Good day, and welcome to Superior Group of Companies Fourth Quarter and Fiscal Year 2021 Conference Call. All participants will be in a listen-only mode. With us today are Michael Benstock, the company’s Chief Executive Officer; and Andy Demott, Chief Operating Officer and Chief Financial Officer.

After the speakers’ remarks, there will be a Q&A session. This call is being recorded and your participation implies that you agree to this. If you do not agree, please disconnect your line. Now I’ll turn the call over to Ms. Hala Elsherbini, Senior Managing Director of Three Part Advisors, who will read the Safe Harbor statement.

Please go ahead, ma’am..

Thank you, and good morning. This conference call may contain forward-looking statements about Superior Group of Companies, the company, within the meaning of the Securities Act of 1933, the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995 and all rules and regulations issued thereunder.

Such statements are based upon management’s current expectations, projections, estimates and assumptions.

Words such as will, expect, believe, anticipate, think, outlook, hope, and variations of such words and similar expressions identify such forward-looking statements, which includes statements on the impact of COVID-19 on the company’s business, including inventory, supply chain, manufacturing capacity at the company’s own and contract manufacturing facilities, service capacity and customer demand.

Forward-looking statements involve known and unknown risks and uncertainties that may cause future results to differ materially from those suggested by the forward-looking statements. Such risks and uncertainties include, but are not limited to, the following; the effect of the COVID-19 crisis on the U.S.

and global markets, our business, operations, customers, suppliers, and employees; general economic conditions in the areas of the United States in which the company’s customers are located, changes in the markets where uniforms are worn, where promotional products are sold and where call center services are used; the impact of competition, the company’s ability to successfully integrate operations following consumption of acquisitions, and the availability of manufacturing materials, as well as the risks and uncertainties disclosed in the company’s periodic filings with the Securities and Exchange Commission, including the company’s Annual Report on Form 10-K for the year ended December 31, 2020, the Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, and the 8-K filed recently.

Shareholders, potential investors, and other readers are urged to consider these factors carefully in evaluating the forward-looking statements made herein and are cautioned not to place undue reliance on such forward-looking statements.

The company does not undertake to update the forward-looking statements contained herein to conform to actual results or changes in the company’s expectations, whether as a result of new information, future events or otherwise, except as required by law.

Please note that all growth comparisons that management makes today will relate to the corresponding period in 2020, unless otherwise noted. And with that, I’ll turn the call over to Michael..

Thank you, Hala. Good morning, everybody, and thanks for joining us for our fourth quarter and fiscal year 2021 earnings call. Today, I will discuss strategic initiatives, review performance highlights and touch on the current macro environment. After that Andy will provide an operational financial update.

Phil Koosed, our Chief Strategy Officer; Jake Himmelstein, BAMKO’s President; and Dominic Leide, TOG’s President, will participate in the Q&A session following our prepared remarks. We’re very pleased to report that we exceeded our fiscal 2021 sales guidance, reaching $537 million in net sales.

As you recall, we increased our top line guidance twice during 2021. From a bottom line perspective, inflationary and other cost pressures intensified as we move through the end of the fourth quarter, which impacted results. Additionally, we incurred unusual non-cash charges, which Andy will discuss in more detail in his remarks.

It’s important to note that we took a range of pricing actions and cost control measures to mitigate the impact of future cost inflation as well. As we move past 2021 and finished lapping historic revenue comps, we’re now seeing improved activity and expect normalized comparisons to resume as we progress into 2022.

Investments in our people, business processes, technology and product innovation underscore our ability to withstand and excel through market uncertainty. 2021 was marked by supply chain and logistic challenges, labor scarcity and market uncertainty, which some competitors were less able to mitigate.

While we also faced these challenges, were doing so with greater resilience than many. I’d like to highlight key achievements accomplished in 2021. In 2021, we established the Chief Strategy Officer role and appointed Phil Koosed, who brings his astute vision, passion and entrepreneurial spirit to the C-suite.

We executed two acquisitions during the year first, welcoming Gifts By Design in January and industry leader Gifts By Design develops corporate awards, incentives and recognition programs for some of the world’s biggest brands.

Sutter’s Mill Specialties joined our team in December, bringing extensive in-house decoration, production, and engraving capabilities that further vertically integrate and elevate our unique and custom offerings to expand options for our clients.

In the second quarter, we announced the integration of our branded uniforms and branded merchandise sales force and marketing teams. This combination of HPI and BAMKO exponentially increases our reach beyond four sales reps at HPI, adding 70-plus sales representatives from BAMKO, who are now uncovering significant opportunities and yielding wins.

We’re taking a targeted approach to focus on our branded uniform core competencies and particular vertical industries. We believe developing a deeper and more focused approach will further increase our market share in the uniform space. In May, we increased our regular quarterly cash dividend by 20%.

The dividend is an important piece of our value proposition to shareholders and it’s been paid consistently since 1977. Overall, our organization made significant headway in strategic infrastructure investments with the preponderance of the expenditures behind us. We are well positioned against competitors and are enthusiastic as we enter 2022.

We do want to mention some recent accolades we’re very proud to receive, including recognition in Forbes Magazine 2022 America’s Best Small Company ranking. This is a second year in a row to be included on the list. And we are ranked number 66 out of the Top 100 Small-Cap Companies.

SGC was also recently named to Fortune Magazine’s 100 Fastest-Growing Companies list. Our brand building organization received many points of recognition during 2021, thanks to our dedicated team who drive our success. Now, let’s speak to some segment highlights.

Our core uniform revenues for fiscal 2021 increased 2.3% over 2020, excluding PPE sales and decreased 8%, including PPE. Our fourth quarter 2021 core non-PPE uniform sales increased 15.4% compared to fourth quarter 2020.

Interestingly, the quarter showed strength early on, but taste much slower in the second half of the quarter, uncertainty related to the spread of the Omicron variant rather, customer hiring challenges and supply chain issues appear to drive the slowdown in customer activity during the latter portion of quarter.

Of late though we are seeing elevated activity in accelerating rebounding uniform sales. As we move forward, we are optimistic and expect our core uniform sales to continue to grow throughout the year.

We are seeing weekend competition in the uniform segment with two significant competitors exiting the space that competes with HPI and a few lately more than a few consolidations of competitors in the healthcare space that will narrow the field of choices for our customers.

Keep in mind that our greatest value proposition to customers who have uniforms needs is that we offer the widest range of work wear apparel than any of our competitors. We’re differentiated. In that, we design, manufacture and distribute both institutional and fashion healthcare apparel as well as non-healthcare identity uniforms.

The integration of our branded uniforms and branded merchandise sales force in the second quarter 2021 is proving very beneficial, as I said earlier, to HPI yielding big opportunities and significant wins that will translate to increase revenue later in this year.

Our branded merchandise sales grew by the exceptional 65% for full year 2021 compared to 2021, excluding PPE sales.

Net sales for the fourth quarter were $63 million, growing approximately 12% when compared to fourth quarter 2020 and by almost 41%, excluding PPE sales, perpetuating a strong trajectory as our fastest-growing revenue segment driven by both organic and inorganic growth. Turning to The Office Gurus, our Remote Staffing Solution segment.

TOG posted a record breaking year in terms of revenue growth, reporting a net sales increase for 54% year-over-year. We continue to add new agents at an unprecedented pace to meet the most robust demand from existing and new customers.

Our excellent reputation to meet customer needs drives the business’s growth with the exceptional culture drives high retention internal promotion rates. I want to note during 2021, we celebrated more than 361 promotions, added nearly 1,000 employees.

We also began a recent expansion into the Dominican Republic and welcomed the season Vice President of Human Resources onto the team. That guest you see for a moment. The continued dynamic operating environment present challenges as well as opportunities.

We all are excited about taking market share, more pragmatic about the headwinds we and most companies across the globe are currently facing, including labor scarcity, rising logistics and freight costs and supply chain issues. These costs impact the bottom line for everybody.

And we are continuously working to mitigate these impacts for ourselves and our customers. I will now turn the call over to Andy to discuss operational financial highlights in more detail.

Andy?.

Thank you, Michael, and good morning, everyone. Overall, we ended the year on strong footing, both operationally and financially.

We completed a number of capital investments across our distribution and manufacturing facilities to drive automation and technology enhancements, expand manufacturing capacity, reduce our costs and improve overall customer service.

This includes robotics at our CID Dallas distribution center, the nearly completed upgraded robotics and our Eudora, Arkansas center and additional near shore manufacturing capacity and our third facility in Haiti. Financially, our teams executed well while managing through the effects of global macro events.

Consolidated fourth quarter net sales were $142 million, compared to $145.4 million in Q4 last year. The 2.3% decline was largely due to the higher PPE sales reported in Q4 of 2020. As expected, PPE sales trended lower in Q4 of this year and $3.9 million, while Q4 of 2020 included $37.9 million.

Excluding these PPE sales, our consolidated net sales increased by 28.4%. For the year, consolidated net sales exceeded our expectations up $10.3 million, or 2% to $537 million. Excluding PPE, net sales for the year increased by 26%.

Turning our segment results for the fourth quarter, uniforms-related products net sales declined by 19% to $63.3 million compared to 2020. We saw returned to the more normalized legacy PPE sales levels of $1 million versus the Q4 2020 spike in PPE sales of $24.2 million.

Excluding PPE sales, our net sales in this segment increased by 15.4% in the fourth quarter. And as Michael mentioned, mid-fourth quarter, we did see a slowdown activity across both healthcare and non-healthcare uniforms due to the overall market uncertainty. Our promotional product ended Q4 with sales of $63 million.

Note that Q4 had less than $3 million in total PPE sales compared to $14 million in the same period last year. And excluding PPE sales, sales for the quarter were up 41% year-over-year. TOG continued to produce high double-digit growth in the quarter, with net sales up almost 45% to $15.7 million, another very impressive report.

On a consolidated basis, our gross margin for Q4 of 2021 was 31% compared to 35.7% in the 2020 fourth quarter, the variance was due to a number of factors in addition to product mix changes.

First, due to market saturation of PPE products, we determined that it was necessary to take some markdowns on the remaining PPE inventory that we – in the fourth quarter of $1.6 million. Just as a reminder, in total, we sold almost $170 million of PPE in 2020 and 2021.

Additionally, air and freight logistics costs were significantly higher in 2021 versus last year. Airfreight alone was $500,000 higher in Q4 2021. Our consolidated SG&A expenses health plan – and as a percentage of sales, total SG&A expenses was 26.7% versus 26% in the fourth quarter last year.

Our income for operations for the fourth quarter was $6 million versus $14.1 million for the fourth quarter of 2020. Our operating margin was 4.2% compared to 9.7% in the prior year quarter. Net income was $4 million, or $0.25 per diluted share compared to the $12.5 million or $0.79 in Q4 of 2020.

The PPE inventory write-down reduced diluted earnings per share by approximately $0.07 and net income was reduced by non-cash charge of $0.9 million related to the wrap-up of the pension plan termination of our two non-contributory qualified pension plans, which were fully funded.

This non-cash pension termination charge reduced fourth quarter earnings per diluted share by $0.05.

Turning to fiscal year 2021 segment highlights, our uniform net sales declined 8.1%, $263.9 million due to a decrease in PPE sales from lower volumes and lower market demand for healthcare-related apparel compared to the significantly high pandemic-related demand in 2020.

Excluding PPE sales, our uniform segment net sales grew 2.3%, despite the supply chain challenges and lingering effects of the pandemic. Promotional products net sales increased 6.8% to $115.8 million, reflecting an increase of $77.4 million in our core branded merchandise, partially offset by the decrease of $63.7 million in PPE sales.

Excluding PPE sales, BAMKO was up a stellar 65% year-over-year, despite heightened market uncertainty related to the pandemic late in the year. Overall, our integrated sales strategy leveraged to return to core promotional program launches growth of our customer base and market share gains.

Additionally, the acquisitions of Gifts By Design and Sutter’s Mill in 2021 contributed $16.1 or $16.9 million to net sales for the year ended December 31 of 2021. Our promotional products backlog at 12/31 was $74.3 million, made up of $2.7 million in PPE sales and $71.6 million in non-PPE.

This is the largest backlog in the company’s history, resulting from huge bookings of promotional products in the fourth quarter of 2021, which are expected to deliver in 2022. TOG executed extremely well throughout the year with net sales finishing with a 54% increase. It’s a record breaking year for TOG in terms of sales growth in dollars.

For the year, consolidated gross margins was 34.6% compared to 35.8% in fiscal 2020. Again, in addition to product mix changes, our gross margin was impacted by significantly higher air and freight as well as logistics costs of 2021 versus last year, with airfreight contributing an increase in cost of $1.2 million in 2021.

The full year impact of the write-downs associated with the PPE inventory previously discussed was $2 million. Consolidated SG&A expenses increased by 4.1% to $142.1 million, primarily due to an increase in personnel expenses, partially offset by a decrease in bad debt expense of $4.5 million.

As a percentage of sales, our total SG&A expense was 26.5% versus 25.9% in 2020. Income from operations was $44 million compared to $52.3 million in 2020. And our operating margin was 8.2% compared to 9.9% last year, and well ahead of 2019 operating margins of 5.7%. Our effective tax rate for the year was 17.8% compared to 20.3% a year ago.

The variance was primarily related to favorable impacts of compensation-related items and uncertain tax positions of 4% and 1%, respectively, partially offset by a 3% impact of the pension plan termination charge. Net income was $27.2 million, or $1.69 per diluted share compared to $41 million, or $2.65 per diluted share last year.

The PPE inventory write-down reduced diluted earnings per share by approximately $0.10 in 2021 and net income was reduced by the non-cash charge of $7.8 million related to the wrap-up of the pension plan termination of our two non-contributory qualified pension plans.

Excluding the impact of the non-cash pension termination charge, our full year 2021 earnings per diluted share would have been $2.14. Moving to the balance sheet and cash flow highlights, we continue to generate solid cash flow supported by a healthy balance sheet.

While net borrowings in December 31, 2021 were up $28.5 million from year-end 2020, our debt to EBITDA ratio remained very strong at 2 times, which is in line with our desired range and well under our covenant limits. Cash and cash equivalents at year-end was $8.9 million, an increase of $3.8 million.

Our CapEx for the year was $17.7 million, with investments primarily related to facilities and technology enhancements across our distribution and manufacturing locations. In 2022, we expect the continued CapEx investments but at a lower level than 2021. Lastly, we pay dividends of 46% per share.

And in total, we have returned $7.2 million in cash dividends to our shareholders during 2021 compared to $6.1 million in 2020. Our fourth quarter and full year results reflect our team’s tremendous agility to manage the challenges and opportunities while building sustainable, profitable growth.

I’ll now turn the call back to Michael for closing remarks..

Thanks, Andy. I’m glad you have to do that portion of the script and not me. So to wrap-up, we’re very proud of our 101-year old company award winning more global than ever serving some of the largest brands in America.

Our core business continues to grow, posting consistent long-term growth, double-digit top line and 20% EBITDA, EPS, CAGR since 2015 in terms of our growth, our adaptability, our long-term strategic planning and our – I believe our entrepreneurial mindset are key strengths for our business.

We’re executing more than ever against a clear strategic vision for Superior future growth, scaling our organization to leverage higher-margin opportunities, capturing market share and expanding our multi-channel region acquiring our branch solution offerings.

I’d like to update our guidance to ensure the most accurate reflection of our outlook moving forward. We do this periodically. It’s appropriate we do it now having a pass-through 2021 with all of its diversion of PPE and non-PPE, and I know it can be somewhat confusing sometimes. But here’s how we feel about the future.

Our previous guidance for the period from here and 2021 through 2025 was based on the assumption that 2021 sales would be approaching $525 million. That’s where we set the floor. With final net sales of $537 million, in fact, in 2021, our updated guidance is as follows.

The Uniform segment is expected to grow organically at a CAGR of at least 10% through 2025, driven by continued growth in the healthcare portion of the Uniform segments as well as taking market share in the non-healthcare HPI division and leverage the BAMKO sales team to increase our penetration of the market.

BAMKO is projecting at least an 11% CAGR during the same period, and TOG is expected to grow at an increased CAGR of at least 23% through 2025. We expect at least a 12% CAGR for SGC on a consolidated basis through 2025.

And including acquisitions, we expect to exceed $1 billion in net sales by 2025 and operating margins to consistently exceed 10% by 2024. With all that said, we’ll now open the line for questions. I want to remind you that we have Dominic from TOG; and Jake from BAMKO; and Phil, who is our Chief Strategy Officer, online.

So if you want to direct any of your questions to any one of us, go ahead..

We will now begin the question-and-answer session. And our first question will come from Kevin Steinke with Barrington Research. Please go ahead..

Hey, good morning, everyone..

Good morning, Kevin..

I wanted to start off by asking about the Omicron variant and you obviously call that out in relation to your Uniform segment. And it doesn’t seem like it had much of an impact here, given the strong sales in the quarter.

But did you see any impact at all on your other two businesses that is BAMKO or The Office Gurus in the quarter or early in 2022?.

Good, good question. Good morning Kevin. Let me let Jake answer the BAMKO portion and Dominic is here, he’ll answer the TOG portion of that..

Hey, Kevin, how are you? Certainly, as it relates to BAMKO, we saw some headwinds in the fourth quarter, right, a lot of events canceled, in-person meetings canceled due to the Omicron variant. And that certainly had an impact, right? Obviously, our results were great nonetheless. But we’re seeing that come back in a big way.

We’ve never seen people as excited about in-person events, big conferences as they are right now, now that Omicron is largely past us. We think the tailwinds are huge.

So the headwinds we faced in Q4 have turned into tailwinds in Q1, and we’re really excited about what that means in terms of conference event giveaways, in-person meetings, held back to in-person RFP meetings, which is all really exciting to us..

Dominic, why don’t you jump in on TOG?.

Sure. Hi, Kevin. Yeah, we were definitely affected. We started seeing higher levels at TOG of absenteeism when Omicron hit our locations late in fourth quarter and some of that did carry over until just recently.

We saw our absenteeism rates double or even more than double in some cases, which obviously that affects our recruiting, which limited our ability to effectively backfill for that absenteeism. Fortunately, though, like here in the U.S., we’ve seen a steep decline in COVID cases over the past several weeks in all the countries that we operate from.

So now we’re back to normal absenteeism levels..

All right. That’s helpful commentary on both ones. Thanks. So I wanted to ask about inflation.

Obviously, we’ve been hearing that it’s been worsening and is – what – how do you feel about your ability to catch up or mitigate inflation? Are you seeing any stabilization? You mentioned last quarter that you did a price increase in the fourth quarter and then you – I think you said price increases on this call.

So are you implementing more and just how you’re thinking about your ability to mitigate inflationary pressures?.

Right. I’ll take that one for all of our businesses, really it’s – we did for the Uniform segments, put a price increase that was largely effective on December 1.

And we feel that that on a go-forward basis covered all the inflationary challenges that we were seeing up to that point in the marketplace, and that we could proceed over the coming months in terms of pricing. We have seen a little bit of a settling down in prices that come down much or hardly at all.

But at least they’ve settled down to a level that, that we feel comfortable that we have well covered. We’re not anticipating at this point any other price increases, but we’ll largely be watching that to make sure that we’re staying ahead of it, that’s on the uniform side.

On the BAMKO side, every one of their deals is priced based on current prices that they’re able to walk in for each deal. So in their case, at least for more than 80% of their business, they’re able to cover their price on every single deal and ensure that they can have the gross margin that they hope to get. TOG raised prices to their customers.

Dominic, why don’t you speak to that a little bit?.

Sure. So yeah, we were seeing inflationary pressure also. So we did, like Michael said, we implemented our first widespread price increase actually this quarter for the first time in our history, which is going to allow us to recover most of what we’ve experienced so far and then we’ll just continue to make necessary adjustments as we go forward..

Jake, did you have anything to add with respect to BAMKO?.

I think you got it..

All right, great.

So for The Office Gurus, is that just labor cost inflation that you’re experiencing? Is that kind of the main area or?.

Yeah, good question. So labor is part of it, but it’s also technology. We’re – we were seeing increased prices from just about every vendor that we deal with. So labor is a piece of it, but it’s also from our vendors as well..

Okay, thanks..

It’s important to note, Kevin, that interestingly, we’re not in the habit of doing price increases, right? We – apparel, you know on the uniform side has been in a deflationary cycle for the last 30 years.

So for the opportunity to be able to raise prices, is what we would expect there would be some pushback in the marketplace for the fact that we’re doing that, but not in the uniform business nor Dominic’s business, nor in Jake’s business.

Have we seen any pushback from our customers with respect to our price increases? I mean, they’re seeing it in everything they buy and every service that they buy, not just products, but services as well. So it’s not unheard of. It’s kind of the course of the day.

We’re hoping that the effects of what’s going on in Russia and Ukraine right now, don’t wait even more price increases. But as they do, I think we’re – we’ll be prepared to do them and I think again, we’ll have very little pushback from customers..

All right. Thanks for that. And then so you obviously talked about the slowdown in the second half of the fourth quarter for the Uniform segment related to Omicron. And – but now you’re seeing activity pick up again. You had talked on last – the previous quarter’s call about expecting to see some significant RFP activity in 2022.

Is that still the case? Do you believe is anything been or has anything been thrown off meaningfully?.

Yeah, I’ll speak to the slowdown and what these guys jump in on what they’re seeing. But we definitely did see a slowdown. I don’t think it was only related to Omicron.

I think it was also related to the fact that many of our customers who had stockpile during the early parts of the pandemic were bleeding off some of their inventories and bringing their inventories down to more normalized levels. And we’re seeing the benefit of that. So on the uniform side of the business, we’re definitely seeing more RFPs than ever.

We’re also seeing a fair amount of consolidation within that business. So we’re offering ourselves out there. I mean, the great thing is we’re sitting with pretty large inventories. So we’re able to service people, even though there’s all kinds of supply chain issues, I believe, in most instances, we’re in better shape than much of our competition is.

So it’s great to be on an RFP, and also have products sitting on the shelf when your customers needed. I’ll let Dominic and Jake jump in on their businesses..

Yeah. So…..

I can jump in real quick, Dom. So on the BAMKO side, I think one of the things we’re seeing here is that there are a lot of procurement and marketing departments who are quite honestly just anxious about what the future holds for their providers and brand and merchandise.

And I think the entire last two years of COVID has opened their eyes and now is our provider going to be here long-term.

And I think we provide a really strong alternative, not just because we have all the technical capabilities, whether it be sourcing or technology or distribution, but also the strength of our balance sheet is really appealing to procurement departments. And so we really like where we’re positioned.

The RFP activity has been strong, as we’ve seen in the last two years, a lot of companies going out to bid and we continue – we expect to continue to see that over the course of 2022..

Yeah, and for The Office Gurus, we continue to capitalize on tremendous tailwind in terms of demand for our services. We continue to see a lot of activity from existing clients, who are growing their business with us, as well as new opportunities.

And I think a big part of that is just one of the things that COVID made companies realize, it doesn’t really matter where the work is being performed, as long as it’s being performed well, and our team continues to step up and just do a great job in providing great service to our clients and it’s resulting in more activity..

Great..

Yeah, I feel great for Phil to actually speak to what’s happening in the world of people trying to get their branding messages out there and how fewer alternatives they have today.

So can you jump in on that and…?.

Yeah. So when you look at the overall landscape of any corporation trying to get their message out, you saw a pretty dramatic shift, obviously, over the last probably 10 years from traditional advertisement, like TV or billboard ad, or magazine ads, or newspaper ads to digital advertisement.

And what we’ve seen over the last year, is actually kind of quite a dramatic shift out of some of the digital. And we look at it, we got the benefit of that earlier move over the last 10 years in the sense that people were saying TV is no longer the powerhouse that it was.

And so therefore marketing dollars and corporate messaging dollars are going elsewhere. But now we’re getting the secondary benefit.

I think when you look at it from the standpoint of everything that’s happening with Apple privacy laws, and how that’s affected Facebook and Instagram’s ability to actually target customers, what Google is doing with the cookies, changes they’re making, it’s just getting harder and harder to target customers, and therefore, it’s getting more expensive to target customers’ messaging.

So I think we’ve seen the benefit of that. I think we’ll continue to see the benefit of that in the next year or two to come as additional advertising just becomes a bit less targeted and effective as it was prior..

Okay, that’s really interesting color. Thanks. And so, obviously, BAMKO has been posting strong results here and the outlook sounds very favorable. So just with regard to the updated guidance, you just very slightly lowered the outlook for BAMKO to a 11% from 12% over the long-term timeframe here.

Is that just again, a function of the higher base of revenue you saw in 2021 versus original expectations?.

Absolutely. Yeah, you nailed it. The 11% from 2020 to 2026 that we’re now projecting is due to the fact that we exceeded the guidance in 2021. So basically, raising the floor that we’re using, just as you suggested..

Okay, thanks.

I want to ask on the healthcare side of the uniform business, how much clinical labor shortages, especially nurses how that plays into your ability to sell into the healthcare institutions, or that that’s actually helping your pipeline, because maybe healthcare institutions view a really good uniform product as a way to attract or retain nurses and other clinicians?.

Al right. I think you’ve got our marketing down, Pat now, Kevin, that is absolutely so.

Yes, yeah, there’s a huge shortage, there’s less healthcare workers in the marketplace, there’s been a lot of retirement and exits to the tune of recent stat, I read something about a half million less than they were up to 12 million healthcare workers, when the actual need is somewhere around 15 million.

I know the healthcare nursing programs are – schools are pumping out looking to expand to meet that need, as well as the medical colleges and universities around the country. But yes, it is a strategy to increase employee retention and they use many methodologies to do so. I mean, obviously, pay scales have come up.

But uniform is an important component of that as well. And whether it’s giving somebody more sets, or providing their uniform, so they don’t have to actually buy it, or providing them a more fashionable uniform. In the case of whether it’s indie or it’s CID, that’s being bought at retail, all those options are on the table.

And hospitals certainly are – and healthcare workers are looking at things differently than they might have some time ago. We still feel that as well as the prognosis is for the future for TOG and for BAMKO. BAMKO and I lump with that HPI because their sales efforts are together now.

But in our healthcare uniform space, particularly at CID, with international being a major focus of theirs, omni-channel being absolute focus of entering all channels and being important at all levels of a customer’s buying decision.

I think you’re going to see that division of ours over the long haul be very, very – see some very stellar growth from that. We have high hopes that. We’ll certainly be talking more about that in future releases and earnings calls and so on. The healthcare market is something that we feel is growing.

It’s not – we might have invested in healthcare, pretty mature business, but the market itself is not mature, it’s evolving greatly. In the price points, people are paying and the diversity of products that they’re looking for, and for the partners that they’re looking for to help them get to the next level..

Thanks, that’s helpful. I wanted to ask, again, in relation to the Uniform segment.

Do you feel like that business is on track for 2022 specifically to be around that longer-term 10% organic growth rate? Or should we think about maybe that business more kind of ramping up towards a growth rate more gradually and over the longer-term timeframe that you’ve discussed?.

Kevin, our guidance really is that 10% is an average for the five years. I would say that, while we, as Michael mentioned, we’re seeing tremendous increases in the RFP activity as BAMKO sales team starts to penetrate the market as well as the number of opportunities we’re working on.

But it’s going to take a little bit of time into the year for that to start hitting our revenues. So I would go with the ramping up model as you referred to..

And I don’t think we’re going to be all that far off the expectation that you’re asking us to set. Our goal is certainly over the long haul to exceed all these numbers, Kevin, and it’d be nice to get started with a great year.

We have some opportunities that we’re working on that could certainly get us there and some of those are later in the year, some of those earlier in the year, but we’ll keep you posted. And I think you’ll see our results as we continue the year.

The – it – we spoke about the second half of the first quarter being kind of just a slow down to an extent, because of all the factors that we spoken about, we saw a little bit of that in the beginning of first quarter as well.

I can tell you that by the middle of March – middle of February, rather through to date, things are looking much more normalized. And even, we’re hoping to be able to take care of some pent-up demand as well..

Okay, great. That’s helpful. And lastly, I just want to ask about your new efforts in Europe with regard to driving sales for CID.

Any update on that and any potential disruption there, just given the events going on in Ukraine?.

Actually, our warehouses in Poland, where there’s been a great influx of Ukrainians, we’ve done some things, and our actual European sales lead has done some things to help some Ukrainian people who own uniform shops in Ukraine get settled in Poland and Hungary.

But we are seeing a little – a lot more increased activity and interest in our home warehouse as a result, obviously, all these 2 million people leaving Ukraine and being dispersed throughout still mostly Eastern Europe, but we expect to make their way West, they’re going to need more healthcare workers to help those people.

And some of those people themselves are healthcare workers who will find employment locally. But we are seeing increased activity. We don’t expect a negative impact. Quite frankly, we weren’t selling a lot in Russia. So the fact that we can’t sell in Russia now, because whatever fans there might be isn’t going to hurt us at all.

Poland is a customer and we don’t expect Poland to be diminished at all Ukraine. We had a couple of relationships there. We’re working on. We weren’t really embedded in Ukraine, as we would like to we are. Our warehouse is up and running now, though. It is fully stocked with product.

And it is servicing anyone in Europe who would like to see us shipped to them from Europe..

Okay, thank you for all the insight, as usual. Appreciate it..

Okay, Kevin. Thank you..

Our next question will come from. Please go ahead..

Good morning. I was wondering two questions. First, whether you could just talk a little bit about cash flow guidance for 2022.

And second, just going back to the core uniform business and you’re just talking about the 10% growth target? Maybe talk about are you expecting to gain share – market share? Are you – is customer retention going well? And when we actually start seeing more of that 10% growth materialize?.

So speak about the uniform side of it more, and then I’ll turn it over to Andy for the cash flow side. So on the uniform side, our retention rates are still very high.

They – they’ve been over 95% on a year-over-year basis for many, many years, on average while there are more RFPs out there and even more RFPs with respect to the business that we’ve owned for a long time.

Keep in mind that when you have a 5% market share approximately, and 95% you don’t have, if it’s going out to RFP, you actually have an opportunity to grow your business. And that’s how we look at it. We think we’re in a very admiral position.

I don’t believe there’s anybody out there that we compete with lower cost sourcing capabilities, who has managed through logistical challenges, as well as we have, who has people on the ground to make sure that what they promised to their customers can actually happen in all these countries that we operate in.

So I’m not concerned about business retention. I believe we’re going to retain as we have in the past 95% of our customer base, might lose some, of course. Will we gain more than we lose? Absolutely confident of that.

So it – the second half of this year, I think Andy spoke about, particularly in our branded uniform business, you’re going to see some improvement. We know that because we’ve already won business that will ship in the second half of the year.

Our sales cycles are pretty long one, but there’s – these are sales that materializes, just – revenue that will come about in the second half of the year as a result of efforts that began almost a year, year-and-a-half ago. So feel confident on the HPI side that we’ve got this year covered in the back half, and that next year, should be very strong.

And with HPI efforts, which began about, I believe, eight months ago or so, we should start seeing that turn into revenue in the next year. On the healthcare side, we’re employing a lot of new strategies, a lot of omni-channel. It’s paying off. Our healthcare business is, in fact, growing. We bought CID.

Keep mine, they were $58 million trailing 12, quote me on that number, but somewhere, actually to external customers and so on. We have a great runway ahead of us with respect to our health care channel.

And I think with buying habits changing and with price point being higher price points than we’ve experienced in the past that people are willing to spend, we should get there. Yeah, we don’t give guidance on a quarter-by-quarter basis or even on an annual basis, as that’s not really how we run our business.

We run our business on a long-term basis of what we can do over a longer period of time. And I realized we try to keep it. We’re trying to keep it now in the four-year range of saying where it will be in 2025 and we prefer to do that. There will be some years where we will greatly exceed that and we’ll be some years where we might not.

But on average, we believe that that’s what we get..

Yeah. On the second part of your question, or the first part, actually, the cash flow, would you look at where we’re at going to the year, I mentioned, our CapEx was very high to the current year. I would expect that we would be back to a more normalized – just a little bit more than our normalized 2% number of revenues on that basis.

From a working capital perspective, I think we’ve talked a little bit over the last several quarters about the substantial amounts we invested in inventory to be prepared for what was going on in the pandemic.

And I think we’re definitely in a very strong position from our inventory levels that we will begin to work down in 2022, where there’ll be a much more favorable impact versus in 2021. I mean, our inventories that added $21 million. We use $21 million of cash to build inventory. I would expect that would have turned go the other direction.

I don’t know if it will bring down $20 million in the year, but it will work towards that. From the other items from a cash flow perspective, and obviously we will continue to pursue acquisitions, those of you I can’t say per se what those amounts will be, but we will use money on that.

And of course, from a dividend perspective, I mean, as Michael mentioned, we do recognize that as an important part of our value proposition, I would expect we would continue to pay dividends.

And if our results perform appropriately, we would look to increase in at the right time, but that’s a decision the Board will make as we move through the year..

Great. Well, maybe one final question just on TOG, that that business is at a phenomenal last couple of years and the guidance is very positive.

Is there anything specific you’re doing to try to maybe it’s a little more commentary on specifics on what we should look forward to make sure that business is on track?.

I’m going to let Dominic jump in, tell you about some of the infrastructure things we’re doing and things are done from a customer standpoint to grow and retain jumping them..

Yeah, great question, Tim. Like Michael mentioned last year was a record setting year for TOG, really excited about the future as well. So what we’re doing from a capacity standpoint to make sure that we can continue to support our growth.

Last year, we started looking at additional buildings in all three countries that we operate from, that was our belief in Jamaica. And then we signed leases there to increase our capacity and center capacity. And we also, as Michael mentioned, we’re entering the Dominican Republic.

Together, with the Dominican and the expansion in our current countries, we’re going to increase our incentive capacity by about 1,500 seats. As we enter the DR, we always enter a new territory conservatively. We’re going to answer with about a couple of 100 seats in Santiago.

Once we prove that we can hire the same caliber of employees that we hire today to support our customer base, then we’ll look to expand in the Dominican as well..

From a customer standpoint, Dominic, what are you doing to grow your customer base?.

Yeah. So we – fortunately, for us, we’ve been able, like I mentioned earlier, we’ve seen a lot of activity in demand for our services. I mean, I think nearshore in general, there’s a lot of demand. But the support that we’ve been providing to our current customer base is elevated.

I think our status and our brand amongst our brokers who bring us new business. We’re seeing a tremendous amount of activity from new customers in specific industries that we’re going to look to grow this year, and then our current client base have grown exponentially with us also.

So as a real testament to our team and what they do day in and day out to provide excellent service to our clients, and I just don’t see that slowing down..

Yeah, I think there’s another part of this. Dominic did mention the auto brag a little bit. But it’s not just brokers who are bringing us business. Our reputation is bringing us businesses well. We – the word is getting out about what we do? What we do well? The awards we win.

How well we treat our people? How well we service our customers? And whether it’s through social media that we posted, or just word of mouth, among people who could are in a position to buy our services. We’re seeing more and more opportunities and ever come to us that aren’t through brokers, that we have literally no sales expense for..

Is the gating factor on growth, the ability to add the qualified seats?.

That’s….

Absolutely right..

Certainly.

So, we’re spending a lot of time now in strategic planning on where we are next, how we grow it? How far ahead of the curve do we want to stay? I think I remember speaking about TOG and speaking about – we’re going to grow our business by 6%, by 8%, by $4 million, by $5 million, by $10 million, you know up in a much bigger numbers, which requires a lot more people.

Dominic spoke about adding – having the capability of adding 1,500 seats. Well, that’s roughly $45 million of revenue, just north of $45 million in revenue.

We got to stay ahead of it, at least, by 18 months, because we do get pops every once in a while with a couple of 100 seats somebody wants or 100 seats or someone wants to grow, or multiple customers each want to grow at 50 or 100 or 200 seats. It’s been a very dynamic environment.

And Dominic, in every case, has exceeded whatever numbers he’s ever put out there, expect he will in the future, too..

Great. Well, thank you very much and keep up the good work..

Thank you..

Thanks..

Okay..

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Michael Benstock, for any closing remarks. Please go ahead..

Thank you. I appreciate your time today. I know it’s a lot to absorb, in a short amount of time with PPE, without PPE, all the divisional differences, I think, we – we’ve done everything we can to try to make it as easy for our investors to understand where we’re headed.

I look forward to speaking to you next quarter, and thank you for your continued support. We really do appreciate it. Take care..

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect..