Q1 2021 Superior Group of Companies Inc Earnings Call
Good afternoon, everyone welcome to superior group of companies first quarter 2021 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 co Chief operating officer, and Chief Financial Officer.
After the Speakers' opening remarks, there will be a Q&A session.
This is b. This call is being recorded and your participation implies that you agree to this.
You don't then simply drop off the line.
Now I would like to turn the call over to Khalid <unk> 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 companies the company within the meaning on the Securities Act of 1933. The Securities Exchange Act of 1930 for the private Securities Litigation Reform Act of 1995, and all rules and regulations issued thereunder.
Which statements are based upon management's current expectations projections estimates and assumption where.
Words, such as will expect believe anticipate think outlook hoped and variations of such words and similar expressions identify such forward looking statements.
Which includes statements on the impact of COVID-19 on the company's business income.
Moving inventory supply chain manufacturing capacity at the company's zone and contract manufacturing facility service capacity and customer demand.
Forward looking statements involve known and unknown risks and uncertainty.
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 on.
Business operation customers suppliers and employees.
Impact of global supply chain disruption general economic conditions in the areas of the United States in which the company's customers on located.
Changes in the markets where uniforms are worn.
The promotional products are sold into a call center services are used.
Impact of competition, the company's ability to successfully integrate operations falling following consummation of the acquisition and the availability of manufacturing material as long as the risks and uncertainties disclosed in the company's periodic filings with the Securities and Exchange Commission, including the company's annual report on form 10.
For the year ended December 31, 2020, Accordingly report on form 10-Q for the quarter ended March 31, 2021, 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.
Whether as a result of new information future events or otherwise, except as required by law.
Please note that all growth comparisons that management makes today will relate to the corresponding period in 2020, unless otherwise noted with that I will turn the call over to Michael.
Thank you Howard and good afternoon, everyone.
Thanks, as always for joining us to discuss our Q1 results.
Joining me today as usual are Andy who will report on overall as Juicy results on the status of our operations.
And Jay who will report on <unk> financials and operations. After our opening remarks, we will open the line for questions. So let's get started on.
I'm very pleased to report another great quarter of substantial growth I would characterize our core businesses as mostly thriving growing both organically and through strategic acquisitions, we have again proven our ability to meet demand as well as service spot prices PPE orders as they arise while we expect that to continue.
Our primary focus has always been and will remain our loyal long term customers in our core products and services that we offer to them. Our disciplined long term approach is yielding what we believe is sustainable organic growth from both our recurring customer base.
And with new customers across diverse end markets.
Our differentiated share resources operating model that we've spoken about on previous calls continues to support accelerated returns as we gain economies of scale, our omni channel market strategy is paying dividends and we are enthusiastic about the great potential even yet to be unlocked.
First quarter net sales increased 49% and net income grew by 211% when compared to the first quarter last year, while <unk> was a strong contributor to our first quarter 2021 results organic growth in our core businesses is the more pertinent narrative.
As we look ahead, our indicators are pointing to a strong recovery in our non essential customer base, replacing Cripes price P. P sales.
Overall, our operational investments cost reductions and market response efforts completed over the last year further enhanced our ability to execute long term growth and profitability in our core business segments. Our uniform segment reported strong growth and is sitting with a much increased backlog, which Andy will also.
Addressed in his comments supply chain disruptions due to port congestion rail and container on trucking capacity issues interrupted the flow of inventory supply even with our outstanding results. This tempered them to some degree as well as our service Kpis.
Our large and unusual amount of uniform orders.
Roughly estimated at $5 million received during the first quarter will be fulfilled in the second quarter. This is not where we'd like to be positioned from a service standpoint, but it is the current condition that were quickly overcoming in spite of the logistical challenges. We do continue to book additional PPE orders as well, albeit at much.
<unk> levels than we saw in 2020, our health care product lines saw a continuation of strong demand during the quarter, we anticipate broad based strength for our signature brands fashion seal healthcare and wonder winked by CIB CIB is making great strides at seeing success with our retailers and E tailers partner expansion as well as finding.
New channels to market their products.
Our international marketing strategy strategy that we spoke about on last call from <unk> is also progressing as we near a significant milestone with the opening of our first distribution point in Europe on track for later in the second quarter. This will allow us to better serve our existing customers in that hemisphere, while expanding our footprint and improving our ability.
To capture new European and middle Eastern market share.
H B on our employee I'd business serves diverse end markets, including essential or nonessential businesses. While this portion of our uniform business is more heavily weighted to essential businesses. Some non essential industries, we serve including travel transportation dining and entertainment are seeing research.
<unk> activity after being nearly dormant.
Hiring initiatives on the part of these customers are in full force in preparation for reopening more capacity increases entertainment venues such as theme parks movie theaters are studies, starting to show signs of life.
I'll share some stats with you. According to a recent study by <unk> magazine using March as a benchmark quick service restaurant transactions were up 29% year over year hotel. So on 93% increase in occupancy rates with a greater portion of business going to limited service hotels as a reminder.
This part of the hospitality industry is our focus on that channel transportation is showing renewed strength specifically over the past eight to 10 weeks as activity levels for these businesses have become increasingly stronger.
We're expecting to see a normalization in the essential businesses, we serve such as pharmacy grocery and big box retailers. We continued to meet customer demand for non legacy pp. While we are aware that many customers will include PV products as part of their normal uniform programs, we expect that demand for crisis PPA will steadily.
We received to pre pandemic levels.
Notional product segment <unk> delivered another remarkable quarter first quarter 'twenty, one sales grew by 125% compared to the first quarter of 2020, the conversion of new prices PPE customers to traditional promotional product customers has been a winning strategy.
<unk> is clearly a differentiated industry leader and is very well positioned to continue to take market share while the overall promotional products industry remains as we understand depressed Jake will cover band go in more detail. Shortly the office gurus delivered double digit growth from both existing and new customers, resulting in.
On a 42% increase in net sales in the first quarter when compared to the prior year. We added 320 additional billable agents during the first quarter of which 84% will serve existing customers and 16% supporting new <unk> customers, we expect that the new customers will continue.
To steadily grow their businesses with us.
As has been the case went on boarding most of our existing customers.
We have also implemented a redundancy strategy at <unk> to mitigate risk.
<unk> future catastrophic events by adding seats and different geographies to service some accounts as well as continuing with our strategy of work from home our pipeline of opportunities continues to grow outpacing our expectations. We are prepared to meet near term capacity demands.
As the growth trajectory of the segment continually pushes higher we will leverage our work from home model, we anticipate maintaining approximately 25% of our call center workforce as remote agents currently approximately 20% of our Tioga workforces back on our call centers and we plan to increase that number for a customer.
<unk> and legal limits on a steady basis, while keenly focusing on safeguarding the health of our team members, we feel very confident that the number of billable agents being added for the second quarter 2021 could be largely in line with what we saw during Q1 moving forward beyond second quarter, we expect to return to a more.
Normalized cadence, which is approximately half of the current ceded.
Rate of additions per quarter at roughly 150 seats lastly, I should note that <unk>. The lawyer International legal 100, Best BPL provider award from 2021, another strong accolade to their growing list.
Our optimism is pretty powerful, but it's not totally on bridal leaning into our disciplined conservative approach, we are effectively navigating market challenges from a position of strength, giving us an edge over many of our competitors logistical headwinds originating in shipping ports are cascading throughout the transportation and logistics ecosystem none.
Well logistics delays are now converging with significant increase in orders, creating inventory pressure as quarters increase inventories turning quickly and items that should have already arrived in our warehouse are sitting in queue to be loaded on containers overseas are aligned to be received on shipping ports by.
By comparison, however, smaller competitor weaknesses profound many are unable to manage and sustained it for debt pandemic and the supply chain issues. This ultimately opens the door for us to accelerate market share growth as well as evaluate potentially attractive opportunities in both our uniform and our promotional products segment.
We're also managing through cost inflation and instituted a sizable price increase on our uniform businesses, we're able to.
And where we were able to.
Which largely took effect in the past few weeks that was done to mitigate increasing logistic costs higher fabric prices wage increases and persisting weakness on the dollar. These logistical challenges were further exacerbated by extreme weather in the southern United States during the first quarter with shutdown, most parts of Texas and Arkansas.
So which.
If you recall includes our main distribution facilities, we anticipate the easing of logistical challenges, but these challenges will not abate until the fourth quarter, most likely I will now turn the call over to Jay to discuss <unk> results.
Thank you Michael and good afternoon, everyone on.
Our team at Bam Po is thrilled to report another extraordinary quarter once again sharing our performance by our incredible team that surpassed expectations.
For the first quarter sales surged by 124, 9% compared to the first quarter of 2020 to $58 $9 million, yet again, we established a new watermark by delivering the largest quarter of promotional product sales in our company's history, excluding PPE on.
Operating margin reached 12, 7% compared with three 6% in the first quarter of 2020.
These operating results once again validates <unk> ability to continue to scale, our business and achieved significant operating leverage.
Our backlog at quarter end was $40 8 million compared to $39 $2 million in Q1 2020.
What is most impressive is that PPE sales account for just $800000 of the Q1, 2021 backlog versus $18 $5 million of PPE and last year's first quarter.
<unk> core promotional products business has more than replaced the large PPE backlog from a year prior.
The strength of our business and we expect this trend to continue as companies put marketing budgets to work and their efforts to reinvigorate their brands.
What we're seeing in macroeconomic trends and in consumer spending habits is that the return to pre pandemic economic activity is actually happening more quickly than we had anticipated.
Theres, an exuberant about a return to normalcy and a built up sense of anticipation that is being reflected in the actions of our clients.
We have been successful in showing our clients that expanding marketing budget now is the best way to recapture customers.
At this pace, we would not be surprised to see activity exceed pre pandemic levels in the coming months.
While programs in certain verticals, such as employee gifting have slowed down compared to the fourth quarter, our diversification across industries and market segments more than offset the pullback in these areas.
From an industry perspective, our competitors are still seeing promotional product spend that is down by approximately 15% to 20%. The struggles on the promotional products industry generally stand in contrast to ban from sales, which continue to increase even when excluding the impact of PPE sales.
We believe that Bam COVID-19 extraordinary Q1 results and accelerating client spend is reflective of our having built a company, whose culture capabilities and client relationships are stronger than the industry as a whole.
While we anticipate continuing reductions in PPE sales, we are encouraged by what we're seeing currently in our non PPE business.
Overall, we expect our six month results should be as strong as our first half 'twenty 'twenty performance.
It's a genuine thrilled to be able to say that the Banco team continues to perform at a level that is the very best our industry has to offer.
Additionally, the M&A market is robust our pipeline continues to grow, especially now with new tax laws on the horizon we.
We see a lot of opportunities that we are being very selective in evaluating prospects that meet our specific criteria.
Our gift by design acquisition in February It's a great example of the right kind of deal from Babka gifts by design is a cultural fit.
Offer synergies on a new market vertical bolstered our leadership team with experienced and highly respected individuals was quick to integrate and made both companies better from day one.
Yes by design was by far our quickest and most successful integration to date.
We believe that band because management team continues to build upon and benefit from the knowledge and experience we gained from each subsequent successful acquisition.
Now I'll turn the call over to Andy for his operational and financial review.
Thank you Jay good afternoon, everyone I'm extremely pleased with how our teams continue to perform especially through challenging times in our marketplace. We continue to outperform the market and our competitors to report solid results for our stakeholders. We carried strong momentum from last year on and are continuing to invest in the growth of our.
Businesses organically and through selective acquisitions, we have a strong margin profile and exceptional balance sheet and healthy cash flow generation capability. All three elements are key foundational pillars that enable us to perform at a high level strategically and operationally.
During the quarter, we closed on the gifts by the zone acquisition in.
In addition to the acquisition costs of $6 million Capex spend was $6 $7 million in the quarter while.
While net borrowings increased $22 $5 million, so did our EBITDA keeping our debt to EBITDA ratio stable at one five times at March 31 2021.
I'll now review operational highlights for the quarter.
We are progressing well with technology and automation investments in our Eudora, Arkansas distribution center slated for completion later this year.
Pleased to see improving efficiencies, resulting from our investments in robotics in our CIB Dallas distribution Center, which will continue to gain additional competencies using AI and machine learning.
Our third manufacturing facility in Haiti is on track and is expected to come online in the next few months, adding to our nearshore production capabilities in the duty free environment.
Hades proximity enhances our ability to better service, our customers and when completed we expect to be producing about 30% of our product out of Haiti. This year about 70% of that coming from our own factories.
Our distribution capabilities will be greatly expanded by the completion of our new 100000 square foot replenishment warehouse also in Eudora, Arkansas later in the year.
Turning to our financial highlights we had an outstanding started the year with first quarter net sales of 49, 4% compared to the prior year quarter to $148 million all segments exceeded growth expectations. Once again <unk> was the largest contributor with a 124, 9% increase accounting for $32.
$7 million of the overall quarterly sales growth.
$14 $2 million of this increase from Banco resulted from PPE sales.
Uniforms and related products net sales increased 17, 4% to $76 million relative to the comparable period in 2020, PPE sales were $12 $5 million versus $1 $5 million of only our legacy PPE products in Q1 2020.
As Michael said West Coast Port congestion hindered our ability to maximize you reported segment growth this quarter.
Total uniform backlog at quarter end was $44 million compared to $11 $6 million last year on the quarter end backlog PPE accounted for $15 3 million versus.
Versus essentially zero at March 31, 2020.
Jay discussed <unk> impressive results in backlog, which warrants another mentioned that our core promotional product sales are rebounding at a faster pace and beginning to replace PPE business at a higher level.
The office Gurus again reported high double digit growth as demand has strengthened.
Net sales after intersegment eliminations increased 43, 2% to $11 4 million overall the team excelled at Onboarding, new customers and has continued providing superior services to our existing customer base. As a reminder, during the 2021st quarter <unk> operations in El Salvador, where impac.
For more than a week due to the local government mandate to shut down operations at the onset of the pandemic.
For the quarter, we reported consolidated gross margin of 34, 8% compared to 35, 5% in the first quarter of 2020, the variability is due to customer and product mix.
Total SG&A expenses increased by 27, 7% due to higher sales volume across our segments. We saw a significant improvement reflected as a percentage of net sales of 24, 9% versus 29, 2% in Q1 last year.
This increase in SG&A dollars was primarily due to increased sales commissions and employee compensation due to a significant increase in net sales from the current quarter.
Of note our 2021st quarter included a $1 2 million reversal of the 2019 accrual for our 401 K discretionary matching contribution.
Additionally, <unk> incurred expenses related to compensation paid to agents without the benefit of sales in the amount of approximately $1 billion due to the shutdown last year.
Wage reductions were implemented at the beginning of Q2 last year, we have reinstated these pay rates to pre COVID-19 levels at the beginning of the second quarter of 2021 ways.
Wage reductions savings taken last year were $2 $4 million on an annualized basis of which 25% would have been a benefit in this first quarter.
Income from operations for the first quarter increased $13 9 million compared to $6 million in 2020, Q1, and operating margin reached nine 9% in the first quarter compared to six 3% last year net.
Net income for the first quarter markedly increased by 211, 2% to $10 5 million or <unk> 66 per diluted share compared to $3 4 million or point from cents per diluted share in last year's first quarter of no diluted shares outstanding increased by five 2% to.
The 16 million shares compared to the same period last year.
Our effective rate for the quarter was 28% compared to 27, 1% a year ago.
Now for a few balance sheet highlights.
Cash flow from operations were reduced in the first quarter, primarily due to significant accruals associated with the company's strong operating performance and which were recorded in 2020 that were paid in the current period.
This included accrued incentive compensation and income taxes.
Working capital increased for the quarter from $143 6 million at the end of 2020 to $165 $3 million at the end of first quarter 2021.
At March 31, 2021, we had cash and cash equivalents of $10 $9 million. This is an increase of $5 7 million since last year from this increases mainly due to timing of customer payments received at the end of the quarter.
We also paid a quarterly dividend of <unk> 10 per share during the first quarter.
Capital expenditures were approximately $6 $7 million with the investments primarily related to our expansion of the distribution facility in Eudora, Arkansas.
We anticipate continued heavy continued heavy investing in our automation projects. This year and expect capex to still be in the range of $16 million to $17 million for 2021.
Lastly, the company is in the process of terminating its two non contributory qualified defined benefit pension plans.
Which were fully funded as of March 31, 2021.
In April 2021, we settled the majority of our obligations under the plan by providing lump sum payments of $13 7 million eligible participants who elected to receive them and we expect to settle the remaining future obligations under the plans through the purchase of annuity contracts from one or more Hollywood insurance companies in the <unk>.
Second quarter. These settlements are being paid from the assets of the related pension plans. We estimate that we will record a total non cash pre tax charge associated with the planned termination during the second quarter of 2021 of between $7 5 million and $8 5 million, which primarily represents the acceleration of.
Deferred charges currently accrued and accumulated other comprehensive loss.
I'll now turn the call back to Michael for his closing remarks, and a general outlook.
Thanks, Annie <unk>.
Despite the operating landscape, we still have so much opportunity to unlock.
<unk> always taken bold steps to navigate market challenges in the past and have in most cases in our 101 year history come out stronger than before we remain confident at this time is no different to fuel future growth, we are making prudent investments in distribution manufacturing marketing and it as well as work force expansion, we're recruiting heavily.
For talent in top positions to date. This is our strongest pushed for key positions ever to take us to the next level in our uniform segment. We are building out teams in sales project management design plant management and other key areas as well.
<unk> continues to recruit several on.
National sales reps as well as other key employees the same is happening across our uniform business.
M&A pipeline is where we want it to be without distracting us from managing our business. Additionally, our international strategy is beginning to take hold and we are investigating distribution expansion possibilities beyond the new distribution point in Poland as we increase our scale internationally.
At T O G demand for our niche call Center services continues to increase and we're looking at a variety of options to augment long term capacity. This could potentially include acquiring call center businesses that bring us into new geographies that open us up to pools of agents and leadership as well as capacity.
And that might give us entre into new channels of service.
We are operating in a dynamic environment and seeing additional momentum in sales growth from our point of view there has never been a better time for us to disrupt what we see as a weakening competitive landscape and take market share.
Taking into consideration our organic growth rates and our recent acquisition, we are raising our sales outlook for the year and updating our long term goals.
Previously, we guided to $450 million and net sales for 2021 factoring in our guests by design acquisition and updated organic growth expectations. Our current estimates show us approaching $500 million in net sales for 2021 day.
Uniform segment is expected to grow at a CAGR of 12% from 2021 through 2025, <unk> is projecting a 12% CAGR during the same period and <unk> trajectory continues to excel, yielding expectations of 18% CAGR through 2025, we expect overall of 12.
5% CAGR for STC from 2021% to 2025 overall, we expect to exceed $800 million in net sales by 2025, and our current business units absent of any acquisitive growth and expect operating margins in excess of 10% from 2025 are.
<unk> performance is a result of our strategic diversification and integrated business model underpinned by the determination and hard work of our entire team and our loyal customers.
<unk> is never without its challenges most of which lately and precipitated by outside events, we're working through those challenges and will prevail and on overcoming them as we always do.
With that we would 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.
If you are using a speakerphone. Please pick up your handset before pressing the keys COVID-19 anytime. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Kevin Spanky from Barrington Research. Please go ahead.
Hey, good afternoon, everyone.
Good afternoon, Kevin.
And I wanted to just start off by talking about.
The uniform segment pipeline.
You are seeing there.
Mentioned.
Some continued strength.
Or are you seeing the continued strength on the healthcare side, you've talked before on the past about.
Reusable.
Where and things like that.
Our health care institutions still.
As interested as they were before even with some sense that maybe the pandemic is starting to recede a bit.
Although still some way to go there, but just maybe some comments around that would be helpful.
Sure.
Our health care business is very robust right now.
It's driven by.
By the usual channels that we operate in the retail channels in the laundry channel basically on the.
On the institutional side and there is no shortage of opportunities in that business I mean, there's still a tremendous shortage of health care workers. In this country hospitals are are still seem pretty high censuses of employees things get back to normal they expect even see higher ones from people who want to.
Right.
Procedures in seeing doctors and so on.
But a lot of it is new channels.
Our E channels on the.
Civ side are very strong.
We spoke about on the.
The last call.
Universe, taking an interest in India.
That they reported in our press release, we spoken about Sam Moore.
Taking a pretty big position in the channel that we have not.
Been in to date on the.
Hi.
With services basically the 22000 AD specialty companies out there, giving them the opportunity to buy a defined product from sandler that we've designed for them.
And the online both Walmart dot com and target Dot com.
We're starting to gain some traction there it's very early.
But we expect it.
In the past when we've entered into any new online channels.
And you go to the Internet and Google Wunderlich, and Youll see all the different online channels more on.
On that they've grown very nicely so.
We're feeling really good about the health care side on the other side, what we're seeing is.
As I said earlier almost normalizing on.
What we called the essential businesses and other people call as essential businesses during the pandemic grocery and pharmacy.
Big box, they are starting to come down a little bit and be back to normal not day to day Crazy.
Kate and say were on last year of hiring people.
They seem to have leveled off a little bit.
Eliminating anybody.
They are finding and all these businesses are finding it hard to hire people right now interestingly and I'll, let everybody user on imagination as to why that's true, but what we're seeing is we're starting to see a resurgence of the businesses that werent essential businesses that were really got dormant or quiet during the early stages of the pandemic foodservice rest.
<unk> so on hotels as I mentioned.
Mike talk a little bit ago, and that's encouraging because they haven't they have been buying for a long time and they are also struggling to find employees and.
A great way to motivate employees as day.
As to put them into a new uniform.
And typically those customers do put their people into new uniform. So we expect.
As quickly as they can hire Kevin.
On the nonessential business as we spoke about we actually did a chart I think a couple of couple of.
Calls ago, where we showed that about 80% of our business services, the essential businesses and 20% services the more non essential businesses.
20% is starting to grow very very nicely and come back from a particularly over the last few weeks from you've seen a resurgence.
We all know that airplanes are the schedules are getting full again.
Airports are getting full again and so our limited service hotels. So we're excited about debt we feel we're on the right trajectory.
Yes.
There have been challenges in the on the boats to all the uniform size of the business.
We think we've met them as well or better than anybody any of our competitors that's our own.
And we feel like we've been able to do that because of our feet on the ground in China.
And simple long relationships, we have as well, but it's on a perfect situation I would much rather.
We werent, having any issues along with our competitors but.
There are those issues, which.
Seem to be getting better over the last few weeks, but in January and February through December through February were absolutely awful.
Who knows where it's going to turn now.
And where there's going to be shortages, but where we're anticipating we're trying to anticipate as much of that as we possibly can.
Okay, great and those logistical issues you've talked about that are kind of rippling across the economy do you have a sense as to.
How much of a headwind.
Was to your tier growth.
I think you said it might have tempered growth a bit but.
Whats.
Yes, we would have done.
Approximately I mean, it's hard to actually slice and dice it perfectly.
But of orders that we took we could have shipped about $5 million more.
If we hadn't had those logistical issues will don't know is what orders would we have taken if.
If we had inventory on the shelf.
Okay, all right got it and I think you might have mentioned that you see.
Perhaps some of these just clearing up by the fourth quarter, there's still a ways off but.
Do you have do you think theres some line of sight too.
Those challenges beginning to subside.
Yes.
It's like predicting when the pandemic is going to end when logistical challenges are going to end.
We we thought that by now the pandemic will be largely behind us, although there seems to be some places in the U S around the world.
On our suffering more than other places.
And if we are coming out of it we're coming out of it pretty slowly.
And but the same thing on logistical issues a lot of it depends on the supply and demand of container ships.
Rail space, and truckers and the United States.
<unk>.
I don't know whats going to happen.
With respect to <unk>.
When all these retailers who are stocking back up now which is driving a lot of this as well as all the internet buying.
How long that's going to continue nor how thats going to impact what they bring it around for their Christmas season.
Which is generally bringing product in September October early November.
What we're going to see.
Where we're challenged to to get our inventories.
In.
Better shape before that happens so that the impact is less but yes, I believe by by fourth quarter.
But.
My Crystal ball is not always 100% right, but thats.
That's what we're basing our forecast on right now.
Okay fair enough.
You also mentioned that some of these challenges are really.
Hitting our smaller competitors.
Much more significantly and.
Net debt, perhaps could lead to some acquisition opportunities.
So if there if you see a smaller business that's struggling with logistics issues is that still kind of an attractive candidate for you to acquire knowing that they're normally kind of.
Pretty good quality business, but just being challenged by external factors or how would you kind of think through that equation.
We look at those that struggle with sourcing logistics.
On the it side of their business that have a.
Disproportionate SG&A.
Overall that we can help reduce by our development that we do in India on our back office that we have in Central America in Jamaica.
So those.
Those are great candidates for us.
On a solid business that is already making some money that we can add great synergies too.
With all that we bring to the table.
So yes.
It's not always outward forces and it happens to be in this case, you know a lot of lot of these companies in the uniform companies.
Jumping onto the <unk> bandwagon and some of them did better than others the smaller ones we've heard.
And it saved them quite frankly from.
From destruction otherwise.
That coupled with.
The PPP money in.
On the SUV low addressed SBA loans, and the forgivable SBA loans and everything really helps them further so months ago, we're talking to people and asking them.
Would they consider zone in their business. It now locate their business was down on the dumps, but they were okay. Because they got PPP money, we know that's going to run out on the government can't keep on sending people money.
Hey.
And when it does.
We will have spoken to them already and they'll be prepared debt, even more serious discussions with us and they are having now.
Okay, great and.
When I think about the strength that Banco.
If you.
Take out the PPE.
Sales you know it looks like the group around 70% year over year, and you've noted clients starting to spend.
Their marketing dollars.
Oh, you're outperforming the industry, but should we think.
Should we think about debt in terms of just pent up demand coming back versus taking market share.
No.
I notice you still are talking about 12% longer term growth there but.
Business is obviously doing really well so.
Can you just talk about some of those.
<unk> please.
I'll, let Jake jump in on that one that's why we brought it to the call. So check go ahead.
Have a nice talking to you again and thanks for the thanks for the congratulations on the on the great quarter. So yeah.
It's all the things you talked about it taking market share it bringing on new sales reps, it's growing existing clients.
The expansion.
Marketing budgets.
With our clients trying to recapture their their customers and bringing employees back into the office all of those things are having an impact and we've talked about a lot the competitive landscape in the promotional product industries 20, some odd thousand distributors, many of whom are smaller mom and pops and they just can't offer what we're able to offer whether it's the customers are too.
Sales reps and so were really attractive landing spot.
For for new sales people as well as for customers to continue to come on board and we talked about it before we've had a lot of success in converting.
Customers that were PPE PPE only customers right that we brought on sold the masks sanitizer.
Face shields, and we've converted a lot of those two promotional product customers and we continue to work with these customers to find additional opportunities to penetrate and get their promotional product business. So that's been a big source of the success for us too and I'm really excited about.
What's the comp. The addition of guest by design.
On a really exciting one we're already well underway leveraging our client base on sales force too.
Corporate awards incentives recognition programs to.
Our current and future client base and we've already seen some successes there and we're really excited about the potential.
Okay, Great and as you look at.
Vanco are there.
Phil maybe some GAAP she'd like to fill in through acquisition.
Are you going to mostly focused on organic growth going forward. What do you think the mix will be.
Sure.
Yes.
I think goes on what Michael said before we are opportunistic alright, the right opportunity comes along that's accretive to the bottom line good for culture.
Potentially puts us into a new line of business absolutely. We'll look at it we're not going to force. The issue there is nothing that fits that mold.
I can force it, but if something comes along and it fits that mold absolutely.
We will look at it I mean, Michael mentioned it before there's.
Quite a few companies that are struggling good companies, good underlying fundamentals, but struggling through logistics problems supply problems.
Whatever it might be maybe one of their big customers was affected in a major weighted by the pandemic.
We're on attractive landing spot for them and can turn them a lot more profitable under our model and again, we have we have the ability to scale through the infrastructure, we've set up on technology and logistics warehousing.
We have that set up to be a lot larger.
And then we are right now and we're really attractive landing spot for a lot of those a lot of the targets.
Okay great.
You mentioned.
Dora facility.
Likely completed later this year can you just review.
What you see in terms of a margin benefit from that going forward, just kind of as we look to 2022.
That kind of a step function change or.
Just kind of continue on net normal kind of trajectory towards 10%.
Yes.
I'll answer the last part, yes that helps us get to the 10% that's anticipated in that number.
But keep in mind.
Multitude of steps to get us to what we consider to be on our most efficient place from a distribution standpoint, and Thats, we close the <unk> warehouse last year and so the building long with whereas the office and warehouse.
And we moved all of that to Arkansas, when we move to Arkansas, we anticipated that ultimately there would be some storage challenges there and so our longer term plan was to take input.
Have a receiving warehouse, which is the 100000 square foot warehouse, which would be a replenishment warehouse to our main facility, which was 250000 square feet. So we just put an addition on at a 54000 square feet I believe on maybe off by a few square feet there.
The additional square footage, we put into the Arkansas facility not the 100 for replenishment, which is down the road, but in the actual facility was to house our.
Technology that we're bringing on the multi shuttle system.
Which is going to ultimately replace the robotic systems that we have in that warehouse now and to bring us even greater efficiency. So we've taken all of <unk> business all of fashion seal healthcare.
Now and it's being serviced out of Eudora, Arkansas, both from the 100000 square foot building in the 300000 square foot building there are economies to that scale.
And as we grow it will certainly give us.
<unk>.
From what we anticipate these next.
Five years, our expectation is that that will service our needs. During the next five years to get us to.
The level of growth that we stated.
Yeah.
Okay great.
You mentioned.
For the office Gurus.
Potentially acquiring other call center businesses I think.
It might have been the first time, you've talked about that so I'm just curious about.
On the types of businesses that could be available.
There are significant number of them with the kind of the same strategic and cultural fit in terms of your focus on the smaller.
<unk>.
Number of agents et cetera that would be logical fits with this business.
Yes, Kevin is anda.
We think theres, a fairly rich landscape out there targets to acquire and we've touched on it in the past it was something we would consider youre right. This is probably.
A little more forward and our statements at the time about it and it really ties to what are the key things. We're looking for beyond the normal stuff that is always important to us.
The quality of the individuals that we're picking up and building out our team.
And in this case, it's really a matter of trying to find additional geographies that are rich rich on unemployment.
Our employee.
Pool to be able to draw in.
Well as facilities.
We first started in the pandemic talk we had expected.
With the work from home that had really taken a lot of our.
Capacity constraints off and we werent certain how long that was going to last or how far was when the lab we.
We do expect that it will.
Ultimately I think there's going to be a mix I think Michael touched on it that we think ultimately 25% of our workforce will end up being worked from home which means.
Tremendous rate at which they are growing we're going to hit capacity strengths constraint relatively soon and we need to consider those options on one of the other factors that are left out and moving on over the.
The key things is English speaking quality of English and that is critical.
For us I mean for the quality of call centers that we have.
Kevin it's really.
Had had the office group has been on the cadence, causing there have not benefited pandemic because they grew nicely during the pandemic as we reported last quarter and here they are.
As far as.
Their business is concerned the pandemic is not largely affecting them except to have a lot of people still work from home.
But their customer base is growing.
At rates that quite frankly in our in our wildest dreams, we hadn't anticipated we have a cadence of.
People coming to us wanting us new businesses business with them they are in our sweet spot.
Spoken about the 5% to 25 seats.
On.
And some even larger.
But still within our niche that we're very interested in servicing and.
The word has gotten around we've gotten a lot of awards over the last two or three years in particular.
Dominic lighting, who runs that business.
<unk> has received a lot of recognition he does a few white papers from time to time.
From different social media channels.
And quite frankly, you know the word of mouth has been has been wonderful for us.
No.
It's a business that doesn't have a sales force.
And this.
Is just phenomenal.
We do.
<unk> is used brokers.
We become their preferred vendor.
And that's a great synergistic relationship with us from some of these brokers who have been dealing with us for years, and we've never let them down.
But it's a good problem to have growing faster than you anticipated I don't know how long ago, I said boy during the pandemic I don't think love and infrastructure.
Capacity issue for some years.
Hoping I have a capacity issue sooner. It just means that the business is growing faster.
We're not going to be buying any buildings will lease buildings wherever we are we're looking at a few geographies.
Mostly in in this hemisphere as well as the southern Hemisphere.
But Andy enumerated, what the important points worth for us when going out looking for them.
Okay, Great and lastly, I just wanted to ask about.
You mentioned the updated target of nearly.
$500 million on sales in 2021.
Is there a specific number that youre, assuming in there for PPE sales or kind of how do you build to that I know, obviously, we're layering debt gifts by design, but.
Any other color around that would be helpful.
Yes, Kevin I think whenever fairly consistent with what we said in November what we've included in the 500 million for this year of PPE really is our legacy PPE business as well as what we have and known PPE business upcoming.
I think we ended the quarter as I said in the uniform business with the PPE backlog of about $15 3 million.
So really that's what's contemplated within our.
<unk> forecast for this year for PPE on the uniform side is another 15 million Bam goes there.
Their backlog was only 800000 at the end of the quarter for PPE.
And I expect they will I would expect they continue to pick them up but it is not included in that $500 million projection for.
For the approaching $500 million number for 2021 total.
Okay, Great. That's helpful. Thanks for taking all the questions and congratulations on the nice results.
Thank you Kevin Thank you Kevin.
Yeah.
As a reminder, if you have a question. Please press Star then one to meet joined into the queue.
Okay.
This concludes our question and answer session I would like to turn the conference back over to Michael Benstock for any closing remarks.
Hello, everybody. Thank you again for joining us.
For our quarterly call.
We look forward to reporting second quarter results in July the well between now and then.
We will speak then.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.