Q4 2023 Superior Group of Companies Inc Earnings Call

Operator: Good afternoon, everyone. Welcome to the Superior Group of Companies fourth quarter 2023 conference call. With us today are Michael Benstock, Chief Executive Officer, and Mike Koempel, Chief Financial Officer. As a reminder, this conference is being recorded. This call may contain forward-looking statements regarding the company's plans, initiatives, and strategies and the anticipated financial performance of the company, including, but not limited to, sales and profitability. Such statements are based upon management's current expectations, projections, estimates, and assumptions. Words such as expect, believe, anticipate, think, outlook, hope, and variations of such words and similar expressions identify such forward-looking statements.

Good afternoon, everyone welcome to the superior group of companies fourth quarter 'twenty to 'twenty three conference call with US today are Michael Benstock, Chief Executive Officer, and Mike Campbell, Chief Financial Officer.

As a reminder, this conference is being recorded.

This call may contain forward looking statements regarding the company's plans initiatives and strategies and the anticipated financial performance of the company, including but not limited to sales and profitability.

Such statements are based upon management's current expectations projections estimates and assumptions words, such as expect believe anticipate think outlook hope and variations of such words and similar expressions identify such forward looking statements.

Operator: 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 statement. Such risks and uncertainties are further disclosed in the company's periodic filings with the Securities and Exchange Commission, including but not limited to the company's most recent annual report on Form 10-K and the quarterly reports on Form 10-Q. 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, except as it's a required bylaw. And now, I'll turn the call over to Mr. Michael Benstock. Please go ahead.

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 are further disclosed in the Companys periodic filings with the Securities and Exchange Commission, including but not limited to the company's most recent annual report on form 10.

K and the quarterly reports Form 10-Q.

Shareholders potential investors and others right.

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 any right oops, sorry, the company does not undertake to update the forward looking statements contained herein.

Except as required by law.

And now I'll turn the call over to Mr. Michael Benstock. Please go ahead.

Michael L. Benstock: Thank you, operator. We appreciate everyone being on today's call. I'll start with our fourth-quarter highlights and some broader perspective on 2023, and then I'll discuss our go forward strategies to sustain and accelerate our momentum in the new year and beyond before I turn the call over to Mike for additional detail on fourth-quarter results and our outlook for 2024. We'll then be happy to take questions.

Thank you operator, we appreciate everyone being on today's call I'll start with our fourth quarter highlights and some broader perspective on 2023, and then I'll discuss our go forward strategy is to sustain and accelerate our momentum in the new year and beyond before I turn the call over to Mike for additional detail on fourth quarter result.

And our outlook for 2024 will then be happy to take questions.

Michael L. Benstock: Throughout 2023, we talked about the back-end weighted nature of our financial performance, and that played out, with our consolidated fourth quarter results being the strongest of the year. We generated $147 million of revenues during the fourth quarter, up sequentially and down just 1% versus the prior year quarter, which was our strongest year-over-year comparison in 2023. Fourth quarter adjusted EBITDA came in at $9.9 million.

Throughout 2023, and we talked about the back end weighted nature of our financial performance and that played out with our consolidated fourth quarter results being the strongest of the year, we generated $147 million of revenues during the fourth quarter up sequentially and down just 1% versus the prior year quarter, which was.

Our strongest year over year comparison of 2023 fourth quarter adjusted EBITDA came in at $9 $9 billion again, our strongest quarter of the year and up significantly from $3 $5 million last year. We also produced 22 cents of diluted EPS in the fourth quarter much improved from the adjusted fix that.

Michael L. Benstock: Again, our strongest quarter of the year, and up significantly from $3.5 million last quarter. We also produced $0.22 of diluted EPS in the fourth quarter, much improved from the adjusted $0.06 net loss per share last year, and again, our best result of the year. In addition to improved earnings, as you can see in our results released today, we continue to drive strong operating cash flow while reducing working capital. As a result, we have strengthened our balance sheet, and reduced our net leverage ratio by almost 50% during the pandemic.

Net loss per share last year and again, our best result of the year.

In addition to improved earnings as you can see in our results released today, we continue to drive strong operating cash flow, while reducing working capital as a result, we have strengthened our balance sheet reduced our net leverage ratio by almost 50% during the year.

Michael L. Benstock: Similar to what we described in our November call, business conditions have continued to slowly improve. Many clients are gradually expanding activities, and while demand certainly hasn't returned to full strength, we're cautiously optimistic that underlying trends will continue to move in the right direction and that we'll continue to see a gradual pickup in RFPs and other leading indicators. In this still uncertain environment, we have our teams focused on what we as a company can control, most importantly, quality service that leads to strong customer retention. In addition, we are strategically investing to fully capitalize on the very favorable long-term outlook for all three of our very attractive businesses. So those of you who need a quick primer on SGC in our three segments, we've released a brand new investor slide deck today that's available on our website, and I would encourage you to take a look. Shifting gears, I will provide a high-level overview of each business segment and then turn it over to Mike for a deeper dive. Healthcare apparel, which primarily consists of the Wink and Fashion Steel healthcare brands, grew both revenues and EBITDA year over year.

Similar to what we described in our November call business conditions have continued to slowly improve many clients are gradually expanding activities and while demand certainly hasnt returned to full strength, we're cautiously optimistic that underlying trends. We will continue to move in the right direction and that will continue to see a gradual pickup in rfps and other.

Leading indicators.

And this is still uncertain environment, we have our teams focused on what we as a company can control. Most importantly on quality service that leads to strong customer retention. In addition.

We are strategically investing to fully capitalize on the very favorable long term outlook for all three of our very attractive businesses for those of you who need a quick primer on S. Do you see in our three segments. We've released a brand new investor Slide deck today that is available on our website and that I would encourage you to take a look.

Shifting gears I will provide a high level overview for each business segment, and then turn it over to Mike for a deeper dive health.

Health care apparel, which primarily consists of the week and fashion seal healthcare brands grew both revenues and EBITDA year over year market conditions for health care apparel has been improving with more positive signs emerging.

Michael L. Benstock: Market conditions for healthcare apparel have been improving, with more positive signs emerging. Our addressable market for this segment is large and expanding, and our aim is to grow our market share well beyond the more than 2 million caregivers who already wear our brands every day at work. We began this process last year with our rebranding efforts under the Wink trademark and the launch of our direct-to-consumer website, which continues to produce favorable results.

Our addressable market for this segment is large and expanding and our aim is to grow our market share well beyond the more than 2 million caregivers, who already where our brands every day to work.

We began this process last year with our rebranding efforts under the <unk> trademark in the launch of our direct to consumer website, which continues to produce favorable results.

Michael L. Benstock: To build on this momentum, we'll continue our digital advertising efforts to further enhance customer awareness and engagement with Wink. As with any D2C startup, this required investment is a gating factor on profitability in the shorter term, but one that we firmly believe will establish a foundation for profitable sales growth over time. Combined with the favorable contribution from our B2B website, which we also launched last year and is adding efficiency to the wholesale process and strengthening the relationship with the other digital channels that we service, we see a compelling longer-term outlook for healthcare apparel. Moving on to branded products, during the fourth quarter, we drove our strongest revenue in EBITDA results of the year. The gradual expansion of demand that began in mid-2023 that I referenced on our November call continued through year-end, and we ended the year with a stronger pipeline than a year earlier.

To build on this momentum will continue our digital advertising efforts to further enhance customer awareness and engagement with wig as with any D to C. Startup. This required investment is the gating factor on profitability in the shorter term, but one that we firmly believe well established foundation for profitable sales growth over time.

Combined with a favorable contribution from our B to B website, which we also launched last year and is adding efficiency to the wholesale process and the strengthening of our relationships with the other digital channels that we service, we see a compelling longer term outlook for health care apparel.

Branded products during the fourth quarter, we drove our strongest revenue and EBITDA results of the year. The gradual expansion of demand that began in mid 2023 that I referenced on our November call continued through year end and we ended the year with a stronger pipeline than a year earlier, our booking trends have remained favorable so far in the first quarter, albeit.

Michael L. Benstock: Our booking trends have remained favorable so far in the first quarter, albeit with the normal seasonality. Our focus within branded products is on strong customer retention and increasing share of wallet, as well as driving RFP activity and sales rep recruitment while maintaining stronger margin. We're confident in our ability to capture share, currently less than 2% of this large, attractive, and growing market.

The normal seasonality.

Our focus within branded products is that strong customer retention and increasing share of wallet as well as driving RFP activity and sales rep recruiting while maintaining stronger margins.

We're confident in our ability to capture share currently less than 2% of this large attractive and growing market.

Michael L. Benstock: Next up is our Contact Centers business segment, which also grew revenue year over year. However, increased costs related to labor and talent that first took hold in early 2023 weighed on quarterly profitability, but we will begin to anniversary these higher costs this first quarter. Our focus for contact centers is on increasing seats with existing customers and building the pipeline of new customers.

Next up is our contact centers business segment, which also grew revenue year over year increased costs related to labor and talent that burst of cold in early 2023 weighed on quarterly profitability, but we will begin to anniversary. These higher costs. This first quarter.

Focus for contact centers is an increasing seats with existing customers and building the pipeline of new customers will continue to utilize the latest technology to enhance efficiency and take advantage of our ability to increase prices when possible to improve margins. During 2024, our pipeline of new business remains strong for the office Gurus and we're bullish.

Michael L. Benstock: We'll continue to utilize the latest technology to enhance efficiency and take advantage of our ability to increase prices when possible to improve margins during 2024. Our pipeline of new business remains strong for the office gurus, and we're bullish on the outlook for this high-margin business. I'll now turn the call over to Mike, who will walk us through our fourth quarter financial performance in greater detail and provide our outlook for 2024. We'll then take your questions. Mike, it's over to you.

On the outlook for this high margin business.

Now I'll turn the call over to Mike, who will walk us through our fourth quarter financial performance in greater detail and provide our outlook for 2024, well then take your questions Mike over to you.

Michael Koempel: Thank you, Michael. Rounding out a back-end loaded year, as we first referenced a year ago, our fourth quarter results were the strongest in 2023. Our quarterly revenue reached $147 million, which was up 8% sequentially from the third quarter and down 1% from last year. As compared to last year, fourth quarter sales increased in the healthcare apparel segment by 6% to $28 million, and in the contact center segment by 5% to $23 million. These increases were more than offset by a 4% fourth quarter sales decline in our branded product segment to $98 million. However, while branded product sales were down, the fourth quarter result was sequentially improved from the prior quarter and represents the strongest quarter of the year. Our growth margin rate climbed significantly over the past year, up 760 basis points.

Thank you Michael rounding out a backend loaded year as we first reference a year ago. Our fourth quarter results were the strongest of 2023, our quarterly revenue reached $147 million, which was up 8% sequentially from the third quarter and down 1% from last year.

As compared to last year fourth quarter sales increase in the health care apparel segment by 6% to $28 million and then the contact center segment by 5% to $23 million.

These increases were more than offset by a 4% fourth quarter sales decline in our branded products segment to $98 million, while branded product sales were down the fourth quarter result sequentially improved from the prior quarter and represents the strongest quarter of the year.

Our gross margin rate climbed significantly over the past year up 760 basis points. The margin increase was primarily due to last year's inventory write down of $7 $8 million, primarily within our health care apparel segment, and a favorable shift in the mix of pricing and customers and <unk>.

Michael Koempel: The margin increase was primarily due to last year's inventory write-downs of $7.8 million, primarily within our healthcare apparel segment, and a favorable shift in the mix of pricing and customers and lower supply chain costs within our branded product segment. Our SG&A for the fourth quarter came in at $49 million, relative to $44 million a year earlier. While the STNA rate improved on a sequential basis by 130 basis points, the year-over-year rate increased by 360 basis points, primarily due to expense deleveraging from the sales decrease in our branded product segment. Employee-related costs and depreciation in our contact center segment and lapping unrealized gains of $1.6 million recognized in 2022 on written put options. Our interest expense for the fourth quarter was $2.1 million, a slight improvement over the past year despite higher interest rates due to our successful efforts to reduce debt outstanding by $62 million during. Net income for the fourth quarter was $3.6 million, or $0.22 per diluted share, up from net income of $2 million, or $0.14 per diluted share in the year-ago quarter, which included a one-time pre-tax non-operating gain of $3 million, or $0.20 per share.

Our supply chain cost within our branded product segment.

Our SG&A for the fourth quarter came in at $49 million relative to $44 million a year earlier.

While the SG&A rate improved on a sequential basis by 130 basis points year over year rate increased by 360 basis points, primarily due to expense deleveraging from the sales decrease in our branded products segment employee related costs and depreciation and our contact center segment.

Lapping unrealized gain of $1 $6 million recognized in 2022 on written put options.

Our interest expense for the fourth quarter was $2 $1 million, a slight improvement over the past year, despite higher interest rates due to our successful efforts to reduce debt outstanding by $62 million during the year.

Net income for the fourth quarter was $3 $6 million or 22 per diluted share up from net income of $2 million or 14th cents per diluted share in the year ago quarter, which included a onetime pretax nonoperating gain of $3 million or <unk> 20 per share.

Michael Koempel: Therefore, excluding last year's gain, our fourth-quarter result of $0.22 per diluted share was up significantly from last year's adjusted result of a $0.06 loss per share. The improved result was driven by the aforementioned increase in gross margin for the quarter. Consolidated EBITDA for the fourth quarter was $9.9 million, compared to $3.5 million in the year-ago quarter, including last year's game that I previously mentioned.

Therefore, excluding last year's gain our fourth quarter result of 22 cents per diluted share was up significantly from last year's adjusted result of a six cents loss per share. The improved result was driven by the aforementioned increase in gross margin for the quarter.

Consolidated EBITDA for the fourth quarter was $9 $9 million compared to $3 $5 million and a year ago quarter, excluding last year's gain that I previously mentioned.

Michael Koempel: The EBITDA increase was primarily driven by the healthcare apparel segment, whose EBITDA improved significantly to $1.4 million in the fourth quarter from negative $6.5 million a year ago, mainly driven by last year's inventory rate drop. Also, despite a sales decrease in the fourth quarter, the branded product segment EBITDA improved to $11.7 million in the fourth quarter from $10.8 million a year ago due to higher gross margin. These improvements were partially offset by an EBITDA decline in our contact centers of $2.3 million in the fourth quarter from $3.8 million a year ago, primarily driven by labor increases earlier in the year.

The EBITDA increase was primarily driven by the health care apparel segment, whose EBITDA improved significantly to $1 $4 million in the fourth quarter from negative $6 $5 million a year ago, mainly driven by last year's inventory write downs.

Also despite a sales decrease in the fourth quarter, the branded product segment EBITDA improved to $11.7 million in the fourth quarter from $10 $8 million a year ago due to higher gross margins.

These improvements were partially offset by an EBITDA decline in our contact centers segment, the coupon of $3 million in the fourth quarter from $3 $8 million a year ago, primarily driven by labor increases earlier in the year.

Michael Koempel: Turning to our balance sheet, we've continued to successfully reduce leverage, ending the year just under 2.0 times trailing 12-month covenant EBITDA, a significant improvement relative to 2.9 times just three months earlier in September and 3.9 times at the end of 2022. In other words, we've cut our leverage ratio effectively in half over the past year. We also ended 2023 with cash and cash equivalents of $20 million, benefiting from our continued strong free cash flow and our focus on reducing work and capital. Our operating cash flow for the year was $79 million.

Turning to our balance sheet, we've continued to successfully reduce leverage ending the year just under 2.0 times trailing 12 month Covenant EBITDA, a significant improvement relative to two nine times just three months earlier in September and three nine times at the end of 'twenty.

<unk> 22 in other words, we've cut our leverage ratio of effectively in half over the past year.

We also ended 2023 with cash and cash equivalents of $20 million benefiting from our continued strong free cash flow and our focus on reducing working capital.

Our operating cash flow for the year was $79 billion.

Michael Koempel: I'll wrap up with our full-year 2024 outlook, which, similar to 2023, will have a back-end loaded cadence due to the underlying nature of the markets we serve. Our outlook called for full-year revenues in the range of $558 million to $568 million, up from 2023 revenues of $543 million. We also expect earnings per diluted share in a range of $.61 to $.68, up from 54 cents in 2023.

I'll wrap up with our full year 2024 outlook, which similar to 2023 will have a back end loaded cadence due to the underlying nature of the markets we serve.

Our outlook called for a full year revenues in the range of $558 million to $568 million up from 2023 revenues of $543 million.

We also expect earnings per diluted share in a range of 61 to 68.

From 2023 54 staff.

Operator: And I'll reiterate that, similar to last year, we expect a back-end weighted pattern. This concludes our prepared remarks, and operator, if you could please open the line, Michael and I would be happy to take questions. Of course. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad.

I'll reiterate that similar to last year, we expect a backend weighted pattern.

This concludes our prepared remarks and operator, if you could please open the line, Mike what I would be happy to take questions.

Certainly we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.

Operator: If you are using a speakerphone, please pick up your handset before pressing. To withdraw your question, please press star, then two. We will now pause momentarily to assemble our roster. Today's first question comes from David Marsh with Singular Research. Please go ahead.

If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two we will now pause momentarily to assemble our roster.

Today's first question comes from David Marsh with singular research. Please go ahead.

David Marsh: Hey guys, congratulations on the quarter. It looks really, really good. Just, uh, if we could start, um... want to talk about the contact center segment a little bit. It looks like it was down a little sequentially. And I know you guys had mentioned there were some seats that had been lost, maybe some contracts that hadn't been renewed, but it looks like you've had some pretty good backfill. Could you just talk about kind of the general pace of that business and kind of what your expectations are for the year in that particular business? Sure. Thanks for joining us.

Hey, guys congratulations.

Congratulations on the quarter looks really really good.

Okay.

Just a.

Start.

Wanted to talk about the so the contact center segment, a little bit. It was it was it looks like it was down a little sequentially and I know you guys had mentioned yeah. Yeah. There were there were some suits that have been lasting some contracts that had been made there it looks like you've had some pretty good backfill.

Could you just talk about kind of the general cadence of that business and kind of what your expectations are for the year in that in that particular business.

Sure.

Thanks for joining us we are we're feeling good about the business I mean last year was was a little bit strange in that we had a lot of long term customers cut back on the number of new agents that they had.

Michael L. Benstock: We're feeling good about the business. Last year was a little bit strange in that we had a lot of, you know, long-term customers cut back on the number of new agents that they had. And it was tough to make that up as the year went on, but we did make it up.

And it was tough to make that up as the year went on.

But we did make it up and in the end we ended up with a net gain of agents.

Michael L. Benstock: And in the end, we ended up with a net gain of agents that we were able to bill out. In addition, last year, you know, we were a little late putting price increases in, which certainly impacted the first half more than the second half of the year. We're feeling strong about the business. It's growing. The infrastructure is all in place for it to grow.

We were able to bill out. In addition last year you know we were a little late putting price increases in.

Which certainly impacted the first half more than the second half of the year. We're.

We're feeling strong about the business, it's it's it's growing.

The infrastructure is all in place for it to grow.

Michael L. Benstock: The sales efforts are yielding our expectations for the business, and there's really nothing holding us back. There's still strong demand. Pipeline's strong. You know, the first quarter should be pretty good.

The sales efforts are yielding.

Our expectations are.

For the business and there's really nothing holding us back is still a strong demand pipeline strong.

You know first quarter should be should be pretty good.

Michael L. Benstock: And we expect that momentum to continue to build throughout the year. You know, the fourth quarter is usually the softest quarter in terms of growth for that business. People don't tend to put on new seats as they're, you know, ending the year and looking at their budgets.

And we expect that that momentum will continue to build throughout the year. You know fourth quarter is usually the softest quarter in terms of growth of that business people don't tend to put on new seats as there are.

Ending the year in and looking at their budgets, usually that's when they're cutting back the most.

Michael Koempel: Usually, that's when they're cutting back the most for the holiday season. And so, you know, the fourth quarter's always kind of a little bit uncertain about what's going to happen. But we're feeling strongly going into this year that we should see some pretty good growth. And Dave, just to build on that, you know, if you look at the de-build, if you will, from Q3 to Q4, you'll see it's fairly consistent last year versus this year, to Michael's point, just around the holidays that we experienced and the fewer hours worked in the month of December in the fourth quarter. That's really helpful.

For the holiday season and.

So fourth quarter is always kind of a little bit tenuous, what's going to happen, but we're feeling strongly going into this year. There that we should see some pretty good grip and Dave just to build on that if you look at the D. Build if you will from Q3 to Q4, you'll see it's fairly consistent last year versus this year to Michael's point just around.

The holidays that we experience and the fewer hours worked in the month of December in the fourth quarter.

Yeah.

That's really helpful. I appreciate that and then just turning to the Oh.

Michael Koempel: I appreciate that. And then just turning to the, adhering to the health care apparel business. Consistently about inventory and getting it right. I saw that inventory did tick down a little bit again sequentially in the fourth quarter. I just wonder if you could give us an update there, just kind of an overall feel for your inventory level versus the demand and if you feel like you're pretty close to equilibrium and at a point where you could start to build again. Sure, Dave. This is Michael.

Turning to our health care apparel business.

Uh huh.

Consistently about inventory and getting it right sorry, I saw that inventory did tick down a little bit again sequentially in the fourth quarter.

Wonder if you could give us an update there I'm just kind of overall feel for are.

Your inventory level demand and if you feel like you're pretty close to equilibrium I'm at a point, where you can start to build again.

Sure sure Dave This is Mike I'll take your question, Yes, we talked at the beginning of the year about it would take us about a full year to get to.

Michael Koempel: I'll take your question. Yes, we talked at the beginning of the year about it would take us about a full year to get to, you know, what you refer to as equilibrium, and we feel like we've reached that point here at the end of the year.

What you referred to as equilibrium and we feel like we've reached that point here at the end of the year. So I think with the obviously the significant charges that we took in 2022 that that proved to be the right decision in terms of helping us to clear through inventory through through various channels.

Michael Koempel: So, I think the significant charges that we took in 2022 proved to be, you know, the right decision in terms of helping us to clear through inventory through various channels. And so, we've worked the inventory down significantly by the end of this year, and, you know, we're shifting our focus really toward new product launches and new introductions as we get deeper into 2024. So, you know, from a working capital perspective and inventory, we've really driven a lot of value there. I think that will certainly normalize as we go forward, and we'll look to, you know, invest in inventory where we see opportunities and growth in certain categories. I got it.

And so we work the inventory down significantly by the end of this year and are shifting our focus really toward new product launches and new introductions as we get deeper into 2024. So you know from a working capital perspective in inventory. We've we've we've really driven a lot of that.

All you there I think that will certainly normalize as we go forward and we'll look to invest in inventory, where we see the opportunities and growth in certain categories.

David Marsh: And then, just lastly for me, on the SG&A side, a little uptick in the quarter. I'm guessing that's just typical year-end, you know, kind of, accruals for incentive comp and things of that nature. And I'm sure we expect a reversion back to the level, you know, kind of more similar to the prior couple quarters going forward. Dave, I didn't quite catch your full question, and everybody I spoke with. Could you repeat that, guys? Sorry.

Got it and then just lastly for me on the SG&A side, a little uptick in the quarter I'm guessing that's just typical yearend.

Yeah kind of accruals for for you now.

Kind of comp and things of that nature.

Version back to Oh level, you know kind of more similar to the prior couple of quarters are going forward.

Yeah.

Dave I didn't quite catch your full question very.

Very last part in particular.

Could you repeat that sorry sure sure sure SG&A. It just is it uptick a bit in the fourth quarter I just wonder if that was just a typical kind of fourth quarter seasonal you know kind of incentive comp accrual type action and if we would it be right to expect a reversion back to kind of I mean, you have one.

Michael Koempel: Sure, sure, sure. SG&A just picked up a bit in the fourth quarter. I just wondered if that was just a typical kind of fourth quarter seasonal, you know, kind of incentive comp accrual type action, and if we would be right to expect a reversion back to kind of, I mean, 1Q2Q, you guys really had things in check. You know, I just wondered where we should expect the level of trend to be. Yeah, no, no. Thanks, Dave. I would probably call it a couple of things. It wouldn't be driven by incentive, remuneration, and control.

Good to hear you guys really had things in check.

Just wondering if you know where where should we expect you know the level the trend.

Yeah, No no. Thanks, Dave I would probably call a couple of things I wouldn't I wouldn't it wouldn't be driven by incentive constant roll it would I call. It a couple of things one just as a reminder, in the branded product segment.

Michael Koempel: I'd call it a couple of things. One, just as a reminder, in the branded product segment, the commissions that we pay, which obviously roll through SG&A, are based on margin. And so, recognizing that the fourth quarter was the biggest quarter for branded products, we've got a larger commission expense in the fourth quarter, obviously for good reason. And then, one of the things I called out in the script is that last year, we had favorable favorability with respect to revaluing a stock put that we have. And actually, in the fourth quarter, we had an expense driven by the fact that our share price did appreciate. So, that was an additional expense, if you will, in Q4. So, we wouldn't expect that to be normalized going forward per se, but those were a couple of things that drove the uptick here in the fourth quarter.

The commissions that we pay which obviously roll through SG&A or based on margin and so recognizing that the fourth quarter was the biggest quarter for branded products. We've got a larger a commission expense in the fourth quarter. Obviously for good reason and then one of the things I called out in the script is last long.

Last year, we had favorability with respect to revaluing, our stock put that we have that actually in the fourth quarter. We had an expense driven by the fact that our share price did appreciate so that was an incremental expense. If you will in Q4. So we yeah, we wouldn't expect that to be normalized.

Going forward per se, but those were a couple of things that drove the uptick here in the fourth quarter.

David Marsh: Thanks. I will yield to some of the folks who have questions. Again, congrats on the quarter. Good job, guys. Thanks, Dave.

Got it thanks, I will oh yield to some other folks who have questions again, congrats on a quarter to jump it. Thanks, Dave.

Operator: Thank you. The next question comes from Kevin Steinke with Barrington Research. Please go ahead. Hello, good afternoon.

Thank you. The next question comes from Kevin Steinke with Barrington Research. Please go ahead.

Hello, Good afternoon.

Kevin Mark Steinke: So just wanted to discuss your 2024 outlook. You mentioned expecting the year to be back-end loaded again. What leads you to expect that and how much, you know, improvement in the demand environment might be factoring into that. I know you said business conditions continue or are gradually improving, but, you know, maybe not back to full strength yet. So, any thoughts on that, please? Sure. I'd say a couple of things, Kevin.

So I just wanted to discuss your 'twenty 'twenty four outlook you mentioned.

The year to be backend loaded again.

What what leads you to expect that and how much.

You know improvement in the demand environment might you be factoring into that I know you said business conditions continue.

Our gradually improving but maybe not back to full strength, yet so maybe any thoughts on that please.

Sure I'd say a couple of thing Kevin you know first of all in terms of the backend loaded nature.

Michael Koempel: First of all, in terms of the back-end loaded nature, I think a lot of that's driven by the fact that what we do see in our branded products businesses, they typically do have a strong Q3 and partially Q4, just as it relates to some degree to the holiday season, whether that's gifting for associates or for our customers' customers. Then also, with our contact center business, typically, what we see is, as we just mentioned before with the results for Q4 for the contact centers, we typically see that business come down a little bit in Q4. As our customers pull back and we have holidays, we will start to add new customers in Q1. Then, as we add them and onboard them, that drives more volume toward the back half of the year. Those two segments tend to drive a little bit more performance toward, again, the back half of the year.

Yeah, I think a lot of that's driven by the fact that what we do see in our branded products businesses. They typically do have a strong.

Q3, and partially Q4, just as it relates to some degree to the holiday season, whether that's gifting for associates or or for our customers' customers and then also with our contact center business typically what we see is as we just mentioned.

For on the on the the the results for Q4 for the contact centers, we typically see that business come down a little bit in Q4, as our customers pull back and we have holidays, we start to add new customers in Q1, and then that then as we add them and on board them that drives more volume towards the back half of the year.

So those two segments can tend to drive a little bit more performance toward the again the back the back half of the year I would say that we wouldn't anticipate it to be as back end weighted as it was this year, but backend weighted nonetheless.

Michael Koempel: I would say that we wouldn't anticipate it being as back-end weighted as it was this year, but back-end weighted nonetheless. Looking at the businesses and our guidance, implicit in our guidance, our sale is sales growth across all three of our segments. I would say for our branded products and healthcare apparel segments, our guidance assumes low single-digit growth.

I'm looking at at the businesses and in our guidance implicit in our guidance.

Our sale is sales growth across all three of our segments.

I would say for our branded products and health care apparel segments, our guidance assumes low single digit growth.

Michael Koempel: And then we would expect larger growth in our contact center segment anywhere from high single-digit to low teen growth. And you put that together, and that kind of speaks again to the range that we just provided. Okay, yeah, fair enough. That's helpful.

And then we would expect a larger growth in our contact center segment anywhere from high single digit to low teen growth and you put that together and that that kind of speaks again to the range that we just provided.

Okay, Yeah fair enough that's helpful and I was going to ask you about the segment growth expectation. So I appreciate that.

Kevin Mark Steinke: I was going to ask about the segment growth expectations, so I appreciate that. All right, so again, I mean, I just, you know, so it doesn't sound like you're necessarily assuming some dramatic improvement in the demand environment, you know, but it's just kind of your, you know, regular cadence of new business ramping up, and you mentioned strong pipelines. So it, you know, it sounds like... You're just kind of basing that outlook based on what you kind of see today, and Is that fair?

Alright so.

Again, I mean, I just you know so it doesn't sound like you're necessarily assuming some dramatic improvement in the demand environment, you know, but it's just kind of your you know regular cadence of new business ramping up in and you mentioned strong pipelines.

So you know it sounds like.

You're just kind of basing that outlook based on what you see today and.

And that should lead to a stronger second half of the year is that is that fair.

Michael L. Benstock: Yeah, and I'll jump in, too. Yes, that is fair, Kevin. Thanks, Michael. I think we're seeing more predictability than you've seen over the last few years. You know, 20 to 23 were pretty crazy for us.

Yeah, and I'll I'll jump into yes that is fair Kevin Thanks, Michael.

I think we're seeing more predictability than you've seen over the last few years.

<unk> to 'twenty, three we're pretty crazy for us our 'twenty to 'twenty, two certainly because of the pandemic within 23 with the with the overhang of inventory. We finally feel like we've gotten to a place where we're where our results are more predictable and and you know, we we certainly going to work really hard.

Michael L. Benstock: 20 to 22, certainly because of the pandemic, but then 23 with the overhang of inventory. We finally feel like we've gotten to a place where our results are more predictable, and we're certainly going to work really hard towards exceeding expectations. But I think we've set the expectations pretty well where we believe things will land right now and have very high confidence in those expectations. Okay, great.

Towards exceeding the expectations are but I think we've set the expectations pretty well, where we believe things will land right now and are they have very high confidence in those expectations.

Okay great.

Kevin Mark Steinke: And you mentioned the direct-to-consumer effort and healthcare apparel. Continue to be pleased with the results there. I don't know any more color you can provide there.

And you mentioned the direct to consumer are offered in health care apparel.

You'd be pleased with the results there.

I don't know of any more color you can provide there.

Michael L. Benstock: I assume it's still too small to really move the needle, but maybe any comments on just how that's ramping up and what you might expect in 2024. I think what's really exciting, and I don't have any hard data that I can share on this, but the awareness of our brand, Wink, and Carhartt, which we're a licensee of, is much greater than it has been in the past as a result of a lot of our efforts. We're making a huge marketing investment to support that, and so while it's not a huge part of what we do, it's getting bigger, and it's not only helping the marketing efforts, it's not only helping the direct consumer, but it's helping us really across all the different channels that we're selling on.

Sumit still.

Too small to really move the needle, but but maybe any comments on just.

Again, how how that's ramping and what you might expect in 2024.

But I think what's really exciting.

And I don't have any hard data that I can share on this but you know the awareness.

Awareness of our brand Wink, and carhartt, which were a licensee of ours is much greater than it has been in the past as a result of a lot of our efforts, we're making a huge marketing.

Our investment to support that and so while it's not a huge part of what we do it's getting bigger and it's not only helping the marketing efforts not only helping the direct to consumer, but it's helping us really across all the different channels that we're selling.

You have the digital.

Michael L. Benstock: You have the digital channels where we're selling on Amazon and Walmart.com and so on, Target.com and many others, and that's been very helpful, as well as selling to retailers, where I think we're creating a demand for our products that we haven't in the past, and I've spoken about our marketing team in the past. I think they're second to none, and I'm hoping that sometime in the not-too-distant future, we'll be able to start reporting more on the results, and it will have a bigger impact on our healthcare apparel business than it does today. Okay, great.

Digital channels, where we're selling into you know Amazon and Walmart Dot com and so on target dot com and many others.

And.

Yeah, that's been very helpful as well as selling to retailers, where I think where we're creating a demand for our products that we have been in the past and I've spoken about our marketing team out in the past I think there they're second to none.

And I'm, hoping that some time in the in the not too distant future, we'll be able to start reporting more on the results and it will have a bigger impact on our health care apparel business than it has today.

Okay.

Okay great.

Kevin Mark Steinke: Lastly, I wanted to ask about gross margin, which was quite strong in 2023. I know you had some of the, you know, larger inventory write-down charges in in 2022 that made that comparison a little easier, but even without that, those charges, you know, still some pretty healthy gross margin expense. And so I'm just wondering if you could talk about what's driving that and, you know, speak to the levels of sustainability and gross margin or, you know, opportunities for improvement or pullback or how you think that might trend going forward. Sure, Kevin. This is Mike.

Lastly, I wanted to ask about gross margin.

It was quite strong in 2023.

I know you had somebody you know larger inventory write down charges.

And.

In 2022 that made the comparison, a little easier, but even without that those charges. It you know.

There's still some pretty healthy gross margin expansion so I'm just.

Wondering if you could talk about what's driving that and you know speak to the levels of sustainability and gross margin.

Or you know are opportunities for improvement or pull back or what.

How do you think that might trend going forward.

Sure. Kevin This is Mike Yeah, I think consistent with what we've mentioned in prior the at least the prior prior quarter if not the previous two we continued to see strong margins in the branded product segment, you know with with sales down we've been able through a through pricing.

Michael Koempel: Yeah, I think consistent with what we've mentioned in previous reports, at least the prior quarter, if not the previous two, we continue to see strong margins in the branded product segment. You know, with sales down, we've been able through pricing and customer mix, as well as some favorability and supply chain costs, to drive improved margins. You certainly see that happening again in the fourth quarter. The margin rate in the branded products business is 35% as compared to about 31% the year before.

And customer mix as well as some favorability and supply chain cost to drive improved margins you certainly see that happening again in the fourth quarter margin rate and the branded.

The products business is 35% as compared to about 31% on the year before.

Michael L. Benstock: I think as we look forward, we look to sustain those margins. We think there's still a little bit of upside in the margin rate as we even get into 2024. But again, I think for the most part, you know, certainly able to sustain that margin, which is implicit in our guidance. And as we talked about, we've taken some measures in the contact center business with price changes that we made earlier this year. And we'll continue to look for opportunities there where we can perhaps drive some rate improvement where we kind of took a step back this year. And we'll look to see how we can grow that margin in 2024. Yeah, I'll jump on that too for a little bit.

I think as we look forward, we look to to sustain those margins are we think there's still a little bit of upside in the margin rate as we even get into 2024.

But then again I think I think for the most part you know certainly able to sustain that margin, which is which is implicit in our guidance and as we talked about we've taken some measures in the contact center business with price changes that we made earlier this year and we'll continue to look for opportunities there, where we can perhaps drive.

Some some rate improvement, where we kind of took a step back. This year, we will look to see how we can grow that margin and a 2024.

Yes, I'll jump on that too a little bit we are laser focused on gross margins both at the factories that we manage in Haiti.

Michael L. Benstock: We are laser focused on gross margins, both at the factories that we manage in Haiti, creating, you know, better factory efficiency and looking at all kinds of means through process and improvement to gain more gross margin from what we produce ourselves. But outside of that, we're also looking at shifting as much as we possibly can to countries that we have free trade agreements with, where goods can be brought without duty into the United States at all. And, you know, that's a very important part of our strategy as well. You know we have a redundant manufacturing strategy, Kevin. So, you know, we still have to keep that in place because there are events in the world that we can't necessarily control all the time. But we are laser focused on gross margins, and we would be very disappointed not to see some improvement in our gross margin. Okay, thank you.

Creating better factory efficiency and looking at all kinds of means through process and an improvement to gain more gross margin.

From what we produce ourselves but outside of that we're also looking at shifting as much as we possibly can to countries that we have free trade agreements where goods can be brought without duty into the United States at all and are you know that's a very important part of our strategy as well a long you know we have a redundant manufacturer.

<unk> strategy get himself.

You know, we still have to keep that in place because there are events in the world that we can't necessarily control all the time, but we are laser focused on gross margins and we would be very disappointed not to see some improvement in our gross margins.

Okay. Thank you if I could just sneak one last one in because you mentioned Haiti.

Kevin Mark Steinke: If I could just speak one last one in because you mentioned Haiti and yeah, I've read recently about some unsettled, you know, political conditions down there. And just wondering if that's having any impact on your, your, your, your production down there? You know, what, what's, what's the state of that effort today.

I've read recently about some unsettled political conditions down there and just wondering if that's having any impact on your <unk>.

Your here your production down there you know what.

What's the state of that effort.

For.

Today.

Michael L. Benstock: Sure. As you know, it's a good question. As you know, the factories that we manage are on the border with the Dominican Republic, and there was some earlier noise towards the end of last year with respect to the water rights, and the water rights were being cut off to the Dominican Republic by the Haitians, and that all got settled pretty quickly. So we lost a little bit of time. Typically, what happens in those situations where we lose a couple of days because of, you know, countrywide strikes or, you know, even some violence in different areas of Haiti, we'll lose a couple of days where people will stay home and then, because they have to eat, they have to support generally 10 to 12 people and their families by working for us. They do come to work, and we'll work weekends to make up for the days that they lose during the week. So we've been lucky and fortunate that we haven't lost a lot of time yet. You know, the situation in Port-au-Prince is terrible, and even other cities near the port.

Sure as you know it's a good question as you know are are the factories that we manage are on the border with the Dominican Republic and there were some earlier noise towards the end of last year with respect to the water rights and water rights are being cut off to the Dominican by the Asians and that all got settled pretty quickly. So we lost a little bit of time typically what happens in those situations.

<unk>, where we lose a couple of days.

Because of countrywide strikes or.

Even some some violence in different areas of Haiti.

We'll lose a couple of days, where people will stay home.

And then because they have to eat they have to support generally 10 to 12 people and their families by working for us.

They do come to work and we'll work weekends to make up for the days that they lose during the week. So.

So we've been lucky and fortunate that we haven't lost a lot of time yet.

You know the situation in Florida prints is terrible.

And even other cities near the Port are enforced.

Michael L. Benstock: Fortunately, we're far enough away from most of that noise that it doesn't greatly affect us yet, and we're watching it very carefully. The people who operate in their industrial park, where there are many people like us, even some of our competitors, are watching it very carefully as well to ensure that there's the least amount of disruption as possible. We do always have a plan B and a plan C, as you know, with our redundant manufacturing strategy. So should there be any kind of disruption that actually affects our supply, you know, beyond, we carry safety stocks, as you know, for all the different eventualities. But we do have other places we can manufacture as well, and we're obviously focused on that with the situation in Haiti. But I would say right now that we've been very fortunate for it not to have impacted us really greatly yet.

Fortunately, we're far enough away from most of that noise that it doesn't greatly affect us yet.

We're watching it very carefully the people who we operate in their industrial park, where there are many people like us or even some of our competitors are watching very carefully as well to ensure that this is the least amount of disruption as possible. We do have always a plan b and a plan C. As you know with our redundant manufacturing.

Factoring strategy, so should there be any kind of disruption that actually affects our supply.

Beyond you know, we carry safety stocks as you know.

For all those different eventualities.

But we do have other places, we can manufacturer as well and where we're obviously focused on that with the situation Haiti, but I would say right now we've been very fortunate not to have impacted us really greatly yet.

Yeah.

Kevin Mark Steinke: Okay, I appreciate the insight. I will turn it over to you. Thank you. Thank you. The next question comes from Jim Sidoti with Sidotian Company. Please go ahead.

Okay I appreciate the insight I will turn it over thank you.

Thank you. The next question comes from Jim Sidoti with Sidoti <unk> Company. Please go ahead.

Jim Sidoti: Carl, good afternoon, and thanks for taking the question. It seems like you expect the operating margin to expand about... 50 basis points next year to, you know, just over 4% from just below, just under 4% in 2023. Is that, do you think that's more on the SG&A line where you get the leverage or on the gross profit?

Hi, good afternoon, and thanks for taking the questions.

Well, it's well it seems like you expect that operating margin to a to expand about 50.

50 basis points next year.

Over 4% from just below or just under 4%.

In 2023 is that a do you think that's more on the U S. T D. England, you get the language around the gross profit.

Michael Koempel: I think, Jim, we would expect, again, a little bit more expansion on the gross margin line. And, obviously, as we add sales, we'll get a little bit of leverage, get a little bit of leverage in G&A, but I would attribute, you know, any operating income improvement largely to some expansion in the margin. And how many sales people do you think you'll add in 2024? How many sales?

I think Jim we would expect again, a little bit more expansion on the gross margin line and obviously as we as we add sales will get a little bit of leverage could get a little bit of leverage in G&A, but I would attribute.

Any operating income improvement largely through through some expansion in margin.

And how many sales folks do you think you'll add in 2024.

How many sales.

Jim Sidoti: Yeah, you said that, you know, one of the reasons you're not going to get the leverage on SG&A is because you're earning a sales fee. Oh, no. What I meant to say, Jim, just to clarify, is I would expect as we're adding sales dollars, we'll get a little bit of leverage in GNA, but again, I'd say it would be more driven by margin expansion, just to clarify. Okay. On the gross side...

Folks out.

Yeah, you said that you know one of the reasons, you're not going to get the leverage on SG&A is because you're adding sales salespeople. So.

Oh no.

What I meant to say, Jim just to clarify as I would expect as we're adding sales dollars will get a little bit of leverage and G&A, but again I'd say it would be more driven by margin expansion just to clarify on that.

Gross on the gross margin line.

Michael Koempel: Correct. Got it, got it. You know, he seems to have... You know, he's turned a corner in terms of, you know, Cash Generation and Leverage Ratio. What do you think the uses for cash will be in 2024? Is the first priority gonna be both acquisitions, or do you think you could increase the dividend, or are there other priorities? Sure.

Correct Yeah.

Got it got it and.

Now you seem to have.

We only turned a corner in terms of.

Cash generation and and you'll leverage ratio what what do you think the uses for cash will be in 2024.

The first priority is going to be.

Bolt on acquisitions or do you think you could increase the dividend or are there other priorities.

Michael Koempel: I mean, our priorities, you know, will be consistent with what they have been sort of prior to this focus on the debt. And we'll, of course, with our board, revisit the dividend on a quarterly basis. The other thing that we will do, Jim, this year is increase our capital spending this year. I mean, if you look at it, we just spent over $4 million in 2023. It's a very low number.

Sure I mean, our our priorities will be consistent with what what they do.

It had been sort of pre this focus on the dead well well well of course with our board revisit the dividend on a quarterly basis.

The other thing that we will do Jim this year, we will increase our capital spending this year I mean, if you look at it we just spent over $4 million in 2023, it's a very very low number so we'll be investing a little bit more in capex still not quite to what I would call the hyster.

Michael Koempel: So we'll be investing a little bit more in CapEx, still not quite to what I would call the historical levels, but certainly more than we did in 2023. And from an M&A perspective, as I think we said before, we've clearly put that, you know, to the side. I think that's something that we'll certainly consider as we move forward. As we said before, even though we weren't actively looking to do any M&A transactions, we obviously keep the pipeline open. And we'll certainly continue to evaluate whether there are potential accretive opportunities, and we're certainly in a position where, if there are, we could take advantage of that. And so that'll be something that, you know, we'll evaluate throughout the year as a potential opportunity. All right, thank you.

Work will levels, but certainly more than we did in.

In 2023 and from an M&A perspective, where I think we said before we clearly have put that to the side I think that's something that we'll certainly consider as we move forward as we said before even though we weren't actively looking to do any M&A transactions we all.

We keep the pipeline open and we will certainly continue to evaluate whether there is potential accretive opportunities and and we're certainly in a position where if there were we could take advantage of that and so that'll be something that we'll evaluate throughout the year as a as a potential opportunity.

Alright, thank you.

Michael L. Benstock: This concludes our question and answer session. I'd like to turn the call back over to Michael Benstock for any closing remarks. Thank you, operator.

Yes.

This concludes our question and answer session I'd like to turn the call back over to Michael Benstock for any closing remarks.

Thank you operator.

Michael L. Benstock: Firstly, I would like to publicly thank Phil Cusick for selling BAMFCO to us almost eight years ago. And Phil, thank you for your leadership as well as your time in the C-suite as our Chief Strategy Officer. We've accomplished a great deal during your time with SG&C and are more diverse and stronger than ever. Personally, it's been an incredible experience for all of us to have had the privilege of working side-by-side with you for these eight years. We're in a much better place than ever to succeed, in part due to your having a voice in our future. We wish you and your family continued success in all that you choose to pursue. Secondly, I want to welcome our two new board members, Sue Lattman and Maureen Spencer.

Firstly I.

I would like to publicly thank still crusade for selling bansko to us almost eight years ago.

And Phil Thank you for your leadership as well as your time in the C. Suite is our chief strategy Officer, we've accomplished a great deal during your time with SG&A and a more diverse and stronger than ever personally. It's been an incredible experience for all of US who have had the privilege to work side by side with you for these eight years, we were in a much better place than ever to succeed.

In part due to your having a voice in our future. We wish you and your family continued success in all that you choose to pursue.

Secondly, I want to welcome our two new board members Sue last minute Marine Spencer. We're excited to have you join us your combined business and governance experience will be a great asset to S. P. C. As we navigate our continued growth and success.

Michael L. Benstock: We're excited to have you join us. Your combined business and governance experience will be a great asset to SG&C as we continue our continued growth and success. Thirdly, we want to welcome Dr. Kelly Richmond Pope as our first board observer in our brand new observer program. This very unique and innovative program was conceived as an effort on our part to provide valuable public company board experience for people who, for reasons outside their control, historically have struggled with gaining entree to seats on public company boards. We're proud to be trailblazing in this initiative and setting an example for others by working to create a more diverse community of board members for us and others in the future. With that, I'll close by saying we're excited about 2024, and again, we'd encourage you to have a look at our new investor deck on our website. We look forward to participating in upcoming investor conferences and presenting our Q1 results in the spring. Until then, be safe. The conference has now concluded. Thank you very much for your participation. You may now disconnect your line. The Ultimate Parody Site!

Thirdly, we want to welcome Dr. Kelly Richmond, Pope as our first board Observer, and our brand New Observer program. This very unique and innovative program was conceived as an effort on our part to provide valuable public company board experience for people who for reasons outside their control historically have struggled with gaining on.

Entre to seats on public company boards, we're proud to be Trailblazing in this initiative and setting an example for others by working to create a more diverse community of board members for us and others in the future with that I'll close by saying, we're excited about 'twenty 'twenty four and again, we'd encourage you to have a look at our new investor deck on our website.

Florida participating in upcoming Investor conferences, and presenting our Q1 results in the spring until then be safe.

The conference has now concluded. Thank you very much for your participation you may now disconnect your lines.

Yeah.

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