a new environment.
Related to our long term outlook, we opted to update our guidance earlier this year to provide additional transparency for our stakeholders. During these extraordinary times.
To share with you a lot of information now.
Guidance somewhat you have not had before.
This year, we expect to report more than $500 million in sales with over 100 million of that the PV sales.
This is of course I qualify that by saying it's dependent upon orders not being delayed and the continued flow of incoming orders that we've been receiving over the last couple of months, but we're relatively confident.
Recall that we had expected 2020 to be somewhere just north of $400 million and net sales.
Let me reiterate that when we did our budgeting in November and December of last year and that Weve done throughout our strategic planning, we expect in 2020 to be $400 million in sales and now as we know what's going to be greater than $500 million.
For 2021 on a consolidated basis and excluding additional unexpected events such as another way were extended period of the cobot crisis net sales are anticipated to be in the range of $450 million.
This assumes that pp sales will taper off across all divisions.
Looking forward to our anticipation for 2021 and beyond we expect our four year CAGR that is from 2021 to 2025.
Our four year organic cave CAGR to be greater than 12.5%.
For your estimate CAGR is breakout as follows our uniform segment greater than 12% the office gurus greater than 18%.
Banco promotional products and branded merchandise division greater than 12%.
And by the year 2025, we expect Sgc operating margins to be in excess of 10%.
This guidance does not take into consideration any potential acquisition opportunities.
We are seeing a robust market with acquisition opportunities surfacing or resurfacing, both on the uniform and promotional products side. We are actively exploring landscape looking for quality companies that fit our culture. Our brand building profile are easy to integrate and would be accretive to our bottom line very quickly we serve.
We have many options in terms of financing, including funds available under existing revolver and other means of raising capital. We're considering all possibilities to prudently manage our debt and to position ourselves in the strongest way possible to be able to fully capitalize on the right opportunities that will be accretive.
We're very excited about our future as we elevate our very best resources to serve the company as a whole through ingenuity and resilience we've grown our company through many challenges maintaining a position of strength and stellar execution, we remain steadfast in executing our strategic growth plans pursuing excellence in operations investing and Ernie.
Growth and honoring our commitment to stakeholder returns with that we'd like to open the call for your questions.
Ladies and gentlemen at this time, we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if.
If you are using a speakerphone please pick up your handset before pressing the keys.
Withdraw your question. Please press Star then too.
Once again that is started then one to ask a question.
And our first question today will come from Kevin Steinke with Barrington Research. Please go ahead.
Good afternoon.
Yes.
Hi.
Wanted to start off by a talking about the the long term outlook you gave for your Cagar 2021 to 2024.
So what 12.5% is the goal.
It looks like the.
Segment that changed most materially from your prior expectation is that the uniform segment at 12% about double what you were targeting before so just wanted to get a sense as to what's what's driving that.
Very positive change in the outlook there. Thanks.
I don't know if I misspoke or you just heard but that is a CAGR from 2021% to 2025 that would be a four year CAGR compared okay, and Paul I apologize for that okay. What could have been on my on me, but I just want to make that clear.
Okay that was.
Pretty picked it up pretty quickly so that at the end you already got that.
Are you.
Yes.
What's really changed that is our outlook on our healthcare uniform business.
It's driving most of that the the employee I decided that hasn't changed much as a matter of fact, we don't usually break it out and report them separately, but I can tell you. The uniform. The HP is very much in line with what we thought before and.
Health care and see I'd both.
Are the driving force behind that rising to to the 12%.
And there's just so much opportunity in healthcare, we see it and not only in personal protective apparel.
And we're we're not talking about products that we haven't had these are these are legacy products.
We see more and more dim.
Demand for reusable products versus disposables, we see a lot of outpatient centers.
Outfitting their people differently with isolation gas I know I went to the dentist. The other day for the first time ever I got greeted by people wearing.
Mass shields and.
And barrier gallons and barrier coats.
And that is the new norm and that is the the guidance from the American Dental Association, but that's happening across the country and we that is not going away in our opinion.
We're very happy its not.
No. It's a new norm of safety that is going to be practice.
Besides which we have some very exciting things happening at sea I'd.
With some of the new channels that we're operating in.
With.
Our E tailers in with some of our brick and mortar their international as I spoke about.
It's come very fast we saw eye in the script actually spoke about Europe, but we're doing business in Australia.
And in the middle East as well.
Putting an emphasis on Europe in the near future, but we're already doing business in a couple of those other places.
Fashion seal healthcare as products, we've taken huge positions on on inventory, bringing in some of that is rising right now over the next couple of months.
To be better prepared than we were the first time for code and then the first time, we got hit by coal that we we have some products that they literally were selling 50 times or 100 times more of today, we're pretty confident.
So.
We're not we're not going to be we're not going to be caught short again.
And so.
It's very small risks on our part.
If there isn't another way because it will just sit with the inventory a little bit longer at the cost of sitting with inventories fairly cheap.
So yes, it's it's a it's a fair statement.
I think also in there.
It's a little bit more growth for Tivo Jay Kevin.
Whereas before our guidance was $7 million year I believe.
It's it escalates now we've actually given a percentage because we believe as time goes on we can grow it even to a larger extent each year than just the $7 million a year. So it.
Seven is a good starting point for us.
And we'll go from there.
Alright, great well.
So yeah I guess.
Maybe to dig in to see idea a little bit more.
Is this a matter of them kind of getting back to.
You know kind of the growth trajectory or the that they are on you know prior to them being acquired I. You know I know there was some kind of a transition.
Transition or integration there but.
I mean.
Or is it just kind of you know.
New opportunity be beyond what they were doing obviously I guess international is new.
Just trying to see.
See what's really changing for see I'd or if it's just kind of getting back to more historic norms.
What are you seeing in that business.
Well.
They are their E commerce business that was sold through other distributors, who were distributing our products, including Amazon and many others has grown significantly was growing significantly before coated and has become a large much larger portion of their business. So we see continued growth of that.
We do have products that.
We've spoken about.
That and other channels.
Betsy ideas, introducing which are.
Unique to the industry.
Managers in which.
Ways they can help.
Some of their channel partners, like Etailers, and even brick and mortar retailers service groups.
It's going to be brought to a whole another level.
They are very dynamic organization and I don't know we had a couple of years, where we had a we had a fix a lot internally.
Now on a good warehouse system onto their ERP.
Their marketing is fabulous.
They're they're right on the path they should be I mean, we I think we probably took a pause we needed to.
And not that the business has been doing well the business continues to thrive.
But we see much greater opportunity for them in the future.
Great and how how does the.
The wonder Wink indie launch play into this.
Increased outlook for.
Healthcare uniform specifically.
You mentioned that was very well received.
Yes, you have to look at India as a long term project. So when Indy introduced by a laundry should their customer that customers generally already in a uniform program supplied by that laundry. So it's the laundries job to convince that customer or new customer to go into a more fashionable product.
Which is not very difficult to convince them to do but to go in at a higher price.
It's not going to be there's this value proposition there that they're not able to get from their current product. So.
We think its great I mean before we had a we forecasted what our first six months would be after delivery of product in our first delivery of product was in July.
And we predicted that it would that would be.
Six months were in fact.
All that is sold out already so.
We've issued multiple productions after that to take care of the other needs in the market and as I said.
Good.
When all the where tests and wash tests are done which should be over between now and the end of the year.
We should be seeing all laundry is going out and selling this product with confidence.
To their customers.
I can tell you there is a lot of excitement out there it's not that we.
We have a unique position in that we're early into this and were first.
They are going to be those are going to copy us. We've spent two and a half years on development and production almost three years actually.
Maybe they could do it a little bit faster than we did it we were very careful to make sure. We have brought the right product to the market.
But but we believe we've got a we've got a pretty good tailwind.
You have to look at it over the long term, though over over a five year period of time, yes. This will be an eight figure business.
Indeed over.
But it's got to scale up to that overtime.
It's going to take some time that it could it could happen faster that I'm, saying all.
Oh, It really takes if you think about it as well.
Five or six large groups healthcare systems in the United States.
15, or 20000 employees each ton.
To blow my numbers out of the water.
But we're very conservative in that that's what we're projecting at this point.
Okay. That's helpful.
And so on promotional products are BAMKO.
In excess of 12% I believe you said.
Which is unchanged from before just.
Obviously, there's still a very healthy growth rate.
Just wondering how.
You are thinking about that in terms of.
PE versus a traditional promotional products and.
You know how that plays into the outlook over there that four year period, but let me make clear that my numbers from 2021 2025.
Only included the pp business that we know about at this point the business that we've written day. Most of it is sustainable business that will become part of programs. It doesnt include that there might be some crisis buys of PB 10 million or 5 million or $20 million or whatever along the way were small.
In any of our numbers not and Bamkos numbers and not in earnings Formula Jake speak to that Jake since you're on Jacobs as COO and CFO BAMKO why don't you respond to that.
Yes, Thank you Mr., Kevin add and as it relates to long term outlooks for BAMKO, Yeah, we think of the business and long term potential.
Yeah, pp should taper off a bit legacy PPG won't even before the pandemic, we're doing PB hand, sanitizers white things like that and demand for promotional products in uniforms.
Going to continue to increase.
We think the PB demand will continue for some time, but we aren't banking on it and we're continuing to build our promo business.
I had a lot of success and winning RFP is converting PB EE customers in the branded merchandize customers, bringing on new sales reps Kevin.
Kevin the truth is that that could have been pretty tough for our industry right.
Industry down somewhere between 30, and 40% depending on what publication you read.
But were up 107% year to date.
In the BAMKO segment, and so we've capitalized on opportunities that that our competitors just couldn't pivot to quickly enough.
We're really diversified in our client base.
And we believe that the pain that happened this year and the promotional products industry is going to have some long lasting effect on some of our competitors that will allow us to continue to pick up market share puts us in a really strong position with sales reps with.
Customers that are going out to RFP and M&A opportunities.
Yeah that makes sense I mean, so what are you seeing kind of on the.
Pipeline for.
New sales people and promotional products.
Given the dislocation in the industry and.
Just just in general.
Kind of your performance versus the industry and how that's going to.
Play into your favor going forward.
Yes, we can we continue to be extremely active and sales are progressing.
I think we represent a really really appealing landing spot.
For for sales reps.
We go through a really spent painstaking process evaluating sales are candidates and only take on the right ones that are a good fit for us and can immediately start generating revenue for the company.
But but look we have great technology, we have great warehousing, we have an unbelievable management team we have the support of.
The entire shared services model, we are really really appealing landing spot for a lot of people and so we continue to see more and more interest in people coming to BAMKO when they see there.
Their own companies struggling.
Got it that's great okay.
So I guess the other piece of the.
The long term guidance is the margins.
And I believe correct me if I'm wrong, you said by 2025 in excess of 10% operating margin.
I believe before you were talking about 8% to 9%.
By 2024.
So just to confirm that I have that right and you know maybe what's the.
What's changing there that is enabling you to increase your target for the longer term operating margin.
Okay, Great question scale, mostly.
No the affected our uniform divisions will grow at a greater clip than we had anticipated and even.
Gee will.
We will certainly help us get to that operating margin by then.
Feel pretty confident in that and I think we've shown through our scale from just the last two quarters.
What happens to our operating margin when we when we.
Ill just add on additional volumes were built to do more than we're currently doing.
Cancer, that's true in every aspect to Brooklyn, most aspects of our business from a sales standpoint from a marketing standpoint.
Always going to have to put some money into infrastructure, but but it's quite small what we will be putting into infrastructure beyond next year with our with our warehouse project.
That we've spoken about in terms of big infrastructure product product projects for the next few years.
Okay.
Great.
Just you mentioned TRG, there just kind of maybe talk about.
What's what's driving the momentum there.
This environment, if it's just kind of business as usual during the pandemic or if there's something about this environment. That's you.
No faith favoring them.
I know you said, you've been able to expand your capacity with with work from home, but just maybe any comments on.
What's driving growth in that business.
Yeah call. It maybe by luck or somewhat design, we happen to have a contrary of customers at TRG, who have grown significantly during the pandemic.
Some of our home warranty services energy sales.
On the legal.
Services that we provide support for it.
It's phenomenal and so.
Some of them were using centers elsewhere.
That disappointed them in the pandemic we didnt.
We actually in many cases raised.
Raised the level or raise the bar so to speak with respect to the service they can expect from home.
Being no almost.
Almost as good or as good as what we are providing in.
Center for them I think they like the hybrid solution now some people working internally something working externally.
Hi.
We certainly have we put on some new customers as I've said as well.
Primarily our growth has been existing customers.
There's a lot of centers that have disappointed people.
During this work from home model and haven't gotten it right.
And of course customers a lot of money and anguish.
I think they're also with India being shutdown and having so many other problems with.
Floods.
So nominees whatever.
Okay, Yes, there's a lot of work moving back to this hemisphere swells Philippines.
Well, good but lot of that work is moving back here I think people.
In the U.S. want people on the phone dealing with them who are more culturally aligned with them.
Or more understandable on the phone.
Who they could go visit once things reopened with a two hour flight or a three hour flight or less.
And I think the Oscars is actually perfectly situated to capitalize on true and it doesn't hurt to Kevin The awards they've won for being the best call Center Best place for young professionals to work we're.
Sure. We're we're like every call center in the world to trying to put on hundreds of people at a time recruiting is really the biggest job you have when you're recruiting for 350 people, we probably went through more than a thousand resumes to get to 350 people and probably did more than six years.
700 face to face interviews so lot of it is building up your HR capabilities to be able to handle that and I'd tell you that we probably could have done more dominant if he were here would say we could have done more last quarter, if we've done a better job of recruiting.
We're working really hard and some new strategies to try to get ahead of that because we believe we can accelerate that growth. If we can just get better on the recruiting side.
Okay got it.
And you did mention it.
Just mentioned, India, there and you mentioned rapidly rising favour fabric prices due to plant closures in India, I think that that will be temporary but.
You know how do we think about how you're able to manage that pressure in the short term.
You know will you try and.
Implement price increases to offset some of that or.
Or should we kind of expected temporary blip and gross margin you know what.
Whats.
How are you going to manage that how should we think about how it plays out in the financials perhaps.
I knew that question was coming.
[laughter].
I'm going to let.
Jeff to answer any questions or have been on the call yet so.
Just going to speak about gross margins and all that you said is true but.
We we've been we've been great stewards of our gross margin.
But Jeff go ahead jump in on that.
Hey.
Hey, Kevin This is Jeff I'll.
I'll talk a little bit about operating margins and where we're at and where we've been and.
And hopefully kind of what we could sustain.
Yes for the third quarter, we are at the operating margin of 9.8% compared to a high of 12.3% which is taking on account.
The significant ERP sales.
Now your direct question on whether or not the fabric fabric prices in India and other pricing pressures.
Well it will impact us I'm sure there will be some impact there were mitigating we have certain avenues to mitigate that with our kind of our supply chain as long along with our tenants.
Pricing already on the customers and the prices that we negotiate with the vendors thus far and so we're we feel like we're in a pretty good spot to not take a.
Impact noticeable impact.
It's in the next quarter and feel pretty comfortable in that kind of starting 2021 as well.
Yes, good Jeff.
I think does the correct responses since beginning of 2019, given we've we've actually been able to hammer and lot of our prices down.
And that's that's coming back now that pendulum constantly swings. So 2017 2018 prices were rising 2019, 2020, we have been able to push them down we're going to see them change a little bit, but so the mix of business as that happens and I think to Jeff's point.
Yes, our redundant manufacturing strategy has has really served us well I mean, just just think about it.
It's not just go Debbie to that we'll have 800 people next year and be doing 20% of each product, but could that be one we put a couple of hundred more people into that.
Factory is actually moved some of the fabric out of that factory and were using a separate warehouse and could put more people into that factory. So it's doing a larger percent of our product duty free which generally means to us.
Anywhere from 6% to 17% savings on cost.
Which makes it a lot more competitive than let's say, Vietnam or Bangladesh for Pakistan or any of these other place doesn't make it any any cheaper and lets say Madagascar.
Which is duty free.
Or our other 80 factories that important prince our contract factors.
But I.
I don't think you've ever seen huge swings overall in our uniform.
Margins.
From one quarter to the next 116 month period to the next so I think Jeff is right.
You will see a little bit of a change we'll make it up in other ways.
All right, Yeah, I mean, you've obviously been great at managing.
Those margins over the years so that's.
That's good to hear.
So I don't I might have missed it but did you give a.
Last quarter, you gave a.
Specific number for the P.P. backlog for the second half of the year I think 52 million.
What.
Where does it stand now in terms of the P.P.S.P.P.E. backlog that you can kind of separate out her specifically identify if you can yes.
Yes sure.
Our pp backlog at this point is.
I think Jay Jay spoke about on the.
Form so I'm not sure.
Consolidated backlog, Jeff I have this right is 60.
61 point to $61.2 million as I said, just over $60 million I did say in my mind.
Script.
And that's broken out.
Between BAMKO and.
And the rest of superior.
Hi, Dave.
Okay, and then that rolls in over what the next couple of quarters do you think.
Benefits or.
Over the next few quarters I mean, if you look at at the end of first quarter. I think we said we had approximately $60 million of PV so that at all.
Gary on earlier.
On our April call.
So.
You saw that in the following quarter, we did roughly $30 million and then we said at the end of last quarter. We had about 50, some odd million dollars and about half of that rolled in so yes, it rolls out over about two quarters.
Sounds good I did say in my script that that 90% of it will roll out over the next two quarters. The 10% is part that we're going to hold onto it and be shipping all next year weekly monthly whatever customers require also.
Also keep in mind, there will be additional pp and that is not in my projections any large peak sales part of uniform program, yes, that's anticipated what any large pp orders that we get.
And Trust me they seem to come out of the Blue.
We have a customer that we we've sold over $10 million of PV to come back to us twice for additional multimillion dollar orders.
Actually we have a few customers like that so.
There are.
There is going to be other pp opportunities we just.
No way of knowing we have no way of putting that into our numbers. So we essentially left that out of our numbers for next year.
In order to keep it as transparent as pure as possible the numbers if.
I would welcome doing another $50 million in PB next year and doing over $500 million again.
Yes, so no none of that potential which you know it's like you said hard to predict is in that 450 million number.
For 2021, right that's correct right okay.
All right great wall.
I think that's all I had for today, but again congratulations on the strong results.
Thank you very much Kevin.
And once again, if youd like to ask a question. Please press Star then one.
And our next question will come from Fred focus with Boston University. Please go ahead.
Hi, Good afternoon. This is Fred folks Boston shareholder congratulations on the quarter guys going gang Busters I have three questions. One one is whats your own experience with your own employees and sort of COVID-19 and.
Testing tracing second.
Second question in terms of the hiring the people being hired.
Temporary category are they permanent and hope to have a permanent job and the third acquisitions continue to be attractive what kind of companies are would be the best fit the way bolt on acquisitions. What are you sort of looking for in terms of acquisitions.
All right.
Our own experience and testing tracing is we and contact tracing we have been doing it and all of our locations since early on when we send people home March 17.
From that point forward anybody who entered any of our facilities.
Was being tested as long as tests were available we had some experience in our distribution centers as you can imagine with some code.
At one point, we had additive.
About 500 people, we probably had as many as 45 people at home.
Not because it all cope with some of them had come in contact with somebody who had and there were ways, they're waiting testing.
But we said we've got a couple dozen people had called it and.
Hey that to stay at home and isolate and Weve done contact rates are we done a fabulous job with contact my hats off to our HR Department, our directors safety to June.
George schools, and Ingo Tears and most Ashley at our at our distribution Center in Arkansas. These people worked tirelessly literally day and night to make sure everybody was contacted to make sure everybody know.
But we.
We arranged testing on it.
For all of our employees I mean locally here in Florida audit Atlanta, all of our other place there's plenty of local testing, but in the rural South.
Where our distribution centers, particularly in Arkansas, Yeah, there wasn't a lot of testing.
Available and.
Thankfully.
We we have nobody in our uniform business, we have nobody who passed away.
From Covance.
We had we had I guess, we had some people hospitalized.
I'm not sure that I used I was getting a daily report for a long time and.
I don't get a daily report any more because we're not having any new cases.
Well, so we're very happy about that.
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On the hiring.
All the people we've hired this year and we're up to 4500 people and that's mostly people.
People hired into our HAE facilities.
People hired for the office Gurus and people hired into our distribution centers.
And no those are permanent jobs, those are real jobs with with benefits and medical benefits and all the benefits of working for us. So.
We're very excited about that as well.
Acquisitions.
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I'll tell you I'll tell you.
The short story at once.
I once got frustrated with the with the CFO, we had a near about 25 years ago, and I said to I can bring him acquisitions. He says now don't like that not on like that one is it will show me the acquisition, what a perfect acquisition looks like on paper.
And he couldn't.
So I'm going to tell you the sales there is no.
Perfect model for an acquisition I think I was pretty clear in the script that.
It's got to be a smart group of people that we feel will help us in some way accelerate the growth of our business and together, we can help accelerate the growth of their business. It's got to be a business that that we can.
Integrate system wise people wise and culture wise easily if it's one of those things are going to take us two or three years to get it done we don't want it.
We've been down that road before and we've been done that successfully we just don't have the time or.
To do that anymore.
And the last thing it's got to be creative it's got it's got to be quickly accretive I don't want to wait two or three years.
To see.
The bottom line of that business, helping our own bottom line I want to see a lot faster.
In terms of size.
Not going to be we're not looking for acquisitions, where we can buy a $5 million a company or a company doing $10 million it looks like it by five to the one time and.
Pull them all together, although that sounds like a nightmare to me.
Somebody that show me, how that's done well.
It would have to be sizable so it moves the needle a little bit for our company.
Unless it's small and has some special talents.
In terms of how it goes to market what products. It has a specific geography, that's interesting to us.
Otherwise I don't think we'd be interested.
Oh.
Sounds good to me thank you.
Thank you Frank.
And this will conclude our question and answer session.
I'd like to turn the conference back over to Michael Benstock for any closing remarks.
Thank you very much. We appreciate you all taking the time to join us for our call today appreciate always for your continued support.
We look forward to updating you on our fourth quarter year end 2020 results in February 2021, please stay safe and healthy over the holiday season, and we will speak with you next year.
Best wishes.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
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