Good afternoon, everyone. Welcome to the Superior Group of Company’s Second Quarter 2020 Earnings Conference Call. With us today are Michael Benstock, the company’s Chief Executive Officer; and Andy Demott, its Chief Operating Officer, Chief Financial Officer and Treasurer. After the speakers’ opening remarks, there will be a Q&A session. The call is being recorded and your participation implies that you agree to this. If you don’t, then simply drop off the line. Now I will turn the call over to Hala Elsherbini, Senior Managing Director of Three Part Advisors, who will read the safe harbor statement. Please go ahead.

Thank you. 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, 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 consummation 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, 2019, the quarterly report on Form 10-Q for the quarter ended June 30, 2020, 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 2019, unless otherwise noted. With that, I’ll turn the call over to Michael.

Thank you, Hala. And firstly, thank you for all listening to that longest forward-looking statement and safe harbor statement we’ve ever had to put out there, but it is a sign of the times. Good morning to all of you and thank you for joining us to discuss our record-setting Q2 2020 results. We have prepared a supplemental slide presentation to augment our prepared remarks today to help bring more clarity to our current results and future potential. If you aren’t following along now, you can go to the presentation on our website in the Investors section anytime during or after the call. Before we get started, I’d like to acknowledge and thank our frontline healthcare workers, and the employees who are supporting them in the continued fight against COVID-19. The SGC family extends our deepest gratitude and our commitment in support of your heroic efforts. We are proud of what we have accomplished during the second quarter, posting a 72.7% increase in consolidated net sales and a remarkable 456% increase in diluted earnings per share, truly epic results for our company’s 100-year history. I’m sure you will agree that we’ve appropriately earned our name as a Superior Group of Companies. We’ll take a close look at segment performance highlights and then Andy will follow with operational and financial highlights. I’ll have some closing remarks, of course, before we open the call for your questions. Our Uniforms and Related Products segment is comprised of both healthcare and employee ID divisions, with each on a normalized basis, making up approximately 50% of the segment sales through a wide variety of uniform offerings. The diversity of our end-markets and distribution channels, coupled with an intentional more than decade-long strategy to focus on more recession-resilient sectors have served us well during the pandemic.…

Thank you, Michael, and good morning, everyone. As noted earlier, we filed our Form 10-Q for the second quarter ended June 30, 2020, earlier this morning. Before I begin with a review of our operational and financial highlights, I would also like to acknowledge the tremendous amount of workforce productivity, collaboration and superior customer service across our entire organization during these unprecedented times. Our continued focus has been on the health and safety of our employees and their families, supporting our customers and communities and ensuring strong financial liquidity. Our second quarter and 6-month results played out better than our expectations in terms of both our results and our ability to further improve our liquidity and debt leverage position. As noted on this slide, we are very pleased to see our debt-to-EBITDA ratio dramatically improved from 4 times at December 31, 2019, to 1.9 times at June 30, well under our 5 times covenant ratio. Through significant cash generated from operations and an accelerated inventory turn on excess CID product, we reduced outstanding debt by over $16 million during the quarter. Year-to-date, we’ve reduced outstanding debt by approximately $34.3 million. Our new ERP implementation at CID completed in February, greatly enhances our ability to manage inventory more effectively, and we expect to improve inventory turns to continue further supporting our liquidity. We are maintaining an aggressive posture on controlling operating expense levels and prioritizing key capital expenditures to protect our profitability and fortify our balance sheet position. Additionally, in June, we announced the consolidation of our Georgia HPI distribution centers into the company’s expanded Eudora, Arkansas distribution center. The consolidation is expected to yield approximately $2 billion of annual savings as well as provide significant advantages, including updated material handling technology, decreased average receiving and shipment times, lower distribution costs…

Thanks, Andy. I know there’s been a lot of information we’ve given you here, and I hope you take the time to absorb it and get some good questions as a result. During a time of great adversity, our team members pulled together, remained extremely focused on the needs of our customers and delivering outstanding performance. In abundance of caution, last quarter, we altered many sales strategies as well as implemented deep cost-cutting measures to ensure that we maintained our momentum no matter what unseen challenges were ahead of us. I’m very proud of our record second quarter and 6-month performance. And we will continue to manage our business in a thoughtful and conservative manner, providing critical services to our customers while supporting our communities. As we are known for in a crisis, we managed to deleverage as we moved into a better liquidity position. We will continue to make every effort to preserve our liquidity and improve our balance sheet with debt repayment as a top priority. We anticipate strong third quarter results with very strong backlogs, including PPE as of June 30, with more than $50 million, and robust continued sales for the first few weeks of the quarter. However, visibility beyond that remains low due to the ever-changing disparate impacts of the pandemic. With our long-term guidance on a 5-year look back remains consistent. While it remains consistent on our core business, there are significant variables that could favorably alter our outlook. As we navigate the coming months, we will continue to be very calculated in our strategic planning and scenario analysis. And plan to revisit our guidance metrics once we have better clarity. In the meantime, we hope we have provided adequate transparency into our underlying markets, operations and liquidity position. We take our role as…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Kevin Steinke with Barrington Research. Please go ahead.

Good morning, everyone, and congratulations on the really strong results.

Thank you.

So, it’s - I wanted to dig more into the PPE sales you had in the quarter. That’s really quite a remarkable transition that you made there from having no-PPE sales for BAMKO in the year ago quarter to about $50 million in Q2 2020. Just, I guess that speaks to kind of the strength of the company and the overall organization that you were able to make such a quick transition and capitalize on that opportunity. But maybe just talk more about the strengths of the organization in terms of the supply chain and also gaining all those new customers. What enabled you to make such a quick and rapid transition to capitalize on the opportunity you saw there?

Great. Good question. I think first and foremost is, BAMKO has a lot of strengths in many respects. They’re world-class in just about everything they do. But their sourcing is certainly one that sets them apart from most of their competition. And quite frankly, most companies, their relationships at any given time in over - they’re working in 150 factories around the world. And they’re managing those relationships in all the different substrates, plastics, and steel, and metals, and glass, and so on. Their strength is sourcing. And when the need came to source PPE products, with their people on the ground, they knew where to go. They knew how to monitor the quality. They knew how to guarantee the shipment. And how to make sure that we set ourselves apart from all the other people making promises to the same customers we were making promises to that we could actually deliver. And I have to tell you, I wish everybody had believed what they told them. But there were many instances, Kevin, where we went to a customer, we made an offer to them. Maybe that prospect or customer didn’t know us that well, wound up getting the business or thinking they were giving the business to somebody else, turned us away, told us we didn’t get it. And then, a few weeks later, were back at our door saying, the people I gave it to, they were cheaper, but they can’t deliver. We had all our people on the ground monitoring freight costs, which went wild during this time, both ocean and airfreight, and making sure that we were able to secure space in air cargo when we needed it and secure space in factories. It’s not as easy as just calling an agent as most people do…

Okay. That’s great. That’s very helpful. And so it sounds like you - referenced it there that this is opening up some new doors for you, your ability to execute on PPE. So do you think that can be meaningful going forward, your demonstrated-ability to execute on this PPE opportunity to add new customers in the non-PPE traditional promo-products space?

No doubt. I mean we’re going to be remembered that we took care of these people in their time of need. And these are the same people who are buying the PPE products that are buying promotional products. So I - and oftentimes, uniforms. So I have no doubt that what’s happened within the organization with the melding of all of our divisions’ strengths working together literally night and day, that that’s going to bring much more opportunity to the company going forward. I’d say it’s crisis time, and it’s a terrible time for our country. But we certainly didn’t waste any time coming out of the gate and making sure that we were relevant during this time.

Okay. Yeah, got it. I wanted to switch to CID. You mentioned record sales for them there. Demand for healthcare, uniform-related products being strong. Absent the current environment, which is benefiting them, can you just talk about CID’s positioning now? Are they in a position to grow sustainably going forward? I know you’ve integrated them onto some new technology in terms of SAP and a new warehouse management system. So maybe just talk about where CID is from a long-term perspective and their ability to kind of grow and take market share going forward?

It’s a good question. I think what’s happened is that CID has become much more B2B omni-channel during this period. Certainly, we had our toe dipped prior to COVID. But as more people bought online, we saw the potential to accelerate that. And our Internet sales has grown substantially, multiplied from where it was before. There’s weaker competition who’s going to come out of this. There also might be some fewer customers. We know customers are struggling. We’re doing all we can to try to support the strongest of those to make sure - to help them get through this. But it’s a time of change. And that market of how people buy is going to change, and we will change along with it. We have our Indy product coming out. CID did not have a product that was laundered. Well, nobody did prior to our introduction of Indy. We have product actually arriving now, and we’ll be shipping over the next 7 or 8 months. But quite frankly, most of our early productions, which if you remember, we’re on an accelerated basis. Remember, we actually delayed, releasing the Indy product, because we felt the demand was so great. So we raised the quantities, our initial production quantities of what we’re going to produce and put on the shelf. Most of that is presold already, so going even better and better and better than we thought. And we think now with what is going on with COVID-19 and kind of a new - this being somewhat of a new era in how people think about their uniform and how it’s meant to protect them and so on. That - CID will benefit from that greatly. We don’t think - at one point, and we probably said this on a call,…

Okay. Great. Let’s just maybe talk about the Uniform business. Outside of healthcare, obviously, mostly serving essential businesses and that channel has been strong; non-essential, weak in this environment, of course. But just maybe step back and take a look at competitively where you stand for HPI overall going forward? And how you feel about kind of the longer-term targets that you have there for that business?

Good question. The - prior to COVID, HPI’s pipeline was pretty much at record highs. We’re working on a lot of RFPs. Obviously, a lot of those got delayed or canceled or whatever. At this point, some have actually come back to life. Some will take a little bit longer to come back to life. We will still continue to focus our business on the essential channels, which will grow. It’s a pretty sticky business. So you don’t - those contracts don’t necessarily come up for bid every year, every 3 years or even every 5 years. So we’ve got to be very vigilant to get in front of people, usually when they’re having some pain. And that’s when we can best strike and convince them to look our way. We’ve helped a lot of people who weren’t customers during this COVID-19 getting their PPE and so on. We’re hoping that, that buys us some goodwill to be able to look - take a more careful look at us on the uniform side. There’s - we’ve spoken about it in the past. Our market share, overall, we cloth about 6 million people. But our market share is still so small that there is so much room for upside. The competitive field at HPI is going to narrow. There’s no doubt about it. We’ve heard of other uniform companies, mostly smaller uniform companies that were primarily invested in the non-essential channels, who are doing no business right now or very little business and are not sustainable. There will come a time where we will take a look at their customer - well, we’re taking a look at their customers already. But take a look at their sales force and take a look at their business, and see what could we absorb…

Okay. Great. And then - so coming out of this crisis, it sounds like there’s an opportunity to emerge stronger competitively. You talked about picking up some seasoned reps in BAMKO from another competitor who closed their Canadian division. I mean what - do you see potential acquisition opportunities coming out of this as maybe others are struggling? Or do you want to stay focused on an organic growth strategy going forward, and maybe just pick up business opportunistically from those who kind of fall by the wayside? Or what’s kind of the view of how you can capitalize on these moments, both from an organic and inorganic perspective?

Kevin, our long-term focus is always really going to be more on the organic side and looking to take advantage of opportunities to add reps or to pick up customers from troubled competitors. However, as we always are, we’ll keep an opportunistic eye out for situations where there may be a troubled entity that we could acquire that we would be able to just roll straight up under our company and not have to take on a lot of infrastructure. We don’t have a need to do it. But if the opportunities come up, I mean, we’ll consider it. We’re certainly in a very good financial position to be able to do it.

Okay. And what’s the state of the upgrade in your Eudora facility in Arkansas? I know you did the consolidation there. But what - when does that project complete? Or how much more CapEx does that require going forward?

Okay. We originally thought because the supplier of the equipment didn’t know how long they’d be hunkered down in Europe, building this equipment because of COVID-19. So we had put an expectation out there that it might not be until second quarter of next year. But in fact, we’ll begin testing the equipment. It will be in place at the end of this year. Most of the expense then will happen this year. Our CapEx will still be, as Andy said, less this year than we originally anticipated, a little bit of that a roll into next year. There’s other CapEx that we’re pretty far along in considering with respect to some additional robots at one of our other warehouses, which will bring us some much-improved efficiency and service capabilities. But originally, we had said that this year’s CapEx would be between $12 million and $13 million. It’s going to be some number - it’s going to be less than $10 million this year. And part of that - additional $2 million or $3 million will roll over to next year.

Okay. And then for The Office Gurus, you’ve had some success with transitioning your agents to working from home. Longer term, what do you think that this does for your need to build out call centers in the future? I mean what’s - what do you think the mix is going forward of people working in a center versus working from home? And if you think those two channels can be equally effective?

I think for certain customers, both channels can be effective. Some people need an in-office solution and some people need an at-home solution. Sometimes, it depends on the use of private information and security and credit cards and so on. I would tell you this, that at the rate that we believe Dominic can grow that business, a few months ago, we were saying, okay, we can work from home. That’s - it will be a long time before we have to build any infrastructure. But if he keeps on putting on seats at the rate he’s putting on seats, even if he has a lot of his people working at home, we’ll need more infrastructure. We’re okay for a couple of years now, Kevin. We - I don’t see anything in the next 2.5 years in terms of CapEx related to infrastructure for The Office Gurus. Beyond that, if we have to invest, it’s only because we’ve accelerated our growth beyond what our - well beyond what our guidance currently is.

Okay. Great. And then on the balance sheet, it’s great that you’ve been able to pay down some debt here with some ongoing strength in PPE orders going into the second half of the year, would you like to try to continue to pay down debt? Or do you feel more comfortable at the leverage ratios you’re at now?

Kevin, I think we always like to be lower than we are. We’re always looking to drive it down. We ended the quarter with a little over $7 million outstanding on our revolver. So we’re close to having that pretty well paid off. It really depends on what happens as far as opportunities, where if we continue to get large PPE opportunities that are ongoing, they could require additional working capital on the balance sheet in the short-term. I mean we’re in a position that we probably - will still pay down a bit, but it’s kind of variable at this point as to which way it ultimately goes. But we are clearly in a position now where our liquidity is of no concern right now.

And Kevin, my father, who’s 90 years old now in our 100-year old company and probably listening from home, always said cash is king. And he’s listening. He’s probably smiling right now. But we’ve said, we never enjoyed the - where we were sitting as highly leveraged as we were, which for some people, didn’t concern them. But us, it was just uncomfortable because it restricted our flexibility to a certain extent. We have much better flexibility at our current levels. I’m hoping that we need capital to accelerate the growth of the business beyond even what our guidance has been. And as Andy said, we’ll be opportunistic when it comes to acquisitions that are priced correctly. I mean, we’re not going to pay any crazy multiple for an acquisition nor we’re going to go into a business and try to fix it. It’s got to be a business that brings a lot of value to us in one way or another. So we’ve had other people ask before, what’s your comfort level with debt? We’ve always said it’s between 1 and 2 times. We’re below 2 times. So we’re pretty comfortable right now, but we will pay it down further.

Okay, great. Well, that’s all I had for today. And, again, congratulations on the very strong results.

Thank you.

Thank you.

Our next question comes from Fred Foulkes with Boston University. Please go ahead.

Hi, guys. Congratulations on a great quarter and being so nimble and strategic. And you’re talking about your father. I was a Director of Panera Bread for a long time. And the Co-Founder’s father was on the Board till he is 102. And he was President of a bank during the recession. He always says, don’t go into debt, don’t go into debt. So I admire what you’re doing on the balance sheet. I have 2 questions. On sort of your - when contracts come up, it’s a like - a drugstore chain or a hospital, whatever, do you sort of review it pretty much as recurring revenue? I mean how likely is - what percentage of time do renew? And then the second question is you’re designing new products and more attractive uniforms, et cetera, et cetera. Is there any input from potential customers in terms of their employees who actually wear them? Or is it people in purchasing who make the decisions on quality, and price, and availability, reputation, and stuff like that? So those are my 2 questions.

Okay. Contracts come in all shapes and forms. Some are 1-year contracts, 2-year contracts, 3-year contracts, 5-year contracts. A lot of them have an evergreen renewal on an annual basis, if the contract is not put out to RFP. We’ve got some contracts that are 5-year contracts that are in their 15th year of ever - really 20-year contracts that just keep going and going. Sometimes we have customers who never go out to bid. But that’s true of our competitors too, if they’re satisfying them. Changing the uniform program can be a traumatic experience. It impacts your employees, impacts your customers, impacts how you market yourself. So you generally don’t see a lot of turnover of contract business, and that would affect a company like HPI more than anything who’s doing the employee ID uniforms. To the second point, it’s very rare that it’s just purchasing that we’re dealing with when we’re designing a new uniform program. Oftentimes, they’re - HR is involved, marketing is involved. And I’m talking of our customer. And employee committees are involved. Employees are very, very invested in what they’re going to wear. They wanted to be comfortable. They don’t want to look like a clown when they leave. The implication with their uniform. They don’t want to be embarrassed by their uniform. They are the walking-talking brand ambassador for that business. And I think more and more companies are realizing that with all the branding they do, with all the money they spend on advertising, branding and trying to obtain allegiance to their brand, that the best means of marketing is the walking-talking brand ambassador they have working for them. It’s the only means of direct contact that many of their customers have. So we’re seeing a more and more that a lot more people are getting involved, there’s a lot more consideration. There’s lot more testing of the product once it’s out there on the employees’ back. They may do a 10-store test or a 20-store test and get feedback and surveys, and then we make adjustments to fabric and fit, and all other things, to satisfy what we hope is the majority of those employees.

Okay, thank you, and congratulations, [Leon] [ph].

Thank you very much.

[Operator Instructions] Showing no further questions. 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, Sarah. Of course, we appreciate your time, trust and support for the company. These have been crazy times. And I’m sure you’re listening to other calls that are not quite as optimistic as ours. And we feel badly for everybody who’s not doing as well as we are. But our employees are safe and our customers are trying to push through this as best they can. I look forward to updating you with Andy on our third quarter 2020 results in October. I want you to know, we recently posted and will continue to post some marketing videos on our website that tell more about our company’s long history, is actually one that goes back to the history of the company, started by Rose Benstock, my great grandmother. I think there’s a little history on that. And then there’s a video that my father stars in, giving more of an updated history of the company. And then there’s a very slick video. All of this was made in-house with respect to what our capabilities are today. So I hope you get a chance to look at it. Please stay safe and healthy, and we’ll see you next quarter.

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