Q4 2020 Superior Group of Companies Inc Earnings Call
Good afternoon, everyone.
Welcome to superior group of companies 2024th quarter and year end earnings conference call with US today on behalf of the company is Michael Benstock, The Companys Chief Executive Officer, Andy Demott, its Chief operating Officer, Chief Financial Officer, and Treasurer and from the promotional products Division.
We have Jake Himmelstein Bam coast, Chief operating officer, and CFO as always upon the conclusion of the company's remarks, there will be a question and answer session. This call is being recorded and your participation implies that you agree to this if you don't then simply drop off the line now I will turn the call over to Holly.
L Sherbini senior managing director of three part advisors, who will read the Safe Harbor statement. Please go ahead.
Thank you.
This conference call May contain forward looking statements about superior group of company debt company within the meaning of Securities Act of 1933 Securities Exchange Act of 1935, the private Securities Litigation Reform Act of 1995, and all rules and regulations issued thereunder.
Such statements are based upon management's current expectations projections estimates and assumption.
Words, such as will expect believe anticipate.
Outlook hope and variations of such words and similar expressions identify such forward looking statements which include statements on the impacts of COVID-19 on the company's business, including inventory and supply chain manufacturing capacity at the company's own and contract manufacturer.
And facility.
Or if it's capacity and customer demand for.
<unk> 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 market, our business operations customers suppliers and employees general economic conditions in the areas of the United States in which the company customers are located changes in the market for uniforms are worn where promotional products are sold.
And we'll call Center services are you the impact of competition the company's ability to successfully integrate operations following consummation of acquisition.
And the availability of manufacturing materials as well as the risks and uncertainties disclosed on 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, and the 8-K filed recently.
Shareholders potential investors and other readers are urged to consider these factors carefully in evaluating the forward looking statements made herein and are cautioned not to place undue reliance on such forward looking statements. The company does not undertake to update the forward looking statements contained herein to conform to actual results.
Or changes in the company's expectation.
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 Howard.
Welcome everybody and good afternoon.
Thank you for joining us to discuss our fourth quarter results with me today as usual is Andy all reported the overall STC results in status for our operations and Jacob reported today on <unk> financials in the state of our current operations. There Jay previously help lead the third quarter earnings call. If you remember when Andy was not able to attend as <unk> becomes a lot.
And larger part of our company, we feel that the addition of Jay to speak Tobaccos results and answer questions as helpful. As usual when we are done we will be open for questions. So let's get started.
I am extremely proud to have reported our results. This morning record results in all segments and significant increases in top and bottom line results is positive news for our shareholders I am, especially proud to have done so and one of the most trying years in our 100 year history to report on how we pivoted and brought to get brought even greater shareholder value.
<unk> and EVAR to remind you 2020 marked the 100th anniversary of the founding this company my Great grandmother Rose started this business on the heels of the Spanish flu pandemic entering us into the world of medical apparel in 1920. She was a bold women's will only after she started the company will she be given the right.
She was a trailblazer I've been preceded by many bold leaders my grandfather, David Benstock, who saw the company through World War two of them. The support we gave to our Orange troops during that time and my father, who diversify the company greatly in the uniform sphere and took the company public in 1968.
Our legacy of a 100 years, it's phenomenal and drove ended at 100 years in the midst of the pandemic with the level of success. We have achieved gives us certain bragging rights.
We don't want to brag about our 4600 associates who've worked harder and smarter with so little clarity as to what was going to happen. This past year. They bought for our for survival and not only did they succeed but they exceeded beyond all of our expectations for work from home solution was deployed in mid March across all countries.
We operated none of us knew at that point, what the future would hold more what the contingency plans, we've put in place to sell PPE and heightened our focus on our central customers would yield in terms of our level of success.
As countries shut down we benefited greatly by our long term strategy of redundant manufacturing moving production around the world like chess pieces to ensure continuity of supply and keeping with our legacy. We also made record donations last year millions of dollars in cash donations and essential products to health care systems are donations health.
<unk> closed over 100000 caregivers the full value of our foundations well exceeded $5 million charity is in our DNA. It always has been going back to our formation and $19 20, our business got started as an act of charity when my Great grandmother Rose held three fellow immigrants get our business started to as superior surgical.
Yeah.
We are fortunate to be positioned today with greater strength and with more purpose than ever before our revenues exceeded <unk> $5 billion in sales. This year. If you look back to 2010, when our revenue was $105 million, we managed to increase market share during and following the recession and the subsequent cotton prices.
We are 10 years later and more than five times. The revenue we were able to achieve in 2010 or 2020 earnings increased over 10 fold over that same period of time. The most amazing part about 2020 was that not only did we source and sell over $131 million of PPE, but even without people.
Every segment of our business hit New revenue Records.
'twenty was not without its challenges it was a sizable contraction in the promotional products industry and in the non essential side of the uniform industry, but we have intentionally positioned our company to withstand most any uncertainty for the future. We always like to say to our investors that we're somewhat recession proof and that we are so well diversed.
If I'd across so many products and services, but now we know where pandemic group, two and saying that the bragging stop stops of course, my heart goes out to the millions of families who have lost loved ones. During this pandemic my gratitude extends to all the caregivers first responders teachers and other essential workers, including our own very own.
Awesome production associates.
And anything I could possibly put into words this pandemic as an over but our future is solid with or without future pricing sales.
Around this time last year we.
We discussed our trend our successful transformation to elevate our innovation automation sales strategies and leadership alignment for the next strategic phase of our growth. We continue on that same path in 2021, we accomplished a great deal during 2020, but the unprecedented growth we saw will require additional investments in human capital.
As we have leveraged our investments in the past and our share of resources infrastructure to control costs and deliver record setting results. We will continue to do so in the future.
Our annual net sales were up by an impressive 40% to over $526 million along with a remarkable 240% increase in net income to $41 million is a truly outstanding results further highlighting our resilience and strength, while the pivot to <unk> sourcing was key to our growth in net sales and net income.
Emphasize again that we achieved notable organic growth in net sales in all three of our business segments, even without the impact of sales from PPE. Andy will of course provide more color to that as we reported in third quarter. We're still seeing continued demand for PPE, and our healthcare and employee I'd retail business sectors, including reasonable for.
<unk> apparel, such as barrier coats and isolation gowns as well as scrub apparel earlier in the year, we bolstered our inventories in much of our legacy <unk> as well as scrub apparel, which has supported much of our organic growth. This year and we believe the majority of which will be sustainable for the long term.
Our fashion seal healthcare and CIB scrub products saw a sizable increases in sales across our traditional customer base at CIB. In particular, we also found new channels with mostly ecommerce retailers to move the needle substantially with respect to revenue and operating margins. We've spoken previously about our wonder Wink indie line for <unk>.
Cash and seal healthcare designed by <unk>. This new innovative fashion collection was expense essentially spoken for before even arriving in our warehouses one of our key laundry distributor customers put out a press release at the end of December announcing. The addition of the <unk> branded scrub line as part of their managed uniform service offering.
We are excited to continue our long standing partnership with them and others, who have come forward to support the long term success of the first of its kind of addition to our scrub offering in many years, we expect increasingly wide acceptance for this distinctive fashion scrub and anticipate that over a three year period, it will ramp up to represent.
And then high seven figures in annual sales.
We continue to work on our international marketing strategy through CIB as we discussed last quarter. We are currently selling health care apparel into European markets at modest levels as part of our long term strategy, we've contracted with a warehouse in Poland to begin distributing our products and to be closer to our customer base. This will allow us to build.
Our footprint further across those markets Hei, our employee I'd business has diversified customer base, including Covid essential and nonessential businesses revenue from the smaller non essential sectors within our ACI customer base was down by almost 30%. This portion of our employee I'd business.
In fluids, the travel dining and entertainment industries.
These sales declines were largely offset by robust sales to essential retailers, including pharmacies grocery chains and big box retailers.
While we are seeing lighter activity as unusual on the RFP side of <unk> business, we do expect a resumption of higher activity later in the year as the environment stabilizes to a new normal as establishment is increase their capacity and hire more people who need for uniforms and rebranding will certainly provide a lift going forward the essential side of our business.
Still remains strong and should help mitigate most if not all of the downturn that we have or will experience on the non essential side of our business.
Demand for PPE still continues the challenge is often not how much we can sell but how we can find sufficient and reliable supply the supply chain has been extremely tight on many products. We are working with our teams across the globe day and night to source legitimate products that meet the rigid specs of this market while many of.
Our customers are including what we call non legacy PV products as part of their normal uniform shipments for as part of their employee startup kits. There is still a substantial amount of business opportunities TV one across all the sectors.
And our promotional products segment with shape, we will report on further tobacco team turned a colossal crisis into a tremendous opportunity by correctly anticipating early in the pandemic debt PPE products, we're going to be in high demand and that customers would use those products not only to protect their employees and their customers, but all.
Also to help sustain their brand identity through our unmatched sourcing and creative expertise the team exceeded expectations by delivering very profitable sale profitable sales eclipsing $200 million quite a milestone.
The office Gurus returned to pre Tan pandemic double digit growth with a 31% increase in the fourth quarter and an 18% increase for the year.
Can't say enough positive things about our teams timely pivoted to a work from home solution that will enable us to continue to support all of our customers in the midst of an ever changing government lockdown mandates we on boarded several new clients during the pandemic and grew our agent head count by over 300 people to nearly 1700 agents we are considered by many.
<unk> of our customers, who use other call centers besides ours to beat their pandemic proof solution. We are excited about the opportunity that work from home means to us.
In terms of modest investments, we will need to make in the business and our ability to scale its growth even further.
Headwinds on the supply chain side impacted our uniform and promotional products businesses with logistic costs surging as we worked to serve our customers' elevated demand.
This is happening across all three including domestic trucking overseas air shipments and ocean container shipments, we saw pricing pressures both from a logistics standpoint from a fabric increased costs as well as some weakness in the dollar other logistic challenges include the well publicized backup of west coast ports, the lack of availability.
<unk> of shipping containers and scarcity of truckers to move freight has and this has caused severe logistic challenges as well as more than doubling of our costs associated with bringing product into our warehouses. As a result of these many pressures we implemented a sizable price increase that is largely affected this quarter.
I will now turn the call over to Jay to discuss <unk> results and then come back to you at the close.
Thank you Michael and good afternoon, everyone I'm ecstatic with the results our team at Banco has delivered during such a challenging year.
Our presence on the ground in Asia, and our superior sourcing prowess distinguished us during a year marked by crisis and opportunity.
<unk> ended the fourth quarter with sales of $56 3 million or 52, 5% increase from Q4 2019.
Operating margin improved to 14, 6% compared to four 5% in last year's fourth quarter.
For the full year 2020, our sales for greater than $202 million, an increase of approximately 88% over 2019.
We leveraged our scale to deliver 13% operating margin compared to four 3% operating margin in 2019.
This massive increase in operating margin is a testament to <unk> ability to realize economies of scale as we continue on our growth trajectory.
Industry wide promotional product spend was down approximately 25% to 30% in 2020 compared to 2019.
Despite these powerful industry headwinds Bam coast core promotional product sales actually increased year over year by $11 9 million or 11, 1%.
In fact, the fourth quarter with the largest single quarter of promotional product sales in <unk> history.
To reemphasize in a year, where our industry was down upwards of 30% <unk> was up 88% overall year over year and when stripping out PPE PEMCO was still up 11% year over year, just a remarkable performance in a very challenging market.
Core promotional product sales were steady in the first three quarters of the year before increasing substantially in Q4 as we saw a sharp increase in employee gifting.
Our backlog at year end was $45 5 million, which consisted of $5 $6 million in PPE and $39 9 million and non PPE sales.
The total backlog figure is slightly lower than prior quarters. The non PPE backlog continues to increase showing a resurgence in promotional product spend.
It's also the largest year end backlog in <unk> history.
2021 brings with it both challenges and opportunities regarding the promotional products market.
Our primary challenge is the timing of a return to large scale conferences and events something we are not expecting to occur until at least the second half of the year.
Fortunately <unk> business is substantially less event based in the industry as a whole and bank was continued strong performance has it well positioned to meet renewed demand as these events return.
Our diversified portfolio of clients and industry sectors served by Banco includes a number of well performing segments beyond the gig economy sector.
These include other areas of strength, such as home gifting customer retention programs customer acquisition re acquisition programs virtual conference gifts and gift with purchase items for consumers.
Cold Banco is much better prepared to take on the challenges and opportunities in the promotional product market than the industry at large.
Our acquisition of gift by design immediately positions <unk> to become an industry leader in corporate awards incentives and recognition programs, which we view as an important and rapidly growing market segment.
We plan to leverage our large client base and sales force to extend this vertical to current and future clients.
By joining forces both companies will immediately become better with increased capabilities and product offerings.
We are adding talent and proven leadership and a previously untapped vertical.
Before I close I'd like to point out that <unk> was once again honored in 2020 by the Los Angeles business Journal as the number one medium sized company to work for in all of Los Angeles. Additionally, members of the Banco team recently won awards for sales person of the year and Best Force are selected by promotional product trade publications and these are.
Quite impressive achievements, which reinforce our commitment to our culture and our people.
I will turn the call over to Andy for his operational and financial review.
Thank you Jay good afternoon, everyone. Our team performed an exceptional level in the midst of unprecedented times and delivered four quarters of impressive results timely cost cutting moves and an aggressive austerity strategy. In addition to profitable sales growth allowed us to improve our cash flow for the year, we continued to improve our.
Liquidity and debt leverage position, bringing our debt to EBITDA ratio to one four times at December 31, 2020 down from four times at the end of 2019.
This highlights nearly a full year in which we are in line with our historically desired range of one to two times debt to EBITDA and well under our covenant limit for the year, we reduced outstanding debt by $31 6 million.
We view our business through a long term lens striving for continuous improvement across our operational and financial platforms and as a matter of prudent corporate governance, we filed a universal shelf registration statement of $120 million on October 32020.
This gives us greater financial flexibility for acquisitions and large sales opportunities as they arise in the future. We also increased our revolving credit agreement by $50 million at very favorable terms and extended the maturity to 2026 to support our continued growth.
During the year, we continued to make business process investments to greatly elevate our technology and automation bolstering cross functional collaboration and driving enhanced efficiencies in fulfillment capabilities.
We highlight some key accomplishments.
We finalized the implementation of SAP <unk> completing critical software upgrades across our organization that further optimize our shared resources model all of our uniform segment businesses are now fully operational on SAP.
We continued to expand our manufacturing presence in Haiti with more production being sourced from our own factories, giving us a distinct advantage over our competition as we take a stronger position on fabric, we are able to reduce full package pricing overall, we expect <unk>.
Nearly $300000 savings per month, beginning in quarter three of this year on incoming product this should translate into even more improved margins in 2022.
We continue to make large investments in our distribution facilities in Arkansas, and Dallas, We expanded our distribution facility in Eudora, Arkansas and are in the midst of the installation of our new and upgraded robotics distributions.
We expect to be operational in the new system late in 2021.
Additionally, we are wrapping up the installation of robots in our distribution center in CIB in Dallas now, we expect that these investments will help us to continue to drive down distribution costs even further.
We completed the sale of our <unk> warehouse in GA in December of 2020, recognizing a gain on the sale of $2 $2 million.
The strategic consolidation of the Georgia, and Arkansas facilities was completed late last year in accordance with our optimized optimization efforts.
Turning to our financial highlights we had a tremendous finished for the year with fourth quarter net sales up 34, 1% to $145 $4 million.
The largest contributor was Banco with 52, 5% quarterly sales growth debt accounted for $56 $3 million of the $145 million in sales.
Uniforms and related products net sales increased 23, 8% to $78 $2 million relative to the comparable period in 2019 for.
$44 million of that was PPE versus $841000 in 2019.
Jay reviewed Bam goes outstanding results. So I'll, just reiterate that we continue to see significant operating margin leverage opportunity in the promotional products division as it continues to realize economies of scale.
The office Gurus returned to high double digit growth in reported a net sales increase from third parties, a 36% to $10 $9 million.
Throughout the year, the team redefine excellence and servicing existing customers as well as onboarding, new customers with their successful execution to meet changing customer needs.
For the quarter, we reported consolidated gross margin defined as gross profit as a percentage of sales of 35, 7% compared to 32, 2% in the fourth quarter of 2019.
This margin increase was attributable to higher margin sales based on product and customer mix.
As a percent of net sales consolidated SG&A expenses for the for quarter improved 26% versus 27% last year, reflecting our ability to leverage higher volume sales across all business segments combined with continued cost mitigating actions to control operating expenses.
Income from operations for the fourth quarter increased to $14 $1 million and operating margins climbed from five 2% to nine 7% over the same period.
Overall for quarter net income increased almost 320% to $12 5 million or <unk> 79 per diluted share compared to $3 million or <unk> 20 per diluted share in last year's for quarter.
Now, let's shift to a review of the full year results.
On a year over year basis, net sales were up 40% debt $526 $7 million clearly exceeding our guidance for the year.
Uniform as net sales rose significantly by 21% to $287 $3 million. Additionally, we ended the year with record backlog for the uniform segment of $74 1 million in total compared to $15 4 million at the end of 2019.
PPE backlog included in the 2020 year in total was $36 $7 million versus essentially zero at December 31, 2019.
<unk> closed on a record year, posting an increase of 88% and <unk> posted an increase of 17, 6%.
Of note our <unk> facility in El Salvador experienced a shelter in place mandate at the end of Q1 with zero notice, which resulted in a loss of roughly $1 $8 million in revenue, while we deployed our work from home solution <unk>.
<unk> had zero layout had zero layoffs due to the pandemic and continued to pay all employees, who are willing to work as we deployed our work from home solution.
As a percentage of net sales consolidated SG&A improved to 25, 9% for the year compared to 28, 5% reported in 2019.
Our ability to maintain cost discipline, while leveraging higher sales volume across our business segments continues to drive improvements in SG&A percentages.
We achieved the improvements noted in SG&A, despite potential bad debts in our accounts receivable balances as we worked through budgeting and economic scenario planning, giving given continued uncertainty from pandemic related disruptions.
To this end, we increased our provision for bad debt to $6 $7 million in 2020, as compared to $1 $3 million in 2019.
We also incurred an increase in expense of $4 $2 million on acquisition related contingent liabilities, primarily driven by fair market value adjustments and these liabilities as a result of the tremendous operating results delivered by Banco and the promotional products segment.
Our cost of goods sold were impacted by rising logistics cost as Michael mentioned impacting our uniform segment by more than $2 million. Despite this impact overall gross margin increased to 35, 8% as compared to 34, 2% in 2019, primarily due to customer and product mix changes.
Fiscal year 2020, operating income improved greatly to $52 3 million.
Compared to $21 $6 million in 2019.
2020, operating margins climbed to nine 9% compared to 2019 operating margins of five 7% to.
<unk> 2020, periodic pension costs were approximately $1 million compared to approximately $2 million in 2019.
Interest expense was $2 million for the year compared to $4 $4 million in 2019, and our effective tax rate for 2020 was 23% compared to 21, 1% a year ago.
Overall net income for the year grew by 240% to $41 million compared to $12 $1 million a year ago dialer.
Diluted earnings per share improved by 235, 4% to $2 65 per share compared to 79 cents per share last year.
Now for a few balance sheet highlights we continue to prudently manage our cash flow and at December 31, 2020, we had cash and cash equivalents of $5 $2 million. This is a decrease of $3 $8 million since last year. During 2020, our excess cash from operating activities was used to repay outstanding debt.
Where are we on our revolving credit facility.
We recently announced our quarterly dividend of <unk> 10 per share, which was paid to shareholders February 26 2021.
In total we returned $6 $1 million in cash dividends to our shareholders during 2020.
Capex investments for the year increased $2 2 million to $11 9 million compared to $9 $7 million a year ago.
We anticipate continued heavy investing in our automation projects. This year and we expect capex expenditures to be in the range of $15 million to $17 million for 2021.
Our fourth quarter and full year results reflect the team's superb agility and navigating a very challenging environment, while executing our strategy for long term profitable growth.
I'll now turn the call back to Michael for his closing remarks, and a general outlook for 2021.
Thanks Amy.
Our performance in 2020 can only be described as epic as a result of the tremendous gains we achieved in all segments of our business. We reached several milestones in the midst of a global prices that impacted nearly every facet of our lives and we excelled in ways that will be sustainable for the long term the year highlighted are.
Core competencies in delivering products and services to essential and nonessential businesses at Banco we differentiated ourselves across traditional promotional products by showing our sourcing agility to pivot to PPE at Deogee, we provided critical support to our customers during a pandemic and.
To do so from home and emerging stronger was nothing short of a miracle as we look ahead. We are excited about the efficiency and the agility that we continue to display as a company.
Let me recap some initiatives that we're excited about that we havent greatly covered so far in this call. We hope that you saw Sandbars recent press release announcing their new custom wonder wink offering gaining access to their customer base of over 21000 companies with hundreds of thousands of feet on the ground selling our special does.
<unk> products via this very important <unk> channel is a terrific win for CIB.
The realignment of our design and product development teams in our uniform segment was timely and we will be augmenting those teams will be even more talent as we forge ahead to take more market share as Andy mentioned, our third facility in Haiti.
We will considerably increase our nearshore production capabilities as a matter of fact in 2020, our own factories and 80 manufactured 13% of our total uniform production.
All factories and <unk>, including our contract factories currently manufacture about 25% of all of our units.
All this is done in the duty free environment. This will grow in each case by approximately 50%. This year, so that our own factories will be manufacturing more than 20% and overall contractors the numbers should exceed 35% of our total units as each quarter goes on this will result in improvement gross margin.
In our uniform business as well as our ability to better service to our customers from a nearshore location.
M&A activity, which we haven't covered yet is robust our ultimate mission with each prospect is to find the right fit said that in the last call and our keep repeating it as a reminder, we're being extremely discerning and pursuing opportunities that are quickly accretive highly synergistic have short integration periods and have.
The ability to bring smart seasoned leadership that will integrate into our corporate culture.
Joining forces with gift by designs as great as Jack spoke about is a great example of that and is a win win partnership that sets our cost for substantial opportunities ahead, we welcome their team to the STC family. Additionally.
Additionally, <unk> will be investing in a new warehouse management system, which will be implemented in its outgrow the Louisiana warehouse in the coming weeks. We also leased a 200000 square foot building, which is being built right now in Arkansas to handle all receiving which will also serve as a replenishment warehouse for our current uniform and promotional segments to handle future.
Growth.
We are excited about the installation of an even more efficient semi robotic warehouse management system and our main Arkansas facility, which is on pace for completion later this year.
As Andy spoke about we're wrapping up the implementation of robots at our Dallas facility as planned since these robots operate with a certain amount of AI and machine learning, we expect their efficiency to gather steam over the coming months, helping to reduce our costs and provide better service to our customers.
We are constantly evaluating our channel strategies, we're making a lot of progress in the e-commerce space to support our retailers platforms, both online and brick and mortar, particularly in group sales rollout of phase one of our group sales strategy will be completed this month with phase II plan for later this year, giving.
Our retail customers transparent visibility to their group customers down to each employee in the group is something that has not been achieved in the past. We are excited to bring this new technology to what is known as the group sales business.
We do expect to spend higher marketing dollars in the future to improve and increase brand awareness through many digital campaigns, which will partner with many of our retailers to achieve.
We continue to bolster our management ranks having gone from 3200 people to 4600 associates. This year to support our growth more is needed to take us to the next level. Please note that we are growing at a faster rate in each of our businesses than the industries themselves are growing as we <unk>.
Increase our market share, we must have talent to take us to new record levels.
We're also proud and cash you missed it.
To be listed as number 10 of Americas Best small companies by Forbes magazine much of this recognized as shareholder return and our financial operating results. We're also proud of our many award winning teams across our brand building enterprise.
Throughout our 100 year history, we've continuously cared for our team members served our customers supporting the communities in which we live and work our prudent resilience and ability to excel. During challenges is one of our organizations greatest attributes. We built this company to endure and we find ourselves in a commanding position as we enter our 100.
First Europe business with that wed like to open the call for your questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
You are using a speakerphone please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw your question Press Star then two.
At this time, we will pause momentarily to assemble our roster.
And the first question comes from Kevin Stein key with Barrington Research. Please go ahead.
Hey, good afternoon, everyone.
I wanted to start.
I wanted to start off.
By asking about it.
And I know you touched on this.
On your call last quarter, but.
<unk> talked about the.
International growth strategy and opportunity there.
Maybe could you just talk about.
The market dynamics in Europe, and internationally compared to.
What you see in the U S for CIB.
Similarities differences and why now.
<unk> is a good time to move internationally.
With CIB.
Okay.
CIB has been selling internationally, even before we purchased them in 2018 on a very small scale.
<unk> in South America.
Little bit of business in Europe.
A little bit of business.
Australia.
That has increased as time has gone on given with very little.
Effort or.
Yes.
With very little marketing on our part.
There is demand in all of those markets for fashion scrub products.
I think scrubbed.
Maybe they weren't always ubiquitous but.
But health care workers around the world.
That is what they are wearing today.
And they want fashion scrubs.
We're very conscious of that health care workers are in short supply all over the world.
And in generally health care workers.
More than their peers and can afford.
Fashion Scrubs <unk> and.
And even when hospital supplies grubbs.
Oftentimes nurses are taking them home, depending on the countries to launder them. So.
It's really a mix, it's very different by country.
But what we find is there's a certain consistency.
Across Europe.
And we've been selling in.
Some civ wondering product nearly into every country.
In Europe with a single retailer here or broker there, sometimes with the middle person in between us, but the thing that has.
Prevented us from really.
Growing that dynamic as having product on the ground in Europe.
Once you have product on the ground in Europe, you can ship across most borders very very freely.
Theres no duties between those borders.
When you have product sitting in Texas, and you've got to ship it to Europe, where you've got a shift to South America.
With how do you price debt.
You've already paid duty on United States of course, you can get duty drawbacks and get some of that duty back the navy shifting into another country and they are paying duties logistic costs are very expensive for smaller containers to ship to those countries. So we decided that we were going to put the logical place would be a third party location.
In Poland is central to.
For the countries that we want to sell it it's become a gateway for distribution to other parts.
For us it's.
I'd say, it's beyond the experimental stage, it's we're making a strong commitment to Europe.
We have an even last year had consultants working for us.
To help us.
Make sure we're making the right moves in Europe and these are people who have helped other companies.
In the in this space.
Expand their profile in Europe.
And we just think that the wonder we product is.
As the fabrics for great styling is fabulous theres nothing that that makes it a uniquely American products.
It's a universal product that can be worn by all caregivers around the world and so.
We're doing it because the products good and because we can and why should we leave that market to our competitors.
Some of our competitors have already entered Europe in a big way long before we did.
And we expect to be able to take market share from them as well as some of the local people producing in those countries.
Okay, Yes, that's helpful.
You.
Your competitors, who have already moved into Europe.
Do they have that same kind of differentiation in terms of the.
Cash and fit comfort et cetera that.
The CIA products spring or do you kind of feel like you have.
Some differentiation or for.
First mover advantage from that perspective.
I think we have I think they have the same advantage that we have in munis for the same people we compete within the United States. Many of them are great companies to do a good job.
We are constantly trying to outdo each other from a product standpoint, except for the <unk> line, which is totally unique.
Except for some of the channels, we might sell through that they don't.
Our products certainly isn't the same week, we do everything we can.
To see that our product is unique.
Or else why would somebody buy items in a shop.
Good.
We're on or online.
So I think it's a level playing field.
I don't think they have a terrific advantage over us except for getting their first.
And quite frankly some of these companies has been in business 20 years.
Started in the United States versus two <unk>.
<unk> took a lot of market share from them in the United States, We intend to do the same thing in Europe.
Okay, Great and then.
You referenced.
Your new partnership or.
Yes, I guess, it's the wonder Wink partnership.
With.
<unk> Corporation.
It seems like this channel Youre excited about.
So can you just talk a little bit more about that and are there similar types of opportunities in the pipeline that you see.
There are.
Constantly working to become this omni channel as we can while continuing to support our retail base of customers.
And.
So <unk> was a big win for us.
Working on that for a long time in collaboration with them, making sure we have the right products.
So they can take big inventory positions to be able to service what is essentially the entire United States.
<unk>.
21000, plus competitors in those competitors you understand are mostly promotional product companies, who might sell into doctors' practices in dental practices and so on.
That actually compete with Vasco interestingly.
The lines are pretty blurry between all of these companies in terms of who is the supplier Inc.
And who is not but sand margin is probably the.
Is the most highly regarded.
Customer servicing that industry with apparel.
A very multi interest debt catalog.
Debt.
Essentially probably 'twenty, probably 100000 salespeople in the United States walk into their customers with to show them different apparel and now there'll be some pages.
Allocated to scrub apparel.
In our apparel so they made the announcement to their sales force back in December that did a press release last month.
We're very excited about it it opens up a whole new world for us.
Have a multi year true.
<unk> from them.
We think we're going to it's going to turn to some COVID-19 quite frankly, we believe it's additive to.
To what we're already doing.
We believe in the end.
It will be it will support all of all the efforts that we're putting into our marketing and will help support them as well, but no. It's a it's an exciting channel for us and they are smart business people.
And they made the right choice choosing us to be their partner.
Yes.
Okay.
Mystic.
So I'm just trying to.
Put some pieces together here.
So it's for us to talk about San Mar and then.
The.
International expansion for CIB, and then as you mentioned.
The wonder wing.
Moving into the laundry channel I saw the announcement that you referenced there.
It's public information unit first had debt.
A press release out about their.
Partnership.
With Wonder when Inc, but.
Frankly.
Interest in talking about all of this are more about this because I had.
A little bit of pushback from investors post your last call thinking that.
At 12%.
Organic growth target you put out there for uniform seemed aggressive but.
It sounds like these types of opportunities or new channel partners et cetera that you're adding are really are what.
Is what's going to kind of buildup to that ability to grow 12%. So any more color on that or how you kind of buildup to that.
Net targeted growth rate that you put out there.
Sure well, we felt we felt pretty confident in.
Lot of these opportunities on the last earnings call and our growth.
Projections took that into account, although the announcements have been made yet so yes.
This has been taken into account in our last growth projections.
Both of those opportunities as well as are our larger entre into the rest of the world, particularly Europe.
We were very excited about it.
I hope, we can come to future.
For future earnings calls and gift, giving better guidance, but for that we feel very comfortable with the guidance we've given.
And.
Yes.
We tend to be conservative in nature.
People know that about us.
We wouldn't put out a 12% growth number unless we felt pretty confident about it I think you can see that we've usually.
We've usually exceeded.
Expectations of the market.
Over the last few years, so we hope to continue to do that.
Great that's helpful.
You did mentioned briefly there are some some lighter RFP activity on the <unk> side of the uniform business I can you just clarify was that for.
The non essential customer set or was that just kind of across the board and maybe over what's going on there I know you said you expected it to pick up.
But.
Just any more color on that.
Sure.
The essential side of the business is so busy right now theyre not even theyre not just buying uniforms and we've seen some extension of some contracts.
Very happy to get those extensions rather than going through all kinds of Redesigns right now.
And we're not seeing the essential side doing a tremendous tremendous RFP activity right now I think they're they're focused on different aspects of the business trying to service their customers and trying to reconfirm themselves whether it's.
Even though even if some of the non central side I mean, what we see in quick service restaurants. For instance is they're all trying to figure out how to how to make their takeout more efficient and how to make there.
<unk>.
When you pull up to a window driving more efficient.
And how to how to scale their business. So they can make better use of the large space they have that nobody's eating inside it.
So it's kind of a funny time.
We're just not seeing the RFP activity is not out there.
Im not saying its not out there at all it's just out there to a much lesser degree ethic, a lot of companies, especially on the non essential side Kevin.
The board is still worried about survival have been worried about survival thankful for what they've gotten PPP money.
But still trying to figure out what theyre going to be when this is all over and.
First of mind is not front of mind is not uniform.
Right.
We have uniform programs with them.
We'll likely get extensions of contracts beyond the initial periods that we're in or the sometimes some cases, where the 10th extension of some contracts but.
And Thats fine with us.
I'd, rather I'd rather.
Have customers recommit for a few more years that we're already doing business with.
Then chase customers, who won't see.
Any business from for the next year and a half for two years in the normal cycle. So.
We do expect debt as.
As more people get vaccinated as more people are allowed.
To come back to businesses restaurants, and people start shopping again malls and so on things get a little bit back to normal maybe never what they were but more back to normal debt. We will see RFP activity. We've seen we've seen when we come out of recession in this country in the past.
An incredible lift in marketing dollars spent and that benefits the ampco for sure.
And they've seen the same thing and that has benefited us in the past we came out of the recession in 2009, and you can see our numbers I spoke to them.
And in my script here today.
A lot of people are spending marketing dollars and one of the things. They wanted to do was rebrand and so we expect when we come out of this it will be quite robust maybe more robust than ever we've never even in recession has never impacted our country. The way this pandemic cash.
So we expect people to want to give their employees a lift.
What their customers to view them differently to try to rebrand themselves.
At all.
It all fits together.
I'm not worried about it because as long as the pandemic continues even at a diminishing level.
We're going to continue to sell the essential businesses, what they need.
And a modicum of PPE as well so.
Hello.
Nothing has changed with respect to our guidance.
Debt we gave.
With our uniform business for for this year in our overall business for this year.
Okay fantastic.
I guess I wanted to move on to Vanco.
And.
You spoke about the 11% growth in traditional promo products in 2020, while the industry was down 25% to 30%.
You mentioned <unk> being less event based.
But.
Maybe more color on what's allowing you to outperform the industries so significantly.
The overall financial strength your ability to customize their supply chain, I guess, it'd probably be a little bit of everything but.
Just maybe speak to that more.
In terms of the traditional promo products and the overall strength there.
I'll, let I'll, let Jake respond J true on the call.
<unk>, our sales and operations and CFO of Ampco ex.
Jacob all trade. So go ahead.
Talk to you again, Kevin So yeah, I think I think when you look at our industry and the promotional products segment. There is 21000 companies.
Many of which are really small and.
Struggle through excuse me like Covid.
I mentioned it before down 30% in 2020 over the prior year.
I mean, the truth is we're able to capitalize on opportunities that our competitors can't do.
We pivot quicker more diversified in our supply base and a lot of our competitors have been held up by PPP loans. Some minor PPE sales when those dry up there they may not be around and we're there to pick up the pieces.
<unk> been very successful I mean, 80% of the PPE. We sold was the non customers and now have that we converted 30% of them Docomo customers. We continue to work with these customers to find additional opportunities to penetrate and get that promotional product business. So we're seeing the ability to do that and it all stems from being agile.
Having boots on the ground.
Forward thinking and being ahead of the rest of the industry and we really like where we're positioned going forward here for for 2021 and beyond.
Great.
Also.
With regards to Pam Coe.
You spoke.
Particularly about <unk>.
Employee gifting being a benefit to growth in the fourth quarter and made the gifts gifts by design acquisition. So.
What's the trend you're seeing there.
Attractive about that particular.
Mitch.
You saw growth in and that you're investing in through this recent acquisition.
Yes, we've always done employee gifting Robert.
Robert history, what we've always done at home gifting or in office gifting.
Acquisition programs for customers.
It just wasn't a core focus and it was something we did when customers are asked if they make us our employee retention program.
Thanks to our employee base, we'd do it.
But this makes a substantially stronger on the employee and customer engagement side of the business.
Just by design works with.
A huge customer base of Blue chip companies.
That debt, we didn't have access to me for an ability to sell into these customers and kind of know the speaker and be able to walk the walk and talk the talk about employee gifting and customer engagement programs.
We don't expect it to go away quickly none of us really know what happened with the.
Work at home model going forward, but we do know is that a substantial portion of the employees are going to continue to work at home post pandemic.
And we want to be there to capitalize on that and we have shipped more at home.
Direct to home get probably in the month of December than we did in all of 2019 combined it's phenomenal.
The need and desire for that to connect with employees and as Michael said coming out of pandemic coming out of a recession, just kind of want to do that more and more they got to keep employees they want to connect to them they want.
They want to keep their people engaged.
Yes.
Really interesting.
Okay great.
Okay. So.
You mentioned M&A.
M&A activity is robust.
You mentioned that the recent shelf registration.
So.
Are you seeing larger acquisition opportunities in the pipeline.
That would necessitate perhaps raising capital or is this just to be prepared on all fronts.
What's the size of the.
Opportunities Youre seeing in the pipeline I guess I'm, putting a lot in there, but I just wanted to get more perspective on.
The robust nature of the M&A pipeline.
Size of candidates Youre seeing.
There are a lot of companies for sale.
There's a lot of companies for sale in all markets.
During the pandemic, we've had a chance to look at.
Many.
Quite frankly.
Some of them.
We're in such trouble that it really wasn't interesting for us some some of them the only profit they made.
Sure.
Where they were able to keep their business, even open to sell it because they receive PPP money.
Hi.
There is all sizes out there Kevin I'd.
I'd say ranging from probably we don't look that low.
Tend to draw kind of a line in the sand at about $10 million.
Even that's a little bit small for us.
<unk> brings to us something from it from.
From a standpoint of something it does that we don't currently do or has really great people that we can bring into our organization to help to help grow the entire business.
All the way up to.
$100 million.
There arent that many $100 million promo companies quite frankly, there arent that many $100 million uniform companies, but there are for you.
Line and some of them have gotten in trouble.
Some of them are just debt up just.
This pandemic has taken a toll on people, we're looking we've been energized and we move forward.
<unk> done an incredible job, probably probably never worked harder.
Never had more fun.
On it.
And during the time when it was from a family standpoint, it was devastating for everybody.
So.
We think we're in a unique position with.
With all of our systems in place now with most of our.
All of our integrations done.
We're expanding our warehouses, but our integrations are done.
To be a great platform in each of our businesses that includes the call Center business.
No call Center business is a pretty small business to begin with so maybe their threshold is something under $10 million.
But we have looked at businesses and we will continue to look at businesses.
That we feel add value or get us into a space that we're not curve.
Okay.
Helpful.
Okay.
Just.
A numbers question here, but on the last call you had mentioned that maybe capex would be a little lower than you thought in 2020 around $8 million and you came in close to $12 million. Mark. So did you just have some catch up there or.
Timing wise.
For the accelerate things a little more.
I know youre looking for a ramp up next year, but maybe just talk a little bit more about capex. This year index.
Yes, Kevin I mean, there were there were a couple of things that we ended up adding and late in the year Michael mentioned the third facility in.
80.
We're getting ready on down the road.
Essentially as a prepaid lease.
It does run through capital expenditures, we also invested in the robotics and.
Dallas, which.
Just on the very quick payback, we get off of that it was it was a project that was brought to us and made sense to add in.
And earlier in the year, we really did take a very cautious perspective on capex and slowed things down a little bit.
But that was all really pre.
Our very successful pivot to.
PPE.
We really saw it as an opportunity to get a head start on some things that will have very nice payback for us going forward.
Okay, Great and then lastly.
Just wanted to ask about Michael you were talking.
At the end there about.
Bringing in new management and talent as you really scale up here in the business is really ramping up a bit.
What's the environment like for.
Finding good management and talent I know, we're still in the labor market recession, but.
Are you seeing.
A healthy pipeline from that perspective, as well because I know that's an important aspect of the business, that's maybe not talked about as much. So.
Any thoughts there would be helpful.
So we've already doubling more than doubling.
Our recruiting department.
Yes, I mean, the greatest thing, it's a it's a recruiting rich environment today because.
A lot of the paradigms of yesterday that somebody had to live near the office because they were going to come in the office every single day are gone we know that we can continue to work from home.
We know that we do want people in our offices, but they don't need to be there every day.
And some people don't need to be there at all.
Our teams need to collaborate like design and product development or <unk>.
Marketing and design.
I need some time together in the office, but they don't need all their time together in the office that opens up a pretty rich.
Good environment for us for people.
Who first of all our reputation.
Ampco and in our uniform business is very very strong.
So for somebody comes out of the promotional business for comes out of the uniform business, where even at the end of the apparel business or even out of the supply side of the promotional business with all the different suppliers that supply to companies like the ampco distributors like Banfield.
Yes, those are for those are great candidates for us and so I'm looking for somebody in project management.
They don't have to be in Seminole, Florida or Texas.
They can be anywhere they can.
Can be anywhere in the U S and quite frankly, a lot of them can be anywhere in the world.
NAPCO is proven that model over the years with Air India, and China Office.
As we have it in El Salvador.
What we want is the best talent, we can find anywhere.
To work for us and quite frankly.
A lot of those people.
Don't have the opportunities locally wherever they may live.
We'd be very happy to come work for us. So we think it's a chart, which environments a lot of people unemployed right now.
Great people, usually aren't unemployed very long.
So we're going to have to go out and actively recruit great people.
But they are out there and we think we've got an awful lot.
To sell.
When we're when we're pitching them on our company.
Okay, Thanks, and congratulations on the great results in 2020 and such.
Difficult environment and also congratulations on the Euro a 100 years in business.
Yes, yes items.
Yes, Kevin I do want to clarify one thing just so everybody understands what Michael talked about our guidance and nothing having changed.
The third quarter. The guidance, we had given was that we expected 2021 to be about $450 million based on what we had in PPE orders that we already knew of at that point, we really were giving the base business as Michael mentioned earlier, we are continuing to book fairs.
Significant PPE business as we go forward.
When he said nothing had changed I did want to clarify the part about debt with the acquisition of <unk> by design that was not something that we had contemplated into that 450 number so that would be additive to that number but going forward it would be within the.
The organic growth comparable rates to what we've got across the rest of the pharma business.
Okay. So the base is still for 50 and.
Just layering on.
By design and how sizeable is that roughly.
It's about $1 million five run rate per month.
Okay.
Okay, and then we're still using the $4 50 is the floor plus because by design okay.
Plus gifts by design plus additional PPE as we book it.
We only were contemplated what we knew about at that point.
So we really can't gauge how long the pandemic and the demand for that crisis PPE is going to last so we wanted to give a realistic basis without that and that's all additive to it.
Okay got it alright. Thanks.
Okay. Thank you very much alright.
Alright.
As a reminder, if you have a question. Please press star then one to be joined into the queue.
Yes.
And it looks like we have no further questions. So this concludes our question and answer session I would now like to turn the conference back over to Michael Benstock for any closing remarks.
Thank you all for joining us today, so he's great too.
I meet with you and report great.
Great results.
We hope we will.
Look forward to reporting strong operating results in Q1.
See you then.
Yes.
Yes.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Okay.
Yes.
<unk>.
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Net.
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