Good afternoon, everyone. Welcome to the Superior Group of Companies First Quarter 2022 Conference Call. With us today are Michael Benstock, the company's Chief Executive Officer; and Andy Demott, which is -- that's Chief Operating Officer and Chief Financial Officer. This 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'll turn the call over to Mr. Jeff Elliott, Partner and Senior Manager Director of the Three Part Advisors, who will read the safe harbor statement. Please go ahead.

Thanks, Joe. This conference call may contain forward-looking statements about Superior Group of Companies within the meaning of the Securities Act of 1933, the Securities Exchange Act of 1934, the Private Securities Reform Act of 1995 and all rules and regulations issued there under. 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 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 COVID-19 crisis on the US 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, 2021, the quarterly report on Form 10-Q for the quarter ended March 31, 2022, and the 8-Ks 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. With that, I'd like to turn the call over to Michael.

Thank you, Jeff. Good afternoon, everyone. Thanks, again, for joining us for our Q1 2022 earnings call. Today, I will share performance highlights and touch on the current macro environment. After that, Andy will provide an operational, financial update. Chief Strategy Officer, Phil Koosed and Jake Himelstein, BAMKO's President will participate in the Q&A session following the prepared remarks. Superior Group of Companies is growing in all core businesses and remains focused on executing against our long-term strategic roadmap. Our team has shown resilience in the face of a variety of macro headwinds, which continue to challenge businesses around the world. I would like to acknowledge some recent company achievements and milestones. On May 2nd, we announced the acquisition of Guardian Products, a promotional products distributor focused on the automotive space, which is a natural extension of BAMKO's December 2021 acquisition of Sutter's Mill. Guardian expands our already dominant presence in the automotive market and brings a superb culture and talent to the BAMKO team. We expect guardian to be immediately accretive to the bottom line. Following a sense of beta testing, our state-of-the-art robotic system in Eudora, Arkansas distribution facility is finally slated to go live in the next couple of weeks. This is a significant achievement. I appreciate everyone who has contributed over the past years to bring our new upgraded robotics online. Significant savings will be realized as a result of our $12 million investment into this project. Sales synergies realized through the combination of our branded uniforms and branded merchandise sales force and marketing efforts are driving further accelerated integration of these businesses, which we will also discuss in more detail later. Our organization is growing and has been executing against initiatives to expand and fortify our team for the future. We anticipate sharing some exciting…

Thank you, Michael, and good afternoon, everyone. The financial and operational health of the company remains steadfast as we bring to close a multi-year capital investment phase. We are excited to begin reaping the benefits of our new robotic system at our primary distribution center in Eudora, Arkansas, which is scheduled to go live in the coming weeks. We expect the system to produce distribution labor savings of approximately $200,000 per month, while improving distribution speed and efficiency. We are winding down a period of heavy capital expenditures over the last several years, and we expect to return to more normalized CapEx spending levels of approximately 1% to 2% of revenues in the future. Now, I'll provide some quarterly financial highlights. Consolidated first quarter net sales were $143.6 million compared to $140.8 million in Q1 last year. The 1.9% increase was driven by strong growth in our Promotional Products and Remote Staffing Solutions segments. This was offset by a decline in the Uniform and Related Products segment, which included $11.6 million less in PPE contribution compared to the first quarter of 2021. Promotional Products also saw a decline in PPE contribution of $10.5 million. As mentioned on the last call, PPE contribution continues to wind down to pre-pandemic levels. And as such, comparisons will become more normalized going forward. Note that total PPE sales in Q1 of 2021 were approximately $26.8 million, while the last three quarters of 2021 combined included only $11.8 million in PPE sales. Excluding the difference in PPE sales for the quarter, net sales were up 22% compared to the first quarter of 2021. Turning to segment results for the first quarter. Uniforms and Related Products net sales declined by 11.8% to $62.2 million compared to 2021. As mentioned, PPE contribution was more normalized at $0.9…

Thank you, Andy. Superior Group of Companies is over 100 years old, yet we keep reinventing ourselves, continuously adapting and striving to improve. We are quite proud of our entrepreneurial mindset that permeates and defines SGC and drives innovation. We are managing the business towards growth and investing in talent to fortify our ranks as we move toward our goal of achieving $1 billion in sales by year-end 2025. With that, we'll open the line for questions.

Our first question comes from Kevin Steinke with Barrington Research. Please go ahead.

I want to start off by asking about your decision to integrate or combine Promotional Products and uniforms while separating out health care. You've obviously talked quite a bit in the past about the integration of the sales teams. But what other implications does that combination have, I guess, from a management and operational perspective?

Yes. Jake, why don't you jump in on that?

Kevin, how's it going? Good to talk to you again. So look, we're really excited about this. Michael and Andy mentioned in their remarks, but the integration of sales and marketing at HPI and BAMKO has really picked up steam this year. Andy mentioned in his remarks, our pipeline is as deep and as large as it's ever been. And the resegmentation that's going to unite the divisions into single division, it's really the natural progression of the work we've already been doing together. So, you asked what other areas are we going to be looking at? Things like design, account management, technology, warehousing, those are key points of focus throughout the rest of the year. And we expect that we'll be able to achieve significant economies of scale by combining the two management teams and grow revenue faster than our operating expenses over the next couple of years. Plus, we'll see the benefit of lower distribution costs with the Eudora warehouse upgrade that we mentioned. So, we're really excited about what this means for our future, and we're really bullish on the combination of the two into one division.

All right. Great. Do you plan on then maybe providing some -- just an update to the growth outlooks by segment once you get that resegmentation done?

Andy?

Yes. Yes. Kevin, we will. We will be putting together comparative information and whatnot, so that you'll be able to see that.

And if we accomplish it mid-quarter or whenever it is, we will post it out there for our shareholders. But when it's ready, you'll see it. If it's not ready until the next call, then you'll see it then. But you certainly understand what we moved and how it moved.

Right. And just also in terms of, I guess, thinking about your four-year growth target and how that breaks down by segment. I don't know if there would be any really material change required because of that realignment. But just wondering....

Yes, Kevin. I don't see it changing our overall guidance. But I mean, obviously, to split between health care uniforms and the branded uniform piece that will be going into BAMKO could tweak the individual numbers a little bit.

There was another goal, which -- I know you didn't ask the question, but I might as well get it out there. There was another goal in that. We realized the complexity of our story sometimes being having all these legs of the stool, and it's been described that we were five legs of a stool. Well, paring it down to three by having a branded products division, a health care uniform segment and having the BPO certainly makes our story a simpler story to tell investors who might be interested in hearing it.

Right. Okay. That makes sense. And I just wanted to ask about the selling and administrative expenses. You obviously called out that PPE sales were higher margin last year, lower cost to serve there and some of the investments in the management team you've made. It also sounded like there are maybe a few one-time expense items in the quarter. So just trying to get a handle on how we should think about selling and administrative expense run rate perhaps going forward, given there was a sequential increase in the expense base versus the fourth quarter of 2021.

I think there's -- I mean, obviously, the items that I called out would be pretty well limited to the first quarter. But the part -- there's a couple of parts that where you're looking at the investment in the management team, I think those are going to continue at the level. You're at plus. We're adding -- I mean we did mention, we're adding a couple of positions that will be end of the second quarter that will affect us. There is a transition phases of that. There'll be some overlap of talent on some of those for a period of time. So, I mean I think that will continue through the balance of this year. We will obviously grow into that as our revenues and such, where as a percentage it will come down. The other piece of it that's -- I mean, I would love to tell you, I had a better guess than you do on what the supply chain logistics issues, I mean with the air freight and things like that as to whether -- how quickly those are going to come down and when the labor pool out there is going to stabilize a little bit from availability, I think that those will continue to come down as the year comes along. But it's just a matter of how quickly, I can't really tell you.

Right. Okay. But -- yes, just following up on that, it does seem like from your comments that you've seen some perhaps stabilization or even improvement in supply chain issues and maybe inflation. So -- and gross margin was actually a bit better than I expected. I know that's also impacted by product mix. But do you still feel like you're at a point where the price increases you've implemented what I think it was back at the beginning of December are going to hold and cover the cost increases that you've seen to this point or that you can't foresee?

Yes. I think that clearly from a gross margin perspective, I think the pricing is covering -- I mean, you can see that. It essentially is covering the impact of what's going on in that realm. The -- I mean, I don't think it as -- as you can see with the amount of extra investments we're making as well as some of the increased costs. It's not covering all of it in the short term. I think that as we get through the year, you will start seeing the SG&A as a percentage of sales improving and starting to overcome that.

Yes, Kevin, Michael. I'd agree with that. You'll see some slight improvement as the year progresses, some momentum towards it being kind of rightsized. But some of the positions that we're putting on, there's actually some overlap in positions of somebody who's leaving and somebody who's coming in and there being a transition between us, which is going to be some excess costs. We'll also have some additional recruiting fees as a result, which you could say are onetime. But with the level of people that we're recruiting, it actually is. But we might have some ongoing even beyond that. We're really focused on the human capital we need to run this business as we start moving towards being a $1 billion business. If you think about it this way, pre-pandemic, our sales were less than, I believe, $300 million. This year, they'll be a lot closer to double that. And we're operating our business almost the same with the same management team that we were at $300 million. So, we know we've got to improve. We know we've got to expand. And we know also that we have to bring a higher level of talent to hopefully achieve even better results in the guidance we've already given.

Kevin, also, I would -- I mean I touched on it in my remarks about the sales that we'll generate from the warehouse as we get it up to speed with that going into the next few weeks, we will get to the point where we will realize a couple of $100,000 a month. We did with having the system in operation. The first quarter did include essentially a full quarter of depreciation of the new system already. So the operating results were weighed by the additional depreciation expense, but did not yet have the benefits of having that system up and running.

Right. Okay. That's helpful. Yes. Understood. And yes, I did notice the $200,000 of labor savings per month that you called out. I mean, can we think of what other efficiencies or potential savings should we think about coming out of the launch of the new Eudora system, I guess?

No. The savings will come primarily from labor. It really -- there's no packaging efficiencies or freight or logistics efficiencies that we'll achieve as a result. So it's primarily labor. And keep in mind, kind of turn the clock back, I'm sure you remember this, that it wasn't very long ago that we shut down one of our second largest distribution center in Georgia and even a second facility in Georgia and moved it all into Arkansas. Remember that we anticipate when we move that, that shortly thereafter, we'd have a robotics system in place. But because of all the supply chain delays, COVID and everything else, that all got pushed back to now finally going live. Had we gotten that warehouse live as we had hoped to in third quarter of last year, we'd already be seeing those savings.

Right. Okay. And some pretty bullish comments on the Uniform segment pipeline and the strongest it's been in years. Can you just speak to that again in terms of the benefits you're seeing from the combined sales force, as well as maybe how that might tie into the competitive environment?

Yes. I'm going to let Jake who has been working on this day and night for many, many months, talk to you about that. Jake, jump in.

Yes. Our uniform pipeline, it's as strong as it's ever been. I mean, Kevin, when we think about where it was, remarks that we made probably six quarters ago during the height of COVID and there was no RFPs to speak of. Everyone was kind of just hunkering down, not going out to bid. There was really not a lot of opportunities. We're in the exact opposite environment right now. There are -- everyone that was unhappy with one of their providers over the last two years is now coming out to bid, ready to move to a more qualified provider, and we represent a really, really nice landing spot throughout the branded products, branded merchandise, branded uniforms. And our feeling is that nobody else in the industry can do what we can do across branded merchandise, branded uniforms, gifting, point-of-sale, point of purchase. There'll be on-site production capabilities that we now have through the acquisition of Sutter's Mill in December. Really, when we can get our story out in front of people, there is nobody else that could do what we can do. And that's what gets us really excited.

Yes. I'm going to add to that. I want to focus in on something Jake said that there are a lot of companies out there. There aren't just a lot of RFPs out there. There are a lot of our existing clients that are rebranding. Finally, they've got through the worst period of their history, and they're starting to rebrand with new logos, new advertising, new marketing, telling a whole different story. And as they do that, they're not just rebranding their uniforms, but they're rebranding all of their promotional products as well and all their branded merchandise. And this is where we step in, and we can be the perfect one-stop easy shop for all of them. And that's the value proposition that we offer that nobody else does.

Okay. Yes. That's helpful. And lastly, I just wanted to ask about the M&A pipeline. And -- well, I guess, it's still the Promotional Products side of the business, I guess, you'd say even though it's going to be integrated with the HPI piece. But yes, you made three acquisitions in that particular space in the last 15 months here and maybe just talk about the pipeline and the opportunities you're seeing. And is it mostly on the Promotional Products side? Are you also seeing opportunities in uniforms perhaps too?

I'm going to turn it over to Phil for that, but we've never seen more activity or more transactions and more -- all -- not just uniform companies, uniform companies, branded merchandise companies and BPOs for sale. But I'll turn it over to Phil to tell you about our activity a little bit.

Yes. I think we've done well on the acquisition trail over the years by, a, building out the most robust pipeline out there probably in the industry and then b, being extremely, choosy and picky with which companies we choose to acquire. We're going to continue to go and build out that pipeline. I would say that it is weighted more heavily towards Promotional Product, branded merchandise firms. But that being said, we also look at healthcare apparel, and we have a pipeline on that side. And we also look at the BPO, call center world as well and uniform world. So, we're active. But at the same time, we want to continue to be extremely picky. We want to make sure that if we're acquiring a company that it truly is an amazing fit and with -- and an acquisition that has incredible synergy and one that really will kind of pay off, I would say, real quick, not just from a cash flow perspective, but also in terms of what else they can add to our business. So, we're going to continue to build the pipeline. It's strong, like Michael said. There's a lot of M&A activity still out there and still happening. A lot of people want to sell their businesses, but we'll pick and choose the ones that are right for us at the right time.

I'd tell you, look, Kevin, as much as we like doing acquisitions, we always have a bunch in the pipeline. It's got to be, as Phil said and Jake said, repeat, it's got to be the right fit. But we also believe that organic growth is increasingly important at this time. So while we'll look at acquisitions, if it's not perfect for us and not the right deal for us, we're not going to do it, because we think we have enough going with respect to our organic growth to -- if we stay heads down to make that as equally a successful strategy. I'm not saying that we can't do both. We should when it's appropriate.

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

Okay. Well, as always, I want to thank, everybody, for joining us. We'll look forward to sharing our second quarter 2022 results with you in just a few months. Have a good day and rest of the week.

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