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Good afternoon, and welcome to the Superior Group of Companies Fourth Quarter 2024 Conference Call. With us today are Michael Benstock, Chief Executive Officer, and Mike Koempel, Chief Financial Officer. As a reminder, this conference call 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 in similar expressions identify such forward-looking statements. 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 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 except as required by law. And now, I'll turn the call over to Michael Benstock. Please go ahead.

Thank you, operator. Today, I'll review our consolidated full-year and fourth-quarter financial highlights, along with the discussion of our three business segments. I'll then turn the call over to Mike, who will take us through a more detailed financial discussion and provide our outlook for 2025. After that, we'll open the lines to take your questions. Fourth-quarter results came in largely as expected, placing us within our full-year 2024 outlook ranges, which, as a reminder, we had raised after the first quarter. Our full-year consolidated revenue and diluted EPS were up 4% and 35%, respectively, over the prior year. We are pleased to have achieved this result under the current macroeconomic conditions, which have presented numerous challenges. Market conditions continue to reflect customer hesitancy, geopolitical conflicts, the new administration, and the general economic direction. While we cannot control these external factors, we are committed to tackling the aspects of our business that are within our control. Our team has shown resilience and adaptability, focusing on cost management, maximizing our operational efficiencies, enhancing customer experience, and driving innovation within our product lines. This presents us with tremendous opportunities for growth even in a more prudent spending climate. During the fourth quarter, consolidated revenue was down 1% versus the prior year, which, if you recall, had been a strong quarter for us. Positive growth in healthcare, apparel, and contact centers was offset by a decrease in our branded product segment. We generated fourth-quarter diluted EPS of $0.13 relative to $0.22 last year. Again, this put us within our full-year outlook range and, as expected, was a tough year-over-year comp given the outsized strength in the fourth quarter of 2023. We also generated positive operating cash flow, enabling us to maintain a strong leverage ratio. Our solid financial foundation provides us the opportunity to make strategic investments in our three very attractive end markets while also opportunistically repurchasing our shares, which Mike will speak to. Starting with branded products, we did achieve modest growth in the promotional products channel driven by a combination of both new and existing customers. We are investing in sales leadership to expand our share of wallet with existing customers as well as to add new customers at a faster pace. Overall, our expanding market share should result in strong growth over time, especially once economic uncertainty lifts. Turning to healthcare apparel, while overall market conditions remain soft, especially for the brick-and-mortar wholesale-related channels, we look to grow our digital channels over time, both wholesale and direct to consumer. We're also investing in sales, branding, and marketing to further drive weak brand awareness. As for contact centers, which remains our highest margin segment, we are encouraged by the revenue growth potential, especially now that we have a sales team in place for the first time since launching this business in 2008. We did see a positive contribution from brand new customers during the quarter, which more than offset a decline with existing customers due in part to end-of-year seasonal adjustments. Our contact center strategy is to continue growing our customer cap with greater marketing support. Most importantly, we're implementing some of the very latest technology to not only enhance the customer experience but to optimize our own cost and long-term profitability. I'll now hand it over to Mike for a detailed walk-through of fourth-quarter results as well as our initial outlook for 2025 before we take your questions. Mike?

Thank you, Michael, and thanks everyone for joining us today. On a consolidated basis, our fourth-quarter revenues were down 1% relative to the prior year period, completing what was again as anticipated a back-half weighted year for Superior Group of Companies, Inc. and placing us within our outlook range. I want to again emphasize that we expect a similar pattern for 2025. Looking closer at top-line performance starting with branded products, revenue was off 5% year over year. Sales of promotional products grew, while branded uniform sales with existing customers were down year over year primarily due to stronger uniform program rollouts in the year-ago quarter. We grew healthcare revenue 8% over the prior year, primarily driven by growth in our digital channels, as well as some favorable sales timing in our non-digital channels. And for contact centers, we drove 4% top-line growth. We now have a sales force in place, as Michael just mentioned, and while we saw a decline from existing customers, this was offset by an even stronger contribution from new customers that also provide the opportunity for future seat expansion. Turning to margins and profitability, our consolidated gross margin for the fourth quarter of 37.1% was down just 70 basis points relative to the year-earlier quarter despite the tough comparison. And SG&A as a percent of revenues at 34.4% was about a percentage point higher. This resulted in consolidated EBITDA of $7.3 million versus $9.9 million in the fourth quarter of 2023. On a segment-by-segment basis, branded products' fourth-quarter gross margin was down a percentage point to 33.9%, driven by sourcing mix and lower volume related to our branded uniform programs. As we have said in the past, the sales and margin mix of uniformed programs can vary on a quarterly basis depending upon the timing of program rollouts and sourcing consideration. SG&A as a percent of revenues for the fourth quarter increased about a percentage point to 25.9%, mainly driven by deleveraging. As a result, branded products EBITDA was $8.9 million for the quarter, down from $11.7 million the prior year. Turning to healthcare apparel, while our fourth-quarter gross margin of 33.7% was off three percentage points due to higher sourcing costs related to manufacturing in Haiti, we did achieve better leverage on SG&A as a percent of revenues by more than a full percentage point on the 8% sales increase. As a result, our healthcare apparel EBITDA came in at $1.1 million relative to $1.4 million in the year-earlier period. For contact centers, which is our highest margin segment, we drove a stronger fourth-quarter gross margin of 54.7%, up more than two and a half percentage points from last year. SG&A as a percentage of revenues at 44.9% improved slightly from 45.1% in the year-ago quarter. This resulted in EBITDA of just over $3 million, up from $2.3 million in the year-ago period. Our fourth-quarter interest expense was $1.5 million, which improved sequentially and also marks a significant improvement from $2.1 million. This improvement was driven by lower weighted average debt outstanding, as I'll discuss in a moment, and a more favorable weighted average interest rate, down 130 basis points over the past year. Our fourth-quarter net income reflecting the EBITDA trends already discussed was $2.1 million relative to $3.6 million in the very strong fourth quarter of 2023. And we generated earnings per diluted share of $0.13 relative to $0.22. Our balance sheet has continued to strengthen with year-end cash and cash equivalents of $19 million at year-end, compared to $20 million at the end of 2023, despite completing more than $7 million of share repurchases during the year as well as a small acquisition completed during the fourth quarter. We also reduced our outstanding debt to $86 million at year-end, improved from $93 million a year earlier. For the year, we produced strong operating cash flow of $33 million, supporting our net leverage ratio, which ended 2024 at just 1.7 times trailing twelve months covenant EBITDA, improving from 2 times at the start of the year. Providing an update on our share repurchase plan, energized last August, during the fourth quarter, we repurchased approximately 72,000 shares for $1.1 million at an average price of $14.96 per share. We ended the year with approximately $2.6 million remaining under our initial authorization. Today, we are announcing that our board has authorized an additional $17.5 million share repurchase plan with no program expiration. We intend to continue buying back shares depending upon a number of market factors. Support of the new repurchase program and reflecting our improved financial profile, our bank syndicate agreed to amend our credit agreement to increase the annual amount of permitted payments for shareholder distributions, share repurchases, and the like. I'll wrap up with our initial outlook for 2025. As Michael mentioned in prior calls and spoke of in his opening remarks, there are lingering factors resulting in customer hesitancy and overall economic uncertainty. Taking these factors into consideration, we look for full-year revenues to be in the range of $585 million to $595 million, suggesting year-over-year growth at the high end of 5%. We look for full-year earnings per diluted share to be in the range of $0.75 to $0.82, suggesting 12% year-over-year growth at the high end. As mentioned earlier, we expect a back-end weighted cadence to 2025 and similar to what we have achieved in each of the past two years. And with that, operator, if you could please open the line, Michael and I will be happy to take questions.

Before pressing the keys. Our first question today comes from Jim Sidoti with Sidoti and Company. Please go ahead.

Hi. Good afternoon. Thanks for taking the questions. Just looking to the cash flow statement, looks like you did an acquisition, a $4 million acquisition in the quarter. Can you let us know what that was?

Hi, Jim. This is Mike. Thanks for the question. Yes. We did a small acquisition in December of this past year. And we really would consider it really a small opportunistic acquisition. It enabled us to add a few new, what I would call, blue-chip customers that we really feel could really provide us with some growth with those new customers. It also enabled us to add some experienced talent as well. So we identified an opportunistic transaction and really took advantage of it and will, again, provide us with some growth here in 2025.

And so it sounds like it's a branded product business?

It is a branded products business.

Okay. And, you know, the overall guidance seemed pretty much in line with where I was, where the street was. EPS a little bit lower. Are you seeing higher material costs or labor costs or, you know, can you just give a little color on what's going on on the cost side?

Sure. As I mentioned in my prepared remarks, we saw for the quarter was a slightly lower margin rate in the healthcare business. Again, due to some higher costs associated with our manufacturing in Haiti. Of that has to do with the fact that with holidays, we've got some less production. So absorbing less of the cost, which is put a little bit of pressure on margin in the fourth quarter. Took physical inventory, had some inventory that we had written off. Not, you know, what I would call significant, but it kind of adds up along with some of the incremental production costs. So I'd say that the cost in Haiti again, incrementally drove a little bit more pressure on the margin, which to your point then impacted some of the flow-through on the sales that we had for the quarter.

Alright. And it sounds like you think cost is gonna remain, you know, that level in 2025?

For the most part, I think, again, part of our charge in Haiti was, again, associated with some year-end inventories that we had taken wouldn't expect that to repeat itself. But in terms of just the larger production cost, we'd expect that to continue into 2025.

Alright. And then the last one for me. Yeah. I know you did raise prices on the contact centers business, and I think you might have raised prices in your other businesses as well over the past twelve to eighteen months. Are those price increases sticking? And do you think you have additional pricing power in the future? You know, what's the pricing environment look like?

So we're in a little bit of a crazy environment now where everybody is expecting prices to go up. So, yes, we will continue to raise prices. We have continued to raise prices as was necessary. Also found some efficiencies along the way where we didn't need to in some of our products and services to not raise prices, but we do expect price increases in the future. But, you know, for a large part, because I'm sure there's a question in here that's gonna come about tariffs. We might as well, you know, lay it out there. We are very well positioned for whatever is gonna happen from a tariff standpoint. We contemplated a lot of what has already happened. Has already been announced. And we feel we're in a but, you know, we're still waiting and watching because it's a very fluid situation. We know what's been announced. We know what pull back. We know what's been announced again and pulled back. But we diversified our supply chain greatly over the last years. During the first Trump administration, we started doing it because of our thoughts that tariffs were going to increase further and not knowing whether he was going to get elected a second time or not. We pulled back, and we went to other countries that have much less risk to us, but we certainly have been watching it. We have already proceeded with negotiations with all of our vendors. That has worked out very, very favorably. Won't get into by product by product what's happened because it does differ by product for each product. Even with our logistics vendors, we've seen some, you know, or our ability to put pressure on them to reduce some cost there. So we're in good shape. I think to the extent that we're gonna see cost increases, we're going to be able to pass those on.

And the fact you're buying back another, I think it was $17 million in shares. Sounds like you're pretty confident that cash flow is going to continue to remain strong over the next few quarters.

We would expect to continue to generate good cash flow and as it relates to the share buyback as we've done in the past, we'll monitor the market going forward and based on a number of factors, you know, we'll obviously make decisions along the way to purchase within that program.

Okay. Alright. Thank you.

The next question is from Keenan Cox with D. A. Davidson. Please go ahead.

Hi, Michael and Mike.

Hi. How are you?

So my question was just on the branded product segment. I know you guys were, what you said, more uniforms from or branded uniforms. I was wondering if those customers are still around in your business and you're just waiting for and you're recycling, like, a big contract or what we're looking for in growth there?

Sure. On the branded uniform program side, there's been no turnover in customers. We've retained all the large customers that we have. What I was really referring to in the prepared remarks is that with our existing customers, they will from time to time roll out new uniform programs and, of course, timing of that can vary from year to year or within the quarter. And so what we saw in comparing the fourth quarter this year to last year was we had a rollout begin to take place in the fourth quarter of last year, which was beneficial to the quarter, and the timing of the new program did not occur in the fourth quarter of 2024, but is going to take place in 2025. So again, just a difference in the timing of when our existing customers are rolling out programs.

That makes sense. Thank you. And then just a follow-up. It seems like margins are pretty strong in the contact center business. Was wondering if you guys are seeing any labor cost increases there overseas or at home.

Not to the extent beyond what we reported about a year ago. We've kept a pretty steady state of being able to keep up with the pressure that we had. When we raised our rates a year ago, I think we raised them to a level that made us extremely competitive. And we haven't had to do much since then. There's spotty places in particular jobs that we've had to do things for, but we certainly have been able to recoup that through price increase.

And we were happy keying with the gross margin rate in contact centers, you know, at 54.7% was consistent with the third quarter and up from the first half of the year. So happy to see that we're maintaining that higher margin in the back half of the year.

Thank you.

The next question is from David Marsh with Singular Research. Please go ahead.

Hey, guys. Thank you very much for taking the questions and congrats on the quarter. Looking at the leverage, you guys have done a great job bringing leverage down. Would you say that, you know, at this level that you're at a pretty comfortable level? Or, you know, as you weigh usage of cash flow, you know, do you think that maybe you wanna reduce it some more here? Or, you know, just give us a little insight there?

Dave, I'll take that. We're obviously very comfortable with where we are at our current leverage ratio. With that said, you know, we've mentioned before that with a very strong leverage ratio that we have, combined with the capacity in our current credit facilities, we certainly have the opportunity for capital investment or capital allocation such as share repurchases, potential M&A activity, etcetera. So we'll certainly look to utilize that capacity if there's compelling opportunities. As Michael and I have said in the past, we definitely would like to be in the two to two and a half range of leverage taking into account some of the activities that I mentioned, and then, you know, with free cash flow, having that opportunity over time to get that back down to under two. But again, I think we're very comfortable and we're in a position where, again, we can use the capacity that we have to take advantage of some potential opportunities that might arise.

Speaking of acquisitions, you guys, you know, you pulled the trigger on a small one in the quarter in branded products. Could you just talk about kind of more broadly the acquisition landscape and, you know, kind of maybe help us understand what your priorities would be in terms of the business lines around acquisitions?

Good question. It's one of the richest environments we've ever seen. There's plenty of opportunity. It's one of those things where you can imagine you kiss a lot of frogs along the way until you find what you're looking for. What we're looking for are, you know, almost immediately accretive businesses that don't put any pressure on our leverage ratios. And they've got to have great leadership with great culture and easily integratable. You know, these are the things we look for, and quite frankly, there's not one of those things that isn't as important as the next. We would not buy a business that was missing one of those components. And, you know, I think we're seeing some great companies out there. Some are beyond our capacity, but, you know, we're certainly very engaged, particularly in the branded products business. And we're also more engaged than ever in the call center business and looking for the right company. But that would get us into a geography that we're not currently in that would make us even more attractive to a customer base.

Okay. And then, you know, just wanted to dig into your comments, Mike, about 2025 guidance just a little bit. You know, I caught back-end loaded, but what I didn't really catch was and I kind of was trying to derive it from some of Michael's comments early on. Just, you know, as we're starting the year, I mean, should we expect, you know, like, a meaningful sequential slowdown and then a really heavy back-end load or maybe not as much of a, you know, kind of more of a flattish to slightly down start and, you know, kind of a gradual build. I'm just trying to, you know, trying to model this here.

Yeah. Somewhere between there is the right number.

Yeah. I would characterize it, Dave, more as I'd say a more gradual build this year. So shifting a little bit more back-end weighted. Obviously, there's, you know, a lot of uncertainty that's taking place right now, and so, you know, our belief is that things will become clear as we move forward. And so we're expecting a little bit more of a gradual build this year than we saw last year. And then, you know, again, ramping up later in the year. Third quarter is always an important quarter for us. It will continue to be an important quarter. But that's how I would characterize the calendarization at this point.

Okay. That's really helpful. And then if I could just sneak in one more. Guys, you mentioned in the prepared remarks, you know, some comments, just a quick comment really about healthcare apparel and the online channel. And this is something you've mentioned in the past, you know, periodically on calls. Just wanted to see if that online channel is, you know, quite to a place where, you know, it's something that you, you know, you want to talk about, you know, more meaningfully or is it just kind of still a supplement to, you know, kind of the traditional brick and mortar and shipping and things of that nature.

I would say for competitive reasons, we really don't want to speak about it too much. We share numbers and strategies and where we're spending our money and what our return on advertising spend has been, but it's been very, very favorable. As favorable as many of the consumer-driven companies, even better than most. So we're just gonna sit tight with the numbers for a while more, sometime before we'll actually start reporting all of those metrics.

I get it. Thanks so much. Appreciate the color.

The next question is from Kevin Steinke with Barrington Research. Please go ahead.

Thank you. So I just wanted to ask about the general tone among customers. You mentioned still some uncertainty, obviously, but it felt like maybe there was, you know, a little more optimism about just opening up or expanding as we enter the year. So I don't know if you've seen kind of an increase in uncertainty over the last, you know, month or so or kind of, you know, are we kind of just wondering if there have been any kind of fits and starts in terms of, you know, demand environment.

I think that's a good characterization, fits and starts. But let's take it one segment at a time. So on the branded products segment, we're certainly seeing positive signs of income among our clients in the fourth quarter. Results in increased bookings, strong backlog headed into the new year. More recently, as you can imagine, we've noticed a growing sense of, call it, uncertainty regarding the repercussions, particularly of tariffs on the overall economy and the consequent impact on the cost of our branded merchandise. There were fears that these tariffs could disrupt existing supply chains, leading to potential delays and increased costs for our clients. We're well positioned to weather this, as I said. We've actively diversified our supply chain out of tariff countries. We're also taking market share from our competitors who are not as well prepared as we are to handle the current environment. So that describes branded products. On healthcare apparel, we had a very strong Q4 across our omni-channel mass and distributor channels. Demand for new collections that were introduced in the fall of 2024 continues to grow. As consumers have increasingly asked for our retail-facing brands, which are Wink and Carhartt Medical. While we delivered a strong Q4, we're beginning to experience economic marketplace uncertainty even in this place where these are necessary items for people to buy from both our consumers and customers who are reselling our products, leading to delays in purchase and installing new groups. A strong inventory position with increased brand awareness to meet demand takes share from our competitors across our portfolio, and that's the good news, as we brought in a fair amount of product early. In contemplating these tariffs, so we should be in pretty good shape. On the contact center side, it varies greatly across. We're agnostic as far as who we serve, and we have many, many different types of customers. I would say the prevailing theme of cost containment through enhanced efficiencies is absolutely consistent across the board. This is also, I would say, mirrored in our business pipeline, which we believe has a tremendous opportunity exists for us to capture additional market share. Prospective clients are looking for BPO partners capable of helping them reduce costs. And we believe, you know, with the innovative technologies that we employ, that and the other requirements that we can meet, that we're in a very good position to take more market share. With that, we're still seeing slower decision-making. Consummate new deals, got a great backlog. But there's also an uptick in price checking disguised as RFPs. But we're participating.

Okay. Thanks. That's helpful color. And with regard to branded products and the gross margin in the fourth quarter, I know you called out the mix impact there, but, you know, as we kind of think about 2025, do you think gross margin can kind of rebound on an annualized basis to something similar as to what it was in full-year 2024? You know, any other thoughts on the margin trend there in branded products?

Yeah, Kevin. I would see it, you know, really over the course of the year balancing out. As I mentioned in the question or in the prepared remarks, when it comes to some of the branded uniform programs, you know, in any given quarter, the result could be skewed, you know, one way or the other depending upon, again, the timing of a program, it's more balanced. And so when you look at it over the course of the year, it's and again, that's just the branded uniform program part. Obviously, you have a large promotional products business as well that's been driving good margins. So really, if you were to look at that segment overall, for the balance of the year in 2025, I'd expect it to be fairly consistent year over year.

Okay. Thank you. And then any significant investments planned in for 2025 in terms of just SG&A investments or do you think you start to get a bit of leverage there off of the revenue growth?

There's no significant investments anticipated. So as we've talked about before, I think you're alluding to in prior calls, we've certainly made, we'll call, investments in SG&A across each of our segments. And selling capabilities, and we'd certainly expect to begin leveraging those investments as we move forward and continue to grow the top line. So no nothing, you know, I would expect as unusual from an expense perspective going into 2025.

Okay. Thank you. And just lastly, just wondering about what's embedded in the EPS guidance for 2025 in terms of more potential debt pay down and, you know, potentially lower interest expense or, you know, maybe you see more going to share repurchases and maybe less to debt reduction trying to, you know, balance out those factors when you're kind of thinking about interest expense.

Sure. I think we're, I would expect interest expense to be improved from 2024. And I think that would be a combination of bringing our weighted average debt outstanding down combined with, I'd say, a little bit of rate increase. Of course, that's uncertain as well. But we factored in a couple of those components as we think about our interest expense going forward.

Okay. Thanks a lot. I'll turn it back over.

Thanks, Kevin.

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

Thank you, operator, and thanks everyone for joining today's call. In closing, I'd like to thank our employees for their unwavering dedication, our customers for their loyalty, and our investors for their trust in our vision. We're focused on navigating these challenges and seizing opportunities that will allow us to deliver long-term value. Look forward to updating on our progress as we move through 2025. Please feel free to reach out with any additional questions. Enjoy the evening. Thanks again for your trust in Superior Group of Companies, Inc.