Q2 2024 Superior Group of Companies Inc Earnings Call
Operator: The company does not undertake to update this forward-looking statement, except as required by law. I'll now hand the call over to Michael Benstock. Thank you.
We don't undertake.
To update the forward looking statements.
As required by law.
I'll now turn the call over to Michael Benstock.
Michael Benstock: Thank you, operator, and welcome to our call. Today, I'll start with the financial highlights from our second quarter. Next, I'll cover how each of the three business segments performed, including a high-level discussion of some of our go-forward strategies. I'll then turn the call over to Mike to take us through a detailed financial discussion and our outlook for 2024, after which both Mike and I would be happy to take your questions. Let's get started!
Operator: Thank you, operator, and welcome to our call. Today I'll start with a financial highlight from our second quarter. Next, I'll cover how each of the three business segments performed, including a high-level discussion of some of our go-forward strategies.
Michael Benstock: Thank you operator, and welcome to our call today I'll start with the financial highlights from our second quarter next I'll cover how each of the three business segments performed including a high level discussion of some of our go forward strategies.
Michael Benstock: I'll then turn the call over to Mike to take us through a detailed financial discussion and our outlook for 2024, after which both Mike and I would be happy to take your questions. Let's get started. We delivered profitable results in the second quarter. However, our results were not as strong as we had originally forecasted due to softening market conditions, as well as supply chain delays. We expected to recover the revenue associated with the supply chain delays in the branded products and health care segments in the third quarter. On that basis, we are maintaining our full-year outlook.
And then turn the call over to Mike to take us through a detailed financial discussion.
Our outlook for 2024, after which both Mike and I will be happy to take your questions.
Let's get started we delivered profitable results in the second quarter. However, our results were not as strong as we had originally forecasted due to softening market conditions as well as supply chain delays.
Michael Benstock: We delivered profitable results in the second quarter. However, our results were not as strong as we had originally forecasted due to softening market conditions as well as supply chain delays. We expect to recover revenue associated with the supply chain delays in the branded products and healthcare apparel segments in the third quarter. On that basis, we are maintaining our full year outlook. On a consolidated basis, we generated revenues of $132 million, up 2% over the prior year period, and EBITDA of $5.6 million, with a stand from $7.4 million a year earlier, with a margin of 4.2% compared to 5.8%.
Mike: We expect to recover the revenue associated with the supply chain delays in the branded products and health care apparel segments in the third quarter.
On that basis, we are maintaining our full year outlook.
Michael Benstock: On a consolidated basis, we generated revenues of $132 million, up 2% over the prior year period. Our EBITDA of $5.6 million was sent from $7.4 million a year earlier, with a margin of 4.2% compared to 5.8%. Our continued growth in gross margin dollars and gross margin percentage were more than offset by higher SG&A as compared to last year. While our second quarter SG&A cost were down slightly from the first quarter, our cost delivered on the lower than expected revenues. As a result, our second quarter diluted EPS was 4 cents as compared to 8 cents in the prior year quarter.
On a consolidated basis, we generated revenues of $132 million up 2% over the prior year period.
Our EBITDA of $5 $6 million with sand from $7 $4 million a year earlier with a margin of four 2% compared to five 8%.
Michael Benstock: Our continued growth in gross margin dollars and gross margin percentage was more than offset by higher SG&A as compared to last year. While our second quarter SG&A costs were down slightly from the first quarter, our costs deleveraged on the lower than expected revenues. As a result, our second quarter diluted EPS was four cents as compared to eight cents in the prior year quarter.
Michael Benstock: We continue to drive solid operating cash flow during the second quarter, which, with the balance sheet improvements we've made over the past year, has enabled us to maintain a strong net leverage ratio. Therefore, we remain in a strong financial position to make strategic investments that will help us capture additional market share over the long term across our three very attractive end markets, while standing ready for any highly compelling M&A opportunities. I mentioned last quarter that we were cautiously optimistic about the demand trends across our three business segments.
Michael Benstock: We continued to drive solid operating cash load during the second quarter, which, with the balance sheet improvements we made over the past year, enabled us to maintain a strong net leverage ratio. Therefore, we remain in a strong financial position to make strategic investments that will help us capture additional market share over the long term across our three very attractive markets while standing ready for any highly compelling M&A opportunities. I mentioned last quarter that we were cautiously optimistic on the demand trends across our three business segments. While first quarter demand was strong, we began to see a shift to slower customer decisions to purchase during the back half of the second quarter.
Michael Benstock: While first-quarter demand was strong, we began to see a shift to slower customer decisions to purchase during the back half of the second quarter, as the uncertainty around inflation, interest rates, the upcoming election, and global geopolitics weighs on our customer sentiment. With that said, we remain focused on what we can control, which is positioning the company for long-term growth. I'll reiterate what I mentioned last quarter.
Michael Benstock: At the uncertainty around inflation, interest rates, the upcoming election, and global geopolitics weigh on our customer sentiment. With that said, we remained focused on what we can control, which is positioning the company for long-term growth. I'll reiterate what I mentioned last quarter. Perigre of a company still has a very small, but growing share of three large, attractive and growing end markets. We are driven to win more than our fair share of new customers while maintaining impressive customer retention statistics through providing a superior customer experience. We're optimistic on the future given the enormous size of our target markets and our own ability to capitalize your wise investment in our people, our products, and technology.
Michael Benstock: Paragroup, a company still has a very small but growing share of three large attractive and growing end markets. We are driven to win more than our fair share of new customers while maintaining impressive customer retention statistics by providing a superior customer experience. We're optimistic about the future given the enormous size of our target markets and our own ability to capitalize through wise investment in our people, our products, and technology. Turning to our business segments, I'll start with healthcare apparel.
Michael Benstock: Technology.
Michael Benstock: Turning to our business segments, I'll start with health care apparel. During the second quarter, our revenue was down 5 percent due largely to continued softness in our store-based uniform wholesale business and the timing of revenues as compared to last year, doing part of the temporary supply chain issues. These headwinds were partially offset by continued strong growth in our digital business, both in our wholesale and direct consumer channels. While the growth margin rate was up versus last year, the S-GNA percentage increased at a higher rate, primarily driven by investments in marketing to drive further awareness of the weak brand and support for the early stages of our direct consumer channel.
Michael Benstock: During the second quarter, our revenue was down 5%, due largely to continued softness in our store-based uniform wholesale business and the timing of revenues as compared to last year, due in part to temporary supply chain issues. While the gross margin rate was up versus last year, the SG&A percentage increased at a higher rate, primarily driven by investments in marketing to drive further awareness of the Wink brand and support for the early stages of our direct-to-consumer channel. As a result, EBITDA was $1.3 million as compared to $1.9 million in the prior year.
Michael Benstock: As a result, EBITDA was $1.3 million as compared to $1.9 million in the prior year quarter. Despite the second quarter sales decline in health care apparel, we believe our selling strategies in health care apparel, including last year's successful rebranding under the Wink trademark, and expanding our direct consumer efforts will drive long-term growth. Over time, we see ourselves capturing significant additional share of this large, growing, and resilient addressable market, expanding well beyond the more than two million caregivers who already wear our brains to work every day. Turning to branded products, our revenue was up 2% compared to the year-ago quarter.
Michael Benstock: Despite the second quarter sales decline in healthcare apparel, we believe our selling strategies in healthcare apparel, including last year's successful rebranding under the Wink trademark and expanding our direct-to-consumer efforts, will drive long-term growth. Over time, we see ourselves capturing a significant additional share of this large, growing, and resilient addressable market, expanding well beyond the more than 2 million caregivers who already wear our brands to work every day. Turning to branded products, our revenue was up 2% compared to the year-ago quarter, despite an inventory shift related to certain contract uniform customers whose inventory was contemplated to be on the shelf in June but instead arrived in the third quarter. As a result, the revenues from these contract assets will be realized in the third quarter.
Michael Benstock: Despite an inventory shift related to certain contract uniform customers whose inventory was contemplated to be on the shelf in June, but instead arrived in the third quarter. As a result, the revenues from these contract assets will be realized in the third quarter. Interestingly, the overall demand trajectory for BAMCO, in particular, which is the largest portion of the segment, is being driven by a significant increase in the number of customer orders, partially offset by smaller order sizes and lower value products, reflecting a cautious buying pattern by our customers. However, the increased number of orders, including from new customers, results in capturing additional market share, and therefore greater opportunity for growth when the headwinds normalized were expanded revenue.
Michael Benstock: Interestingly, the overall demand trajectory for Banco, in particular, which is the largest portion of the segment, is being driven by a significant increase in the number of customer orders, partially offset by smaller order sizes and lower-value products, reflecting a cautious buying pattern by our customers. However, the increased number of orders, including from new customers, results in capturing additional market share and, therefore, a greater opportunity for growth when the headwinds normalize for expanded revenue.
Mike: Any for growth when the headwinds normalize for expanded revenue. The good news is that customers haven't stopped buying.
Michael Benstock: The good news is that customers haven't stopped buying. They are, however, being more prudent with their spend. The increase in growth margin dollars and rate was offset by higher SG&A, which was primarily driven by employee-related costs, including commissions on the higher gross margins. As a result, the branded product EBITDA of $6.7 million was down slightly from $7 million a year earlier. From a strategic standpoint, our game plan for branded products revolves around strong customer retention, growing our wallet share, driving greater RFP activity, and increasing our sales rep recruiting. Our market share of less than 2% has ample room to expand in this $24 billion market.
Michael Benstock: The good news is that customers haven't stopped buying. They are, however, being more prudent with their spend. The increase in gross margin dollars and rate was offset by higher SG&A, which was primarily driven by employee-related costs, including commissions on the higher gross margin. As a result, branded product EBITDA of $6.7 million was down slightly from $7 million a year earlier. From a strategic standpoint, our game plan for branded products revolves around strong customer retention, growing our wallet share, driving greater RFP activity, and increasing our sales rep recruitment.
Mike: They are however be more prudent with their spend the increase in gross margin dollars and rate was offset by higher SG&A, which was primarily driven by employee related costs, including commissions on the higher gross margins as a result, the branded products EBITDA of $6 $7 million was down slightly from $7 million of.
Mike: A year earlier.
Speaker Change: From a strategic standpoint, our game plan for branded products revolves around strong customer retention and growing our wallet share driving greater RFP activity and increasing our sales rep recruiting our market share of less than 2% has ample room to expand in this $24 billion market wrapping up our business segment discussion contact.
Michael Benstock: Our market share of less than 2% has ample room to expand in this $24 billion market. Wrapping up our business segment discussion, contact centers grew revenues 9% year over year, accelerating slightly from last quarter's 7% revenue increase. Due to the attractive long-term growth opportunities, DOG continues to invest in advance in talent and satellite offices to support new and existing customer growth, which puts pressure on both gross margin and SG&A, but only in the short term.
Michael Benstock: Wrapping up our business segment discussion, context centers grew revenues 9% year over year, accelerating slightly from last quarter's 7% revenue increase. Due to the attractive long-term growth opportunities, DOG continues to invest in advance in talent and satellite offices to support new and existing customer growth, which puts pressure on both gross margin and SG&A, but only in the short term. As a result, our EBITDA performance was almost flat with the prior year period at $3.2 million, despite the stronger top-line results. We're seeing solid demand for TOGs offering from both existing and new customers, and our strategies to continue growing our pipeline and ultimately earning more business, while ensuring that our offering is competitive, reflects the value we bring to our clients.
Speaker Change: Sandoz grew revenues, 9% year over year accelerating slightly from last quarter, 7% revenue increase.
Mike: Due to the attractive long term growth opportunities.
Speaker Change: <unk> continues to invest in advance and talent and satellite offices to support new and existing customer growth, which puts pressure on both gross margin and SG&A, but only in the short term as a result, our EBITDA performance was almost flat with the prior year period at $3 $2 million. Despite the stronger top line results.
Michael Benstock: As a result, our EBITDA performance was almost flat with the prior year period at $3.2 million, despite the stronger top-line results. We're seeing solid demand for TOG's offering from both existing and new customers, and our strategy is to continue growing our pipeline and ultimately earn more business, while ensuring that our offering is competitive and reflects the value we bring to our clients. We're also investigating and already using some of the latest technology to provide the highest quality customer experience while at the same time employing additional technologies to enhance our efficiency and grow margins over time. I'll now turn the call over to Mike to walk us through our second quarter financial results in greater detail and to provide an update on our outlook for the full year. Mike?
Speaker Change: We're seeing solid demand for <unk> offering from both existing and new customers and our strategy is to continue growing our pipeline and ultimately, earning more business, while ensuring that our offering is competitive and reflects the value we bring to our clients. We're also investigating and already using some of the latest technology to provide the highest.
Michael Benstock: We're also investigating and already using some of the latest technology to provide the highest quality customer experience, while at the same time employing additional technologies to enhance our efficiency and grow margins over time.
Michael Benstock: I'll now turn the call over to Mike to walk us through our second quarter financial results in greater detail and to provide an update on our outlook for the full year.
Mike Koempel: Mike. Thank you, Michael. During the second quarter, we grew our top line 2% over the prior year period. This was our second consecutive quarter of year-over-year growth. And while our second quarter revenue was somewhat like versus our forecast, we're able to reiterate our full year revenue expectations given our favorable outlook for the rest of the year. Our consolidated sales growth was driven by our branded product segment, which grew 2% to 81 million dollars, and our contact center segment, which grew 9% to 25 million dollars. These increases were partially offset by a 5% sales decline in our healthcare apparel segment to 27 million dollars for the quarter.
Mike: Thank you, Michael. During the second quarter, we grew our top line 2% over the prior year period. This was our second consecutive quarter of year-over-year growth. And while our second quarter revenue was somewhat light versus our forecast, we're able to reiterate our full-year revenue expectations given our favorable outlook for the rest of the year. Our consolidated sales growth was driven by our branded product segment, which grew 2% to $81 million, and our contact center segment, which grew 9% to $25 million.
Mike: These increases were partially offset by a 5% sales decline in our healthcare apparel segment to $27 million for the quarter. In terms of our profitability, our consolidated growth margin expanded 170 basis points over the prior year, coming in at 38.5%. Both branded products and healthcare apparel continue to drive year-over-year margin expansion with increases of 240 and 120 basis points, respectively, driven by a combination of improved supply chain costs and pricing.
Mike Koempel: In terms of our profitability, our consolidated growth margin expanded 170 basis points over the prior year, coming in at 38.5%. Both branded products and healthcare apparel continued to drive year-over-year margin expansion, with increases of 240 and 120 basis points, respectively, driven by a combination of improved supply chain costs and pricing. These gross margin rate increases were partially offset by a 140 basis point decline at our contact center segment driven by increases in employee-related costs of our agents, included agent training in anticipation of new clients in the back half of the year. Our SDNA expenses were 48 million dollars for the quarter, up from 43 million dollars a year earlier, primarily driven by higher sales related compensation from growth and the branded products gross margin, higher marketing and advertising expenses, increased third party professional fees, and increases in employee related costs.
Mike: These gross margin rate increases were partially offset by a 140 basis point decline at our contact center segment, driven by increases in employee-related costs for our agents, which included agent training in anticipation of new clients in the back half of. Our SD&A expenses were $48 million for the quarter, up from $43 million a year earlier, primarily driven by higher sales-related compensation from growth in the branded product's gross margin, higher marketing and advertising expenses, increased third-party professional fees, and increases in employee-related costs.
Mike Koempel: Our EBITDA of $5.6 million was down from $7.24 million in the prior year period. Looking at this by segment, branded product EBITDA was down just slightly to $6.7 million dollars as stronger sales and a stronger growth margin were offset by higher SDNA expenses. Healthcare apparel EBITDA came in at $1.3 million, down from $1.9 million in the prior year period, primarily due to the lower revenues and higher marketing expenses this quarter. Contact centers EBITDA was almost flat year-over-year at $3.2 million dollars, as sales growth was offset by the combination of a lower growth margin rate and a higher SDNA rate, largely reflecting investments in talent to support future sales growth.
Mike: Our EBITDA of $5.6 million was down from $7.4 million in the prior year period. Looking at this by segment, branded product EBITDA was down just slightly to $6.7 million, as stronger sales and a stronger growth margin were offset by higher SG&A expenses. Healthcare apparel EBITDA came in at $1.3 million, down from $1.9 million in the prior year period, primarily due to lower revenues and higher marketing expenses this quarter. Contact Center's EBITDA was almost flat year over year at $3.2 million as sales growth was offset by the combination of a lower growth margin rate and a higher SG&A rate, largely reflecting investments in talent to support future sales growth.
Mike Koempel: Shifting years, our interest expense for the second quarter was $1.5 million. That's sequentially improved from $1.8 million in the first quarter this year, and much improved from $2.6 million in a year earlier quarter. The interest expense decreased from last year was primarily driven by a $53 million reduction in our weighted average debt outstanding, which I'll touch on in a moment. In terms of net income, we reported $600,000 for the second quarter, or $0.04 per diluted share, relative to $1.2 million, or $0.08 per diluted share in a year ago period. Turning to our balance sheet, which continues to improve, we ended the second quarter with cash and cash equivalent of $13 million, and we reduced our debt outstanding by another $12 million during the quarter.
Mike: Shifting gears, our interest expense for the second quarter was $1.5 million. That sequentially improved from $1.8 million in the first quarter this year and was much improved from $2.6 million in the year earlier quarter. The interest expense decrease from last year was primarily driven by a $53 million reduction in our weighted average debt outstanding, which I'll touch on in a moment. In terms of net income, we reported $600,000 for the second quarter, or $0.04 per diluted share, relative to $1.2 million, or $0.08 per diluted share, in the year-ago period.
Mike: Turning to our balance sheet, which continued to improve, we ended the second quarter with cash and cash equivalents of $13 million, and we reduced our debt outstanding by another $12 million during the quarter. We've also generated $16 million in operating cash flow year-to-date, and our net leverage ratio at the end of the second quarter was 1.7 times trailing 12 months covenant EBITDA, much improved relative to 3.7 times a year earlier. I'll wrap up with our full year 2024 outlook, which is unchanged from what we provided on our last quarterly call.
Mike Koempel: We've also generated $16 million in operating cash flow year-to-date, and our net leverage ratio at the end of the second quarter was 1.7 times trailing 12-month covenant EBITDA, much improved relative to 3.7 times a year earlier.
Mike Koempel: I'll wrap up with our full year 2022 outlook, which is unchanged from what we provided on our last quarterly call. Specifically, we look for four year revenues to be in the range of $563 million to $570 million, and a full year earnings per diluted share to be in the range of 73 cents to 79 cents. These ranges call for acceleration over our first half results, including the later timing of quarterly sales that were originally expected during the second quarter, as previously discussed. That concludes our prepared remarks, and operator. If you could please open a line, Michael and I would be happy to take questions.
Mike: Specifically, we look for four-year revenues to be in the range of $563 million to $570 million and full-year earnings per diluted share to be in the range of $0.73 to $0.79. These ranges call for acceleration over our first half results, including the later timing of quarterly sales that were originally expected during the second quarter, as previously discussed. That concludes our prepared remarks, and Operator, if you could please open the line, Michael and I would be happy to take questions. Thank you. We will now begin with the questions.
Operator: Thank you.
Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time the question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will just pause momentarily to assemble our roster. The first question comes from Kevin Sykes with Barrington Research. Please go ahead.
Operator: We will now begin the question and answer session. To ask the question, you may press star in one on your telephone keypad. If you're using a speaker phone, please pick up your handsuit before pressing the keys. If at any time the question has been addressed and you would like to withdraw your question, please press star in two.
Operator: At this time, we'll just pause momentarily to a single hour roster.
Kevin Steinke: The first question comes from Kevin Stike with Barrington Research. Please go ahead. Thank you, and good afternoon. I wanted to start out by asking about the supply chain delays. You mentioned healthcare apparel and branded products. You mentioned the delayed revenue being pushed to the third quarter, just trying to get a sense as to if you could size the revenue that was delayed. Therefore, how much the third quarter will benefit?
Kevin Sykes: Thank you, and good afternoon, Mr. Chairman. I wanted to start out by asking about the Supply Chain Delays. You mentioned Healthcare Apparel and Branded Products. You mentioned that, you know, delayed revenue being pushed to the third quarter. Just trying to get a sense as to, you know, if you could size the revenue that was delayed there for how much the third quarter will benefit.
Michael Benstock: Hi, Kevin. This is Michael. I'll take the question. What we started to see during the second quarter was really a combination of certain suppliers reducing capacity and then just an increase in demand in getting product particularly out of China. We started to see some delays in product that we were receiving. It impacted us on the finished good side, which again did directly impact the recognition of revenue. We also saw it in terms of delaying some of our fabric to our production facility in 80, which also did impact sales in the healthcare side as well. Again, we experienced those delays, which did create a shortfall or expectations.
Mike: Hi Kevin. This is Mike.
Mike: I'll take the question. What we started to see during the second quarter was really a combination of certain suppliers reducing capacity and then just an increase in demand for getting product, particularly out of China. We started to see some delays in the product that we were receiving. It impacted us on the finished goods side, which again did directly impact the recognition of revenue. We also saw it in terms of delaying some of our fabric to our production facility in Haiti, which also did impact sales on the healthcare side as well.
We started to see some delays in product.
Speaker Change: That we were receiving it impacted us on the finished good side.
Speaker Change: Which again did directly impact the recognition of revenue and then we also saw it in terms of delaying some of our fabric.
Speaker Change: To our production facility in Haiti, which also did.
Speaker Change: Impact sales in the health care side as well so we really.
Mike: Again, we experienced those delays, which did create a shortfall in our expectations to the tune of, I would say, approximately a few million dollars for the quarter. Again, that's timing, some of which we began to recognize in the month of July and will recognize throughout the third quarter primarily. Thank you.
Speaker Change: Again, we experienced those delays, which which did create a shortfall our expectations.
Michael Benstock: To the tune of approximately a few million dollars for the quarter. Again, that's timing, some of which we began to recognize in the month of July and will recognize throughout the third quarter, primarily. Kevin, some of those delays were precipitated by the fact that with the anticipation that there could be tariffs placed on a lot of products coming out of China in particular next year if Trump is worth to be elected. A lot of people are trying to accelerate their shipments out of Asia. And that has placed a lot of demand on the backbone of the logistics companies to try to meet that demand.
Speaker Change: To the tune of I would say approximately a few million dollars for the quarter.
Speaker Change: And so again, that's timing some of which we began to recognize in the month of July and will recognize throughout the third quarter primarily.
Michael Benstock: Yeah, Kevin, some of those delays were precipitated by the fact that with the anticipation that there could be tariffs placed on a lot of products coming out of China, in particular next year, if Trump were to be elected, a lot of people are trying to accelerate their shipments out of Asia. And that has placed a lot of demand on the backbone of the logistics companies to try to meet that demand. So that's certainly one of the reasons for the delay.
Kevin: Yes, Kevin some of those delays were precipitated by the fact that.
Speaker Change: With the anticipation that.
Speaker Change: There could be tariffs.
Kevin: Placed on a lot of products coming out of China in particular next year.
Speaker Change: If trump.
It's worth to be elected a lot of people are trying to accelerate their shipments out of Asia.
Speaker Change: And that has placed a lot of demand on the on the backbone of the logistics companies.
Speaker Change: To try to meet that demand so.
Michael Benstock: So that's certainly one of the reasons for the delay.
Speaker Change: That's certainly one of the reasons for the delay.
Kevin Steinke: Okay, great. That's helpful commentary. And with regard to the software marking conditions, you mentioned in the slower customer decision making, does that apply primarily to branded products? Is that kind of across the segments? And is that, you know, slower decision making continued thus far as you know, you progressed into the third quarter?
Michael Benstock: Okay, great. That's helpful commentary. With regard to the softer market conditions you mentioned and the slower customer decision making, does that apply primarily to branded products, is that kind of across the segments, and, Is that, you know, slower decision-making, continued thus far as you progressed into the third quarter? Good question.
Speaker Change: Okay, Great that's helpful commentary.
Speaker Change: And.
Speaker Change: With regard to the.
Speaker Change: Softer market conditions, you mentioned in the.
Slower customer decision, making.
Speaker Change: It does that.
Speaker Change: <unk> primarily.
Speaker Change: Two branded products.
Speaker Change: Kind of across the segments.
Speaker Change: And <unk>.
Speaker Change: Is that slower decision, making.
Speaker Change: Continued thus far has progressed into the third quarter.
Michael Benstock: Good question. We had a leadership summit about a week and a half ago and brought all of our presidents together. And they all concurred that they have never seen slower decision making on all of our customers' parts. You know, RFPs are going out. The responses to the RFPs are taking forever. Sometimes we're being told that we've been awarded business, and it takes forever to get things through people's legal departments. Even after that happens, it takes our customers the longest period of time to actually pull the trigger and give us purchase orders.
Michael Benstock: Good question. We had a leadership summit about a week and a half ago and brought all of our presidents together, and they all concurred that they had never seen slower decision making on all of our customers' part. You know, RFPs are going out. The responses to the RFPs are taking forever. Sometimes we're being told that we've been awarded business, and it takes forever to get things through people's legal departments. Even after that happens, it is taking our customers the longest period of time to actually pull the trigger and give us purchase orders. And that is true in all of our businesses.
Speaker Change: The question, we had a leadership summit.
Speaker Change: About a week and a half ago and brought all of our presidents together and they all concurred that they've never seen slower decision, making on all of our customers part.
Speaker Change: <unk>.
Speaker Change: Our going out.
Speaker Change: The responses to the Rfps are taking forever.
Speaker Change: We're being told that we've been awarded business and it takes forever to get things through peoples legal departments.
Speaker Change: Even after that happens it takes our it is taking our customers the longest period of time to actually pull the trigger and give us purchase orders.
Michael Benstock: And that is true in all of our businesses. I don't know what's causing that exactly except, you know, an uneasiness on their part or mandates from their own companies to slow their spending down or defer, you know, certain spending items. The spending will be there.
Speaker Change: That is true in all of our businesses.
Michael Benstock: I don't know what's causing that exactly, except an uneasiness on their part or main days from their own companies to just slow their spending down or defer, you know, certain spending items. The spending will be there. It's just taking longer than ever. We've even seen in our pipelines that our pipelines of business are larger than they've been in some time. But part of the reason why they're larger than they've been for sometimes is taking people longer to make a decision. So that's just the fact of life. We're happy that our pipelines are dramatically larger than they've been in the past.
Speaker Change: Don't know, what's causing that exactly.
Speaker Change: Accepted.
Speaker Change: And an easing this on their part or main days from their own companies to slow their spending down or defer spending.
Speaker Change: Spending items, the spending will be there, it's just taking longer than ever we've been seeing it in our pipelines.
Michael Benstock: It's just taking longer than ever. We're even seeing it in our pipelines, that our pipelines of business are larger than they've been in some time. But part of the reason why they're larger than they've been for some times is that it takes people longer to make a decision. So that's just a fact of life. We're happy that our pipelines are dramatically larger than they've been in the past. When things do start to pop, we believe that that will result in us taking additional market share.
Speaker Change: That our pipelines are business are larger than they've been.
Speaker Change: In some time.
Speaker Change: But part of the reason why they're larger than they've been for sometimes it's taken people longer.
Speaker Change: Make a decision so.
Speaker Change: That's just a fact of life, we're happy that our pipelines are are dramatically larger than had been.
Speaker Change: In the past.
Michael Benstock: When things do start to pop, we believe that will result in a technical market share. Okay.
Speaker Change: When things do start to pop we believe that that will result in us taking.
Speaker Change: Additional market share.
Speaker Change: Okay. Thank you.
Kevin Steinke: Thank you.
Kevin Steinke: So you talked about increased marketing and advertising expenses. I think in a relation to direct to consumer and healthcare, maybe some other areas. Can you just expand upon that and again, you know, with the magnitude of that was and that will continue into the back half of the year.
Mike: Okay, thank you. So you talked about increased marketing and advertising, advertising expenses. I think in relation to the Director of Consumer and Health Care, maybe some other areas, could you just expand upon that and again, you know, what the magnitude of that was and if that will continue into the back half of the year.
Speaker Change: So you talked about.
Speaker Change: Increased marketing and advertising and advertising expenses.
Speaker Change: I think in relation to.
Speaker Change: Direct to consumer and health care or maybe some other areas could you just expand upon that and.
Speaker Change: Again whats the magnitude of that was in that.
Speaker Change: We'll continue into the back half of the year.
Mike Koempel: Hey Kevin, this is Mike again. So the predominant increase in marking advertising continues to be in the healthcare apparel segment. As Michael mentioned in the prepare of remarks, that's still attributable to us rebranding and continuing to build the awareness of Wing brand, which I'd say officially rebranded last year, as well as continuing to invest in the growth of direct to consumer. Obviously, these are heavier investments in the early stages of that channel specifically, which again, over time, we would expect to gain leverage as we build that customer base.
Mike: Hey, Kevin, this is Mike again. So the predominant increase in marketing advertising continues to be in the healthcare apparel segment, as Michael mentioned in the prepared remarks, that's still attributable to us rebranding and continuing to build the awareness of the Wink brand, which we, I'd say, officially rebranded last year, as well as continuing to invest in the growth of direct-to-consumer. Obviously, these are heavier investments in the early stages of that channel specifically, which, again, over time, we would expect to gain leverage as we build that customer base.
Speaker Change: Hey, Kevin This is Mike again, so the predominant increase in marketing advertising continues to be in the health care apparel segment as Michael mentioned in the prepared remarks.
Speaker Change: Still attributable to us.
Speaker Change: <unk> and continuing to build the awareness of the Wink brand, which we I'd say officially rebranded last year as well as continuing continuing to invest in the growth of direct to consumer.
Speaker Change: Obviously these are these are heavier investments are in the early stages of that channel, specifically, which again over time, we would expect to gain leverage as we build that customer base.
Mike: So that certainly is putting pressure on healthcare in particular, especially in a quarter, as you can see, where sales are down. We expect to gain more leverage on that as we move forward with our sales expectations in the back half of the year. But again, we'll continue to have a meaningful investment, but again, we would expect to begin to gain some leverage in return on that as we move into the back half of this year.
Mike Koempel: So this certainly is putting pressure on healthcare in particular, especially in a quarter, as you can see where sales are down. We expect to gain more leverage on that as we move forward with our sales expectation in the back half of the year. But again, we'll continue to have a meaningful investment, but again we would expect to begin to gain some leverage in return on that as we move into the back half of this year.
Speaker Change: So that certainly is putting pressure on health care in particular, especially in a quarter as you can see where sales are down.
Speaker Change: We expect to gain more leverage on that as we move forward with our sales expectation in the back half of the year.
Speaker Change: But but again, we will continue to have a meaningful investment, but again, we would expect to begin to gain some leverage and return on that as we move into the back half of this year.
Speaker Change: Okay.
Kevin Steinke: Okay, yeah, this helpful commentary. Just lastly, I wanted to ask about the second half of the year as you think about the outlook. You know, obviously you talked about some of the revenue being delayed due to supply chain issues that they expected to come back, but I guess your outlook also assumes kind of a typical seasonal ramp in revenue. Is that something you're seeing or expecting in the business, and you know, is that kind of factored into the outlook?
Michael Benstock: Okay, yeah, that's helpful commentary. Just lastly, I wanted to ask you about the second half of the year as you think about the outlook. Yeah, obviously, you talked about revenue being delayed due to supply chain issues, but they expect that to come back. But I guess your outlook also assumes kind of a typical seasonal ramp in revenue. Is that something that you're seeing or expecting in the business, and, you know, is that kind of factored into the outlook? That is what we're
Speaker Change: Okay. Yeah. That's helpful commentary lastly, I wanted to ask about.
Speaker Change: The second half of the year as you think about the outlook.
Speaker Change: Obviously, you talked about.
Speaker Change: Uh huh.
Speaker Change: Revenue being delayed to the supply chain issues, but you expect it to come back but.
Speaker Change: I guess your outlook also.
Speaker Change: Assume kind of a typical seasonal ramp in revenue.
Speaker Change:
Speaker Change: Is that something that youre seeing or expecting in the business.
Speaker Change: And is that kind of factored into the outlook.
Michael Benstock: That is what we're expecting, Kevin. I would say just to add a little bit more to what Michael was saying in terms of RIPs and our contacts and our business where the decision making has been longer. You know the good news is that our pipelines are very strong, particularly with new customers, and so with that timing of the decision making, that would translate for them in a larger magnitude of sales in the back half of the year, Q4, and particularly then we might otherwise see just because of the timing, and again that is factoring into the back half of the year.
Mike: That is what we're expecting, Kevin. I would say, just to add a little bit more to what Michael was saying in terms of RFPs and our contact center business, where the decision-making process has been longer, you know, the good news is that our pipeline is very strong, particularly with new customers. And so with that timing of the decision making, that would translate for them into a larger magnitude of sales in the back half of the year, Q4 in particular, than we might otherwise see just because of the timing. And again, that is factoring into the back half of the year.
Speaker Change: That is what we're expecting Kevin I would say just to add a little bit more to what Michael was saying in terms of.
Speaker Change: Rfps and our contact center business, where the decision making has been longer. The good news is that our pipelines are very strong, particularly with new customers and so with that timing of the decision making.
Speaker Change: That would translate.
Speaker Change: For them and in a larger.
Speaker Change: The magnitude of sales in the back half of the year Q4 in particular than we might otherwise see just because of the timing and again that is factoring into the back half of the year.
Kevin Steinke: Okay, thank you for taking the questions. I'll turn the higher SGNA. I got it; I got that it was from kind of early investment in your contacts in our business, but I was just wondering if you could talk about it a little more. Why you're growing that out. Sure, the SGNA increase driven by you know a handful of factors. One being we did have an increase in gross margin with our branded products business, and as we said before, we pay commissions based on gross margin dollars. So, as gross margin dollars rise, so will our commission expense within branded products.
Kevin Sykes: Okay, thank you for taking the questions. I'll turn it back over.
Speaker Change: Okay. Thank you for taking the questions I'll turn it back over.
Operator: The next question comes from Tegan Cox with DA Davidson. Please go ahead.
Speaker Change: Your next question comes from Kagan Cox with D. A Davidson. Please go ahead.
Kagan Cox: Hey, How's it going.
Tegan Cox: Bye, Keegan. Bye. I just wanted to ask and dig a little bit more on the higher SG&A. I understand it. I understand that it was from a kind of early investment in your contact center business, but I was just wondering if you could talk about it a little more and why you're growing that out.
Mike Higgins: Mike Higgins.
Mike Higgins: Yeah.
Kagan Cox: I, just wanted to ask and dig a little bit more on.
Speaker Change: The higher SG&A I got it I got that it was from.
Speaker Change: Kind of early investing in your contact center business, but I was just wondering if you could talk about it a little more on why youre growing that out.
Mike: The SG&A increase is driven by, you know, a handful of factors, one being that we did have an increase in gross margin with our branded products business, and as we said before, we pay commissions based on gross margin dollars. So as gross margin dollars rise, so will our commission expense within branded products.
Speaker Change: Sure the SG&A increase driven by a handful of factors one being.
Speaker Change: We did have an increase in gross margin with our branded products business and as we said before we pay commissions based on gross margin dollars. So as gross margin dollars rise.
Speaker Change: So will our commission expense within our within branded products.
Mike Koempel: I would say within our branded products phase, as well as our contact centers, we are making some investments in talent to support what we believe to be, obviously, the future growth trend of those businesses, so building out, but I'll call a little bit more infrastructure. Thirdly, with also within the contact center business, we have made some incremental investments in a couple of what I would call satellite offices, obviously off of our current office format, which really helps us enable to access additional pools of talent, train, and onboard faster. So again, we're making some of those investments in the early stages here to support the growth of new customers coming on board. And then lastly, another meaningful part would be the marketing and advertising expense that I just referenced with Kevin, which again is predominantly within our health care business.
Mike: I would say within our branded product space as well as our contact centers, we are making some investments in talent to support what we believe to be the future trend and growth trend of those businesses. So building out what I'll call a little bit more infrastructure. Thirdly, also within the contact center business, we have made some incremental investments in a couple of what I'll call satellite offices. Obviously, off of our current office format, which really helps us enable us to access additional pools of talent, train on board faster.
Speaker Change: I would say within our branded product space as well as our contact centers, we are making some investments in talent to support.
Speaker Change: What we believe to be the obviously the future.
Speaker Change: Trend growth trend of those businesses.
Speaker Change: So building out what I'll call a little bit more infrastructure.
Speaker Change: And thirdly with also within the contact center business, we have made some incremental investments and a couple of what I call satellite offices.
Speaker Change:
Speaker Change: Obviously off of our current office format, which really helps us enable to access additional pools of talent.
Speaker Change: Train onboard faster so again, we're making some of those investments.
Mike: So again, we're making some of those investments in the early stages here to support the growth of new customers coming on board. And then lastly, another meaningful part would be the marketing and advertising expense that I just referenced with Kevin, which is again predominantly within our health care business.
Speaker Change: In the early stages here to support the growth of new customers coming onboard and then lastly, another meaningful part would be the.
Speaker Change: The marketing and advertising expense that I just referenced.
Speaker Change: With Kevin, which again, it's predominantly within our health care business.
Mike Koempel: of this.
Mike Koempel: Awesome. And then to kind of just follow up on that, you talked a little bit about supply chain delays. And I think it's have a facilities in the Caribbean, like in Haiti, and such. Have they been impacted at all via the storm setting through that? I have not been impacted by the storms, thankfully. You know, in the civil unrest in Haiti, which is the other side of what happens in Haiti, that could impact, has not impacted us much at all either. We've really had no downtime in the past quarter as a result.
Mike: And then to kind of just follow up on that, you talked a little bit about supply chain delays, and I know you guys have facilities in the Caribbean, like in Haiti and such. Have they been impacted at all by the storms heading through there? I have not.
Kevin: Awesome and then.
Kevin: Kind of just.
Kevin: Follow up on that you talked a little bit about supply chain delays and I know you guys have a <unk>.
Speaker Change: Facilities in the Caribbean like Canadian such have they've been impacted at all at all by the storms heading through there.
Mike: I have not been impacted by the storms, Thankfully, you know, the civil unrest in Haiti, which is the other side of what happens in Haiti, that could impact us, has not impacted us much at all either. We've really had no downtime in the past quarter as a result.
Speaker Change: They have not been impacted by the storms. Thanks Lloyd.
Speaker Change: And the civil unrest in Haiti, which is the other side of what happens in Haiti that could impact has not impacted us much at all either.
Kevin: We've really had no downtime in.
Kevin: In the past quarter as a result.
Mike Koempel: So we're in good shape there. Awesome.
Kevin: Yeah.
Kevin: We're in good shape there.
Tegan Cox: And then I think I just had one more kind of you're talking, Michael, about the pipeline of business kind of picking up in the back half of the year. And I just wanted to dig down into what segment that's in. Is it in the contact center? Just trying to make sure I got it right from where I was.
Speaker Change: Awesome and then I think I just had one more kind of Youre talking Michael about.
Kevin Steinke: And then I think I just had one more kind of you're talking, Michael, about the pipeline of business kind of picking up in the back after the year. And I just wanted to dig down into what segment that's in the contact center. Just trying to make sure I got it right from, yeah, that's in the contact center business where the pipeline of prospects is much higher. And when I say prospects, I'm talking about people who are having serious conversations with about taking over their business; that they only make it to that list if that's the case.
Michael Benstock: The pipeline of business.
Michael Benstock: Picking up in the back half of the year and I just wanted to dig down into.
Michael Benstock: What segment that same as in the contact center.
Michael Benstock: I'm just trying to make sure I got it right from.
Michael Benstock: Yeah, that's in the contact center business, where the pipeline of prospects is much higher. And when I say prospects, I'm talking about people who are having serious conversations with about taking over their business. They only make it onto that list if that's the case. And then, of course, the second side of that is that even when we're told that we've won, it's taking longer to close business. But business is closing at a rate that we're very satisfied with.
Michael Benstock: Yeah, that's in the contact center business, where the pipeline of prospects is much higher and when I say prospects.
Speaker Change: I'm talking about people, who are having serious conversations with about taking over their business that they only make it to that list.
Speaker Change: If that's the case.
Michael Benstock: And then, of course, you know, the second side of that is, even when we're told that we've won, it's taking longer to close business. But business is closing at a rate that we're very satisfied with. Awesome. Thank you.
Speaker Change: And then of course, you know the second side of that is even when we're told that we've won.
Speaker Change: It's taking longer to close business, but business is closing.
Speaker Change: At a at a rate that were very satisfied with.
Speaker Change: Awesome. Thank you.
Jim Sidoti: Next question comes from Jim Sedotti with the dotty encloser. Please go ahead. Hi, good afternoon. Thanks for taking the questions. So yeah, I'm working at the results of the first half of the year and results of the guidance. And you know, it seems that you expect Q3 and Q4 to be even better than Q1 was. So you know, what's giving you that confidence?
Speaker Change: Next question comes from Jim Sidoti with Sidoti <unk> co.
Speaker Change: Please go ahead.
Jim Sidoti: Hi, good afternoon, thanks for taking the questions. So we're going at.
Jim Sidoti: The results for the first half of the year and the results of the guidance.
Speaker Change: It seems that you expect Q3 and Q4 to be even better than Q1 was.
Speaker Change: So whats, giving you that confidence.
Michael Benstock: I would say a couple of things, Jim. One is there is what I'll call some seasonality. In terms of we know historically that brand of products in particular typically has a very strong third quarter leading into the leading into the fourth quarter. Two, I would say that from a timing perspective, we talked a little bit about the supply chain delays, which will obviously benefit the back half of the year. Thirdly, I would say from a timing perspective, there are a couple of customers in the healthcare business where those sales took place in the first half of last year, are now coming in the back half of this year.
Jim: I'd say a couple of things Jim one is there is there is what I'll call. Some seasonality in terms of we know historically that branded products. In particular typically has a very strong third quarter, leading into the leading into the fourth quarter.
Speaker Change: Two I would say that from a timing perspective, we talked a little bit about the supply chain delay.
Speaker Change: Delays, which will obviously benefit.
Speaker Change: On the back half of the year.
Jim Sidoti: Thirdly, I would say from a from a timing perspective, there are a couple of customers in the health care business, where those sales took place in the first half of last year are now coming in the back half of this year kind of gets a little bit to what Michael was referring to in terms of the timing of decision making and.
Mike Koempel: It kind of gets a little bit to what Michael was referring to in terms of the timing of decision making and those sales are purchase orders. Those are sales ready to go. And then lastly, I would just again comment on what Michael and I touched on before, just from a contact center standpoint, just in terms of the timing and onboarding of new customers, which is coming. Again, that put a little bit of pressure on SGA expense for contact centers in the second quarter as we were training in advance of the back half of the year.
Mike Higgins: Those sales are purchase orders those are those are sales ready to go and then lastly, I would just again comment on what Mike when I touched on before just from a contact center standpoint, just in terms of the timing and Onboarding of new customers, which is coming again that put a little bit of pressure on SG&A.
Speaker Change: <unk> for contact centers in the second quarter as we were training in advance of the back half of the year, but because of the timing of new customers, we expect that to drive.
Jim Sidoti: But because of the timing of new customers, we expect that to drive improved sales trend and the back half for that segment as well. and historically Q4 is even better than Q3. The fact that you're going to get some catch-up in Q3 this year, do you think that those two quarters being a little more leveled off? That'd be a little bit more balanced, Jim, to your point. Yes.
Speaker Change: Improved sales trend in the back half for that segment as well.
Speaker Change: Right.
Speaker Change: Historically Q4 is even better than Q3.
Speaker Change: Fact that you're going to get to do some catch up in Q3.
Speaker Change: This year do you think that those two quarters would be a little more leveled off.
Jim Sidoti: That'd be a little bit more balanced Jim to your point, yes.
Michael Benstock: And then, in terms of hiring, you know, sales people for brand of products. Are you finding that to be any easier, or is it still a challenge for you? It's never easy to wedge somebody away who's comfortable in their current environment. We've had more success in the last quarter than we've had in prior quarters.
Jim Sidoti: Okay, and then in terms of the hiring.
Speaker Change: You know.
Speaker Change: Salespeople for branded products are you finding that.
Speaker Change: Any easier or is that.
Speaker Change: So it's still a challenge.
Speaker Change: It's never easy to which somebody away he was comfortable in there and their current environment.
Speaker Change: We've had more success in.
Speaker Change: In the last quarter than we've had in prior quarters.
Michael Benstock: But we're satisfied with the getting returned for our efforts and looking at a lot of other ways as well to grow sales other than hiring additional sales people. We can create some operational efficiency that will make the sales force. We have even more efficient.
Speaker Change: But ER, but we're satisfied with.
Jim Sidoti: We're getting return for our efforts.
Jim Sidoti: And looking at a lot of other ways as well.
Speaker Change: Grow sales other than.
Speaker Change: Hiring additional salespeople.
Jim Sidoti: Create some operational efficiency that will make the sales force we have even more efficient.
Jim Sidoti: We're in the process of rolling some things out internally, somewhat using some AI technology as well to do so that will help our current sales force achieve what we believe are better results for us as well. All right. And then last one for me, you know, the one area where you have made a lot of progress is your gross margin, you know, up significantly from 2022 and 2023. Do you think that these levels is sustainable? We would expect Jim to maintain the margins where we've been. You know, if you look back historically, just the last year, you really started to see our margin rate go up in the third quarter of last year.
Jim Sidoti: Where we are in the process of rolling some things out internally.
Jim Sidoti: Somewhat using some AI technology as well to do so.
Speaker Change: That will help our current sales force.
Jim Sidoti: <unk> achieved.
Jim Sidoti: Achieve what we believe are better results for us as well.
Speaker Change: Alright, and then last one for me you know the one area, where you have made a lot of progress.
Jim Sidoti: Gross margin up significantly from 2022 and 2023.
Jim Sidoti: Do you think that do you.
Speaker Change: Levels are sustainable.
Jim Sidoti: We would expect Jim to maintain the margins where we've been.
Speaker Change: If you look back historically, just the last year, you really started to see our margin rate go up in the third quarter of last year and we've you know we've continued that trend. So I'd say, we'd have margins in the back half more consistent with last year only because again, we start lapping the stronger margins.
Michael Benstock: And we've, you know, we've continued that trend. So I'd say we'd have margins in the back half more consistent with last year, only because, again, we start lapping, you know, the stronger margins. Yeah, that we started to accrue in the third quarter. Okay, but it sounds like you think in the high 30s that's a pretty sustainable number. Yes.
Jim Sidoti: Yeah that we started to accrue in the third quarter.
Speaker Change: Okay, but it sounds like you think in the high 30%, that's a pretty sustainable number.
Speaker Change: Yes.
Jim Sidoti: All right. Thank you.
Jim Sidoti: Alright, thank you.
Operator: Thanks, Jim.
Tim: Thanks, Tim.
Michael Benstock: This concludes our question and answer session. I'd like to turn the conference back over to Mr. Beanstock for any closing remarks. Yeah, thank you, Operator. I want to thank everyone for joining the call for the great questions as well. We're excited about our company growth prospect. And everyone here at SGC is focused on strong execution. We look forward to updating you again on our next call. And please don't hesitate to reach out if you have any further questions before then. Enjoy the rest of your summer. Thanks again for being with us today. And, as always, thank you for your interest in this.
Speaker Change: This concludes our question and answer session.
Speaker Change: Like to turn the conference back over to Mr. Benstock for any closing remarks.
Mr. Benstock: Yes. Thank you operator, I want to thank everyone for joining the call for the great questions as well, we're excited about our company growth prospects and everyone. Here at STC is focused on strong execution.
Speaker Change: We look forward to updating you again on our next call and please don't hesitate to reach out if you have any further questions before then.
Michael Benstock: Enjoy the rest of your summer. Thanks again for being with us today, and, as always, thank you for your interest.
Jim Sidoti: The rest of your summer and thanks again for being with US today and as always thank you for your interest in Essex.
Operator: The conference is now concluded.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Operator: Thank you for a few minutes at this presentation.
Operator: You may now disconnect. Thank you. .
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