Q3 2021 Superior Group of Companies Inc Earnings Call
With us today on behalf of the company are Michael Benstock, the company's Chief Executive Officer.
Andy Demott, its chief operating officer, and Chief Financial Officer.
Phil who said its chief strategy Officer, and Jake Himmelstein <unk> President.
After the Speakers' opening remarks, there will be a question and answer session.
Today's conference call is being recorded and your participation implies that you do agree to this if you do not then simply drop off the line.
Now I'd like to turn the conference call over to Holla Ellis Roubini senior managing director of three part advisors, who will read the Safe Harbor statement. Please go ahead.
Thank you Ms.
This conference call May contain forward looking statements about superior group of companies the company within the meaning of the Securities Act of 1933, The Securities Exchange Act of 1934, and 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 think outlook hope and variations of such words and similar expressions identify search for forward looking statements, which include statements on the impact of COVID-19 on the company's business, including inventory supply chain manufacturing.
Lastly, at the company's own and contract manufacturing facility.
Service capacity and customer demand.
Forward looking statements involve known and unknown risks and uncertainties that may cause future results to differ materially from those suggested by the forward looking statements.
Such risks and uncertainties include but are not limited to the following the effect of the COVID-19 crisis on the U S and global market.
Our business is our business operation customers suppliers and employees.
General economic conditions in the areas of the United States in which the company's customers are located.
<unk> in the markets, where uniforms are worn where promotional products are sold and where call center services are used the.
The impact of competition, the company's ability to successfully integrate operations following consumption of acquisition and the availability of manufacturing materials as well 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-K.
For the year ended December 31, 2020, the quarterly report on Form 10-Q for the quarter ended September 30th 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 <unk>.
These expectations, 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'll turn the call over to Andy.
Thank you Holly and good afternoon, everyone today, Jason are going to discuss financial and operational highlights first Michael will then cover healthcare apparel and BPL businesses in more detail and discuss how we are navigating through the current macro environment. Bill will then review our strategic initiatives before we take your questions.
We delivered solid third quarter 2021 results from the strength of our core offerings and robust demand overall consolidated net sales were $143 $3 million compared to $127 7 million in Q3 last year.
Consolidated sales declined by three 5%, but reflects impressive performance against a historically high sales comparison in Q3 2020 as expected crisis PPE sales continue Duane.
Q3, 2021 sales included $1 $2 million of PPE sales, while Q3 2020 included $33 3 million.
Including PPE sales consolidated net sales actually increased by 29, 4%. We are seeing strong sales momentum that is evident in our current year nine month result of $395 million as compared to $381.3 million in the first nine months of 2020.
This is a strong testament to the execution of our entire team and our ability to take market share.
Turning to segment results uniforms and related products net sales decreased one point or 15.1% or $11 $3 million compared to last year. Excluding PPE. The uniforms segment increased three 9% to $61 6 million compared to $59 $2 million in Q3 of 2020.
<unk> sales normalize to point $3 million versus $13 $9 million a year ago. We are seeing an inflection point in demand for uniforms apparel across our diversified end markets showing a progressive recovery that is offsetting the expected decline in PPE sales gross margins in our uniform segment increased to 35, 8% in <unk>.
Q3, 2021 versus 33, 5% in Q3 2020, due primarily to lower sales of PPE, partially offset by higher logistical costs in the current quarter.
As a percentage of sales our uniform segment SG&A expense was 31, 1% versus 30% in Q3 last year due primarily to lower sales to absorb overhead.
Operating margin for uniforms in Q3 of 'twenty, one was four 7% comp.
Compared to three 5% in Q3 of 2020.
Jacob as you review results for Banco shortly so I'll move to the office gurus.
<unk> continues to excel in reported tremendous growth exceeding expectations net sales after intersegment eliminations were up significantly, but 56, 8% to $16 $2 million, our expanded customer base continues to grow through incremental opportunities with existing clients developing new relationships and onboarding new engagements.
Gross margins for the office Gurus decreased to 58, 1% in Q3 of 'twenty, one versus 60% in Q3, 2020, due primarily to costs associated with Onboarding.
More new customers in the current period.
As a percentage of sales SG&A expenses for this segment was 36, 5% versus 33, 7% in Q3 last year as we increased investments to support significant growth in this segment.
Operating margin for the office Gurus decreased from 26, 3% in Q3 2020 to 21, 6% for Q3 of 'twenty one.
On a consolidated company basis gross margin for Q3 of 2021% to 37, 1% was consistent with our Q3 2020 margins due to higher product and logistics costs, which were offset by shifts in product mix across segments, Arkansas.
Our consolidated SG&A expenses remained flat and as a percentage of sales. Our total SG&A expense was 28, 4% versus 27, 3% in Q3 last year.
Income from operations for the third quarter was $10 8 million compared.
Compared to $12 $5 million in 2020 Q3.
Operating margin was eight 7% compared to nine 8% last year and well ahead of our Q3 2019 amount of six 9% net.
Net income was $8 2 million or 51 per diluted share compared to $9 9 million or 63 per diluted share in Q3 last year.
Our effective tax rate for the quarter remained constant at 17, 8% compared to 17, 7% a year ago.
Moving to our liquidity profile, we continue to generate solid cash flows supported by a healthy balance sheet.
Net borrowings at September 30th incur.
Increased by $8 5 million from year end of 2020 to $80 8 million, we were able to reduce debt by $17 4 million during the third quarter with strong operating cash flows generated during the quarter.
Our debt to EBITDA ratio remains very good at one five times, which is in line with our desired range and well under our covenant limits.
Cash and cash equivalents at quarter end was $6 4 million, an increase of $1 2 million.
Through the nine month period, our Capex was $14 $5 million with investments primarily related to the facilities and technology enhancements across our distribution and manufacturing locations.
We made great progress at our Eudora, Arkansas distribution Center, and we began beta testing this week.
There will be a gradual movement of accounts from the current warehouse operating system to the new system. Our plan is to be 100% operational with the innovative technology by the end of Q1 of 2022.
We are on target with our Capex, capex investments and overall automation and efficiencies, including benefits of robotics installed at our Dallas distribution.
Fusion center, and our Capex is tracking well against our plan of $16 million to $17 million for 2021.
Lastly, we paid our regular quarterly cash dividend of <unk> 12 during the third quarter I'll now turn the call to Jay to review by a ghost performance Jake.
Thank you Andy Banco ended the third quarter of 2021 with revenue of $45 2 million gross.
A $14 2 million and operating income of $3 $9 million. These figures represent a year over year increase from Q3 of 2022, 4% and revenue on a year over year decrease of 15, 5% in gross profit and 43, 5% and operating income.
However, this doesn't tell the whole story.
<unk> third quarter had less than 1 million in total PPE revenue compared with $19 4 million in the same period last year <unk>.
Excluding PPE sales Q3 revenue benefited from strong demand amongst new and existing clients, increasing by 78, 8% year over year.
98% of band because Q3 revenue came from the sale of promotional products and branded merchandise.
Operating margin in Q3 was eight 6% below the same period in 2020.
This is due in large part to less PPE sales in 2021, resulting in a lower gross margin in Q3 2020.
Impressively Banco grew in Q3, despite a variety of market headwinds, including global supply chain disruptions. The cancellation of most in person events and conferences due to the rise of the Delta variant and general market uncertainty that has caused many companies to positive marketing spend until things normalize.
Banco backlog at September 30th was $56 2 million made up of $2 $8 million in PPE, and $53 4 million and non TB.
This backlog is 36% higher than the backlog at the same period in 2020, showing continued resurgence in promotional products spend to be reflected in delivered sales throughout Q4, and the early part of 2022.
As we announced in Q2, we began integrating the sales and marketing teams of Banco in HPA most.
Most of our sales representatives are now trained to uncover opportunities and sell both branded merchandise and branded uniforms to clients and prospects.
Turning to H P. I activity many of our large retail customers have set goals for significant hiring in Q4 in order to meet consumer demand.
We're also seeing increased demand from our airline and transportation customers hospitality and entertainment accounts also rebounding.
Compared to Q3 2020, while other channels seem to have stabilized to normalized levels.
We expect to see increased RFP activity in the coming quarters as several large prospects are expected to go to bid in 2022.
Overall, hei's non PPE backlog increase from $8 2 million at September 32021, compared to $7 $3 million in the same period last year.
Now I'll turn the call over to Michael to review, our healthcare apparel business T O G in the macro environment.
Yes.
Thanks Jake.
Good afternoon, everyone.
Thank you Andy too for starting this off as reflected in the numbers, we're tracking well against our guidance goals outlined last quarter.
Begin with healthcare apparel, the CIB product development design team continues to innovate shaping trends in connected fashion forward healthcare uniforms with function comfort fit just last week. The team was recognized for the best fabric government innovations from the North American Association of uniforms manufacturers and distributors.
For our wonder week in the laundry collection and our all season, new release of the sustainably focused wonder weak renewable fashion scrub line. In fact, these two submissions tied for first place among a crowded group of submissions.
Our wondering Indy offering is moving in the right direction and gaining more fashion seal healthcare fans as groups and laundries see indeed fashions grubs as an essential product for the future. We are working through our increased commitments in strengthening our stocking position to accommodate the expected future sales growth in this product line from a.
During standpoint, our near shore factories, and one in Haiti are driving higher efficiencies and increasing production volumes, particularly for our <unk> offerings. We are fortunate that our facilities are acquired from weather events earthquakes and unrest in other areas of the country and operate with significantly less disruption.
For our healthcare brand fashion seal healthcare sales have lagged during 2021 as compared to 2020. This is a result of frenzy buying during the earlier periods of the pandemic in 2020, we anticipate demand will increase in 2022 as stockpiles diminish and increased demand for hospital stays improves.
Additionally, we're taking all necessary steps staying ahead of what will be a continuation of increasing supply chain disruptions, we've taken stronger inventory positions in our best selling products to ensure the disruptions are largely mitigated.
We are also proactively re engaging with many of our prospects who may not be adequately serviced by our competitors. Our long established redundant manufacturing strategy positions us well to handle the anticipated increased demand better than most turning to the office gurus their rapid expansion as exceptional through a strong <unk>.
<unk> fueled by increased demand for nearshore outsourcing and our reputation for excellent service Doj is positioned incredibly well to capture future market share businesses are comfortable with work being done remotely and is labor challenges persist in the United States, we have a rapidly growing existing accounts and adding new customers Deogee currently employs me.
Really 3400 highly motivated team members, who serve as the voice of our customers. We built a culture that attracts and retains the best talent. We were honored to be recently named by employers for you is the number one best place to work in the call center industry in El Salvador for the second consecutive year.
To meet the robust demand in this highly profitable business, we signed leases for additional in center capacity, both El Salvador, and Jamaica, adding a total of 800 seats.
We're working hard at every turn to manage what we can control, but the current operating environment is certainly creating headwinds for us and much of the U S economy logistical capacity constraints staffing issues and reduced work hours in factories worldwide are causing increased costs and delivery delays the energy crisis in <unk>.
It is affecting deliveries of what we're already inflated textiles from a pricing standpoint, our mill sources in working hours reduced by 10% to 30% while yarn prices for both cotton and polyester up considerably in the past months we.
We have discussed on prior calls we have not had many opportunities over a 100 year plus history to raise prices relying more on a diverse supply chain and other efficiency strategies to mitigate rising costs. However, we are operating in an unpredictable environment are converging issues to combat. This we instituted price increases.
Effective at the end of Q4 2021 that are designed to offset the impact is higher priced products begin shipping from our warehouses overall.
Overall, we closed another strong quarter and I must thank our entire team for their hard work and dedication on a separate note.
We are deeply proud of <unk>, who was recently named the number one most influential person in the entire promotional products industry by ASI powered 50 list.
Every year the advertising specialty ensue ranks the most influential figures in the industry and it's no surprise to us to fill top that was for 2021. This is a huge accomplishment that will serve Banco and STC well in our recruiting efforts as well as a strong validation point for clients looking to work with US we appreciate those passion and.
<unk> vision is he embraces his new responsibilities, our CSO with that I'll turn the call over to Phil for his remarks.
Thank you Michael.
Really humbled and incredibly honored by the recent recognition from ASI.
The special team over the years and it's a privilege to continue to collaborate innovate and grow with them.
Before I touch on our strategy and initiatives for growth I'd like to take a step back and put our impressive performance in context.
To provide that context, let's look at our performance by putting aside the unusual year of crisis PPE sales comps in 2020 looking back at our baseline during non Covid times in 2019 net sales for Q3 2019 were $89 $5 million for the current quarter, excluding PPE total net.
Sales increased 36, 5% to $122 $1 million on the bottom line diluted EPS increased 96, 2% when compared to Q3 2019, we achieved this remarkable growth by leveraging our outstanding sourcing capabilities to win and support existing and new customers who.
And to us in a critical time of need by coming through when they need. It. Most we earned the business of many of those customers converting them into longer term clients and strengthen our relationship with our existing customers.
Looking ahead, we are energized about the future.
We are deep into some very strategic initiatives that will be transformative.
Leveraging technology to better serve our customers and elevate our omnichannel presence continues to yield positive results automation and robotics will increasingly drive efficiencies and.
And we will continue to differentiate through technology to further elevate our customer centric focus <unk>.
International expansion is another key strategic element that will help to accelerate our long term growth plan, our new distribution center in Poland that opened in August is now servicing an ever expanding customer base in Europe. We continue to build our talent pool and are pleased to announce a new director of sales for Europe.
Believe our in country resources will help us better serve existing customers and pioneer new opportunities to come.
Lows, we have built a strong foundation and we have a clear strategic vision for the future with that we'll open the line for questions.
Ladies and gentlemen at this time, we will begin the question and answer session.
To ask a question you May press Star and then one using your Touchtone telephone.
To withdraw your question you May press Star two.
If you are using a speaker phone we do as you. Please pick up the handset before pressing the numbers to ensure the best sound quality.
Once again in order to ask a question Please press star and one.
We will pause momentarily to assemble the roster.
And our first question today comes from Kevin Spanky from Barrington Research. Please go ahead with your question.
Hey, good afternoon, everyone.
I wanted to start off first by talking about I believe you mentioned.
Kind of an expected pickup in RFP activity and.
Whats kind of driving that market activity in.
How you're positioning yourself to.
So it kind of respond and can meet compete.
For that business.
Yeah, Hey, Kevin This is a this is jake so.
Look in regards to the increased RFP activity I think it's just a natural progression of what we see in the marketplace right a lot of companies were.
Probably a little bit anxious about going out to RFP changing their providers during the peak of Covid and look there's been a lot of companies are competitors that have been struggling through this in terms of logistical problems warehousing problems and so now that they.
They feel more comfortable going out to RFP, we're seeing increased opportunities I mean companies, we've been talking to for years and years.
That said like just standby and we'll be out to RFP sooner are now coming out. So we expect to see increased activity in 2022, and we're excited about the prospects of winning some of those larger programs.
Okay, great how much do you think you've been able to <unk>.
Competitively differentiate in this.
This is a challenging market environment, given the supply chain issues.
You mentioned, some other competitors kind of struggling to serve their customers well do you think.
Your ability to serve customers better is starting to resonate in the market or is it kind of something that was already.
Well recognized.
I think it was well recognize Kevin Michael but.
But.
Greatly.
Accentuated during this period of time.
Our customers I can't say that we've been without our issues, but what we hear out in the marketplace there those suffering.
A lot more than we are we're very fortunate that we have people on the ground and <unk>.
<unk>.
While they have had restrictions from time to time have been able to move freely between our mills, making sure that our fabrics.
Get completed when they're supposed to or at least within a reasonable time. After they are supposed to same thing with getting space on container ships or or trucks in China.
Having people on the ground makes a whole lot of difference we're not dealing with an agent who has got an agent who's got a broker who has got a friend.
It has it relationship with the factory and most of these as we have the direct relationships with factory. So that's helped us a great deal of the problem.
The biggest part of logistics Nightmare comes about once things are put on a ship.
<unk>.
They sit out in the water for extended periods of time, even after they are loaded finally.
Getting transportation.
Whether it's rail or truck.
Has been challenging, but we've got a pretty good logistics department.
We got a lot of people.
Low cost people can follow up on all the shipments.
At any given time I think our customers appreciate us.
We've done I think in the early part of the pandemic.
Customers Couldnt understand how could somebody who is in the business of serving food in a restaurant.
Casual dining restaurant understand that there is a supply chain problem, but certainly the media.
<unk> spoken a great deal about this and some of these people have had.
Bigger problems than not being able to get their uniforms.
Came later.
With not being able to get some of their paper goods not being able to get some of their printed goods.
And not being able to get the things they needed to.
Day to day basis in the restaurant that comes from offshore even some things come in the United States, because the trucking Sichuan situation in the United States is pretty tight.
So.
We are.
We're in a better position because of our redundant manufacturing and having people on the ground.
And I guess you could say we are in a better position because we've been doing this for 100 years too.
Right, Yeah that makes sense.
And obviously you said you are better position relative to most competitors.
And this currency the supply constrained environment, but obviously youre not immune to it no. One is immediate if you've been able to.
Identifier measure any meaningful impact on your sales from the supply chain issues just.
Because there wasn't product available.
That wouldn't be surprising if it has been the case, but just curious if you've seen anything or measuring anything meaningful from that.
Because product wasn't available because it's been available.
Have to wait longer board.
We haven't had any instances, where we simply couldn't get the product sometimes it was.
A weekly or monthly, but we've been able to get it yes and of course, there there has been an impact.
On our sales theres two sides to that there's the sales we take that we can't ship because we don't have the product.
Which is our backlog which is in.
Which is higher than it's been in some time.
And then there.
Are the loss sales now among our contract customers, who only buy from us.
I don't believe we've lost many sales, but that would impact more.
And fashion seal healthcare by more off the shelf.
Our HDI customers do.
J P.
Banco on that.
No I think you covered it well.
Okay.
Alright, okay, thanks that understood.
So you mentioned.
Marketing up prices.
And in the fourth quarter near the end of the quarter.
And you haven't had much opportunity historically to do that.
Sure.
Is there any are you detecting any pushback on price increases from customers or is it pretty well accepted and none in the current environment that.
Some of these higher costs need to be pass through.
The good news is that our competitors are raising prices too so are there other suppliers.
So.
No we haven't had much pushback.
If theres been any pushback with some customers is that they need more time to cycle through the inventory we have.
In some cases, we've given some of them more time.
Where that was appropriate but no very little pushback.
Okay. Good.
What what's.
Whats left in the crisis PPP pipeline right now I think I think you called out for Banco but.
We dropped down to what a little over $1 billion to here in the third quarter.
What should we think about kind of a similar level in the fourth quarter for PPE or.
How are you thinking about that for fourth quarter.
Fourth quarter end.
Maybe the next couple of quarters.
Yeah, We had mentioned in the opening that Banco backlog at about $2 $8 million of PPE, we expect that to deliver over the course of Q4 and Q1.
Maybe.
Such a pick up here and there, but it's going to be pretty similar to what it's been the last couple of quarters, which is I think we had less than $1 million within Banco the last two quarters and the uniforms division contributed a little bit more I wouldn't expect it to be substantially more than that Kevin.
Alright, okay.
It makes sense.
As you've made progress towards.
Sure.
You're more robotic distribution system anchored.
Incurred by the Eudora facility.
Are you are you planning for any normal disruption as you transition to.
Our new distribution model.
You commented that Youre.
Transitioning at a measured pace, but do you think.
That the organization is prepared prepared for it.
Sometimes it's new technology or new systems, its just theres kind of a learning period or two.
Just in period or is that something we shouldn't even be thinking about.
We put in the <unk>.
CIB robots.
Chuck system.
Hey.
We had a couple of days of.
Shortfall.
Working out bugs and even though we had some continued debugging to do over the coming months, we were able to get out and meet our standards.
In the following months and that's been.
Since January or February so.
They had no disruption in new doors case, we learned our lesson and $19 94, and when we went big Bang them, we shut off one system when we turned on the other one.
And that didn't go so well for US I don't think you were following US back then Kevin.
<unk>.
Major.
A major disruption so we have learned a lesson.
We will act, we will actually be beta testing this while the rest of the warehouse works just as they've been working.
We have different levels of beta testing that we will do.
Absolutely certain that it will not have impact on our customers.
We will not flip the switch.
Alright.
Good good always alert good to learn from experience, even if it's not the best experience but.
So.
You mentioned that fashion seal his leg.
In part due to difficult comps when we.
Start moving past those more difficult comps in terms of the surge in healthcare sales.
Related to the pandemic.
Yes, I think.
What we saw was the buying we saw last year you remember, we I think we reported on previous calls and conference calls about.
Being wiped out completely of all of our scrubs and isolation gowns and barrier coach and all of these items and we worked very well.
Logistic issues.
Then that we have now we've worked very very hard to bring product in making its been all of our redundant facilities air freighting when necessary to take care of the needs.
Hi.
Because it wasn't anybody else out there who is taking care of our customers needs and sometimes even some of our competitors' customers needs.
Got it.
They'll overbought at the time, they just didn't know what to anticipate from a pandemic standpoint.
And those.
The cycle through the laundries in particular.
They will they will introduce those into the laundries, they will wander them depending on the product 50 to 100 times and then they'll pull it out of service.
And a lot of these products are in service already being rented out.
But and then it got backup product to that once they've cycled through all of that that should bode well for us.
We're expecting that we will.
Come back a little bit in fourth quarter, and even more so next year.
Alright.
Got it.
What you mentioned.
New director of sales for Europe.
Was that specific to CIB I, just can you elaborate on that a little bit more than that.
<unk> and <unk>.
She is based in the Netherlands.
And we will sell all over Europe, as we build out our team there.
Alright good.
So as we were into the fourth quarter here now you talked about last quarter.
Full year sales.
Approaching $525 million, you think were still on course for that.
Yes.
That's the shortest alright.
Okay.
Okay now that that answers the question.
Alright, well, that's I think that's all I had at the moment, but thanks for taking all the questions.
Thank you Kevin.
Yes.
Our next question comes from Mike Hughes from <unk> Capital. Please go ahead with your question.
Good afternoon. Thanks for taking my questions just wanted to start with the room.
Staffing solutions business, you've had really impressive sequential revenue growth in that business over the last few quarters, I think onboarding, some new customers or a customer can you just speak to what's left in the pipeline as far as the ramp is for new customers.
The ramp continues as we discussed on last call.
We had projected when we did our budgets this year that we would put on approximately 30 seats a month.
We're running well over 100.
Into 200 at different points and it's it's a little choppy runs between 100 200 now.
We expect that to tail off a little bit and that's already built into our five year guidance.
Hi.
The demand that we're seeing is both from existing customers who were using multiple centers.
Other centers failed them.
And they wanted to bring network to us because we didn't.
As well as other people first time outsourcers.
Mostly who.
Are finding it harder and harder to find employees in the United States.
And when they do their turnover is extremely high so they're constantly training and retraining.
And I think they've gotten used to the fact that my employees are going to be remote why can't my employees being a center.
Salvatore believes or Jamaica.
So we're very encouraged by that.
If we were going to do all we can to keep the momentum going.
Certainly some of this.
Could be.
Post COVID-19 hangover to a certain extent.
But with the amount of activity that we're seeing.
We believe that that number.
The number is higher certainly than the <unk> 30 per month that we projected at the beginning of this year.
Our sustainable and when we get into our budget in November.
At the end of November we will certainly be finalizing those numbers.
Okay. So it's reasonable to expect that that business will continue to grow the top line into the fourth quarter from the $18 million level.
Yes.
Okay and then the.
The 10-Q calls out some onboarding costs, which kind of surprised me given the margins of that business strikes me as very high to begin with so can you quantify kind of steady state what the margins would look like without those onboarding costs.
Well I mean.
When youre growing at a 56% rate I mean, theres a lot more onboarding within your numbers in there is when youre growing at a projected 18% rates.
I can't really give you a fixed number but I mean, if you look at the numbers really where they were probably okay.
Start of this year, where the operating margins were running that's more in line with normal.
Both from a gross margin perspective, and the <unk>.
Cost with the on the gross margins that really is more training, where we typically do charge customers for the time training, but it's at a reduced rate.
So that ends up bringing your margin down a little bit in the short term.
But longer term, we still expect to be in that 24, 25% operating margin or.
Our EBITDA margin, sorry on an ongoing basis.
Okay, and then turning to the promotional business.
I think you indicated the revenue in the current quarter was $44 $3 million, excluding PPE versus 26 five in the September 19 quarter does that contain any acquisition related revenue.
Sorry, the question was acquisition related revenue correct, yes.
Certainly we made an acquisition.
In February of this year just by design. So so there is a portion of that revenue included in there.
Okay can you quantify ballpark.
Yes.
The run rate for the business.
Because that has added about $15 million a year or so.
The quarterly impact of that it's pretty consistent across all of our quarters.
Okay, it's not that material so.
My question the backlog was $41 million during the first quarter $6 million to $8 million last quarter $56 million this quarter as an outsider. It looks like maybe there was the vaccines rolled out in the spring there was a flurry of activity and now it's starting to pull back a little bit.
Just.
From your other prior comments that sounded like that's incorrect, but just kind of tie the backlog decline to your more positive outlook for that business.
Yes, I mean look I think Q3, we had a outsized impact of.
The delta variant that kind of hit.
End of June So July August September we saw a lot of uncertainty around what people are going to do with their marketing budgets.
And how they were going to go.
Go back to events in Q2, there was a lot of exuberance vaccines and rolled out events are starting to come back. So we saw some pullback there. We're finally starting to see that come back now.
Q4, where events are coming back people are realizing they need to use marketing budgets before the end of the year. So we're seeing some of those tailwind come back within the business that.
Pulled back a little bit due to.
Due to the Delta variance in Q3.
Okay, and I would assume that that business users resins and has other raw material price increases so.
How does the <unk>.
Pricing work, there and has there been compression of margins from those higher raw material costs.
Yes, so on the branded merchandize side every every quarter, we do we sort of priced order right.
The vast majority of our product is made to order.
The individual order where pricing and price increases.
Cost increases into that order.
Said another way if someone orders months six months ago, and the price of ceramic was X and today, It's X plus 20%, where does adding that 20% into the cost or the price of the orders so.
Kind of filters through both our revenue and our cost keeping margin pretty consistent.
Charge more for products as they become more expensive for us to source.
Okay, and then just one last question on that business and whats the normal seasonality of that or was it stronger in the fourth quarter are weaker.
Not a ton of seasonality last year, you saw a lot of strength in the fourth quarter.
Because theres a lot of at home gifting that was.
Covid stimulate people were doing gift that home typically if you look back 2019 and prior not a ton of seasonality. If you were to say there is any maybe Q4 is a touch stronger in Q1 to touch weaker but not materially.
Okay. So tying those comments to your comments you made about the kind of protecting margin and how the pricing works the margins for that business in the fourth quarter should be at least consistent with the September quarter.
Yes, that's what we'd expect.
Okay, Okay, and then moving to inventory.
10-Q, there is an indication that I think there's some inventory that's in transit, which is understandable given what's happening with ocean freight but.
Of the increase you've seen year to date, what pushing inventories actually.
In transit now versus the <unk>.
Number where that number has been historically.
A lot more.
We don't have that number for you.
Yes.
But I can tell you it's significantly more.
Sure.
Much more than it usually is.
Only because of the extra 30 to 60 days that it's taking to get product into us from a transportation standpoint, its not only transit, but some that sitting on our vendors docs.
Waiting for a truck to for it to be picked up in whatever country. It's Ed.
Sure.
Did I lose you.
No. We're still here, Okay I apologize I wasn't sure you were done done speaking, yes. Just my last question then I think if you're reiterating your ability to do 525 on the year. It implies $1 31 for the fourth quarter.
And if the promo business doesn't have much seasonality in the call center or the staffing business can be up a couple million dollars youre, implying that your core uniforms.
Business is going to have pretty nice growth into the December quarter is that.
Correct read on it.
That's a fair expectation as well as <unk> certain quarter over quarter.
We should do even better.
Okay. One last one I apologize do you have an early look on what 'twenty two the 2022 Capex will look like.
More and more likely we were winding down all of the major projects. The warehouse in Eudora will continue just a little bit into next year, but we expect to be more in that 115% of our revenue range.
Okay, great. Thank you very much.
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Okay.
And our next question comes from Michael Kessler from.
<unk>. Please go with your question.
Good afternoon, Michael Andy Jason Phil as.
As usual I just wanted to thank you for your Crystal clarity in your presentation as you know on the three 510 year thinking person.
You guys are always on the prowl for acquisitions, Mike quick question for you is our focus.
Three six months in to the current.
Our folks more willing do you think to talk to you due to the current supply chain constraints that they are facing in terms of.
You guys being receptive and they being more receptive to listening to you. Thank you.
Yes, that's a great question I think it'll jump sorry go ahead.
Yes, I think I think when it comes to.
Acquisitions were caught.
Many conversations we have a really robust pipeline and we're always talking to folks I do think that win.
Get challenging particularly for.
Individual business owners.
And those conversations tend to get a bit more serious, particularly when we have answers for the problems. They have and I would say that on the supply chain side.
Company like ours has vastly more resources to deal with current supply chain issues, then and some of the smaller companies that we look to acquire so yes, I would say that the company is to get a bit more serious as a result of it.
Okay.
I look forward to next quarter and your continued success.
Thank you very much.
And ladies and gentlemen, with that we will be concluding today's question and answer session I would like to turn the floor back over to Michael Benstock for any closing remarks.
Thank you all.
Thanks for your great questions.
Enjoy your curiosity about our business and certainly enjoy your support as well.
Once again.
Our ability to execute through a myriad of challenges and opportunities our reach and <unk> has been extended greatly.
As you've heard by turning over their sales and marketing functions to <unk> leadership are combining many of the product offerings of fashion seal healthcare and CIB under the superior uniform group healthcare umbrella now drives an unparalleled broad product offering to all of our healthcare customers capitalizing on the macro environment, we've grown <unk> as a world.
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