0000095574 SUPERIOR GROUP OF COMPANIES, INC. 錯誤 --12-31 Q3 2024 3,836 4,237 0.001 0.001 300,000 300,000 0 0 0.001 0.001 50,000,000 50,000,000 16,331,962 16,331,962 16,564,712 16,564,712 0.14 13 0 0.14 8 0 0.42 41 0 0.42 23 0 24 1 3 5 10 3 5 3 5 5 錯誤 錯誤 錯誤 錯誤 授出的SAR的加權平均授予日公允價值爲每股3.80美元。 授出的期權的加權平均授予日公允價值爲每股4.27美元。 00000955742024-01-012024-09-30 xbrli:股份 00000955742024-10-31 thunderdome:item iso4217:USD 00000955742024-07-012024-09-30 00000955742023-07-012023-09-30 00000955742023-01-012023-09-30 iso4217:USDxbrli:股份 00000955742024-09-30 00000955742023-12-31 0000095574US-GAAP:普通股成員2023-06-30 0000095574美元指數: 應付股本會員2023-06-30 0000095574us-gaap:留存收益成員2023-06-30 0000095574us-gaap:其他綜合收益的累計成員2023-06-30 00000955742023-06-30 0000095574US-GAAP:普通股成員2023-07-012023-09-30 0000095574美元指數: 應付股本會員2023-07-012023-09-30 0000095574us-gaap:留存收益成員2023-07-012023-09-30 0000095574us-gaap:其他綜合收益的累計成員2023-07-012023-09-30 0000095574US-GAAP:普通股成員2023-09-30 0000095574美元指數: 應付股本會員2023-09-30 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0000095574績效股份成員sgc : Michael Koempel Member2024-05-012024-05-01 0000095574績效股份成員US-GAAP:股份補償獎勵第一檔次成員2024-05-012024-05-10 0000095574績效股份成員US-GAAP:股份補償獎勵第二檔次成員2024-05-012024-05-10 0000095574績效股份成員美元指數:股份報酬計劃獎項第三批成員2024-05-012024-05-10 0000095574績效股份成員2023-12-31 0000095574績效股份成員2024-09-30 0000095574us-gaap:運營業務細分會員sgc:品牌產品會員2024-07-012024-09-30 0000095574us-gaap:運營業務細分會員sgc:醫療服裝會員2024-07-012024-09-30 0000095574us-gaap:運營業務細分會員sgc:聯繫中心會員2024-07-012024-09-30 0000095574跨業務板塊清算成員2024-07-012024-09-30 0000095574美國通用會計準則:物資對賬條目成員2024-07-012024-09-30 0000095574us-gaap:運營業務細分會員sgc:品牌產品會員2023-07-012023-09-30 0000095574us-gaap:運營業務細分會員sgc:醫療服裝會員2023-07-012023-09-30 0000095574us-gaap:運營業務細分會員sgc:聯繫中心會員2023-07-012023-09-30 0000095574跨業務板塊清算成員2023-07-012023-09-30 0000095574美國通用會計準則:物資對賬條目成員2023-07-012023-09-30 0000095574us-gaap:運營業務細分會員sgc:品牌產品會員2024-01-012024-09-30 0000095574us-gaap:運營業務細分會員sgc:醫療服裝會員2024-01-012024-09-30 0000095574us-gaap:運營業務細分會員sgc:聯繫中心會員2024-01-012024-09-30 0000095574跨業務板塊清算成員2024-01-012024-09-30 0000095574美國通用會計準則:物資對賬條目成員2024-01-012024-09-30 0000095574us-gaap:運營業務細分會員sgc:品牌產品會員2023-01-012023-09-30 0000095574us-gaap:運營業務細分會員sgc:醫療服裝會員2023-01-012023-09-30 0000095574us-gaap:運營業務細分會員sgc:聯繫中心會員2023-01-012023-09-30 0000095574跨業務板塊清算成員2023-01-012023-09-30 0000095574美國通用會計準則:物資對賬條目成員2023-01-012023-09-30
 

美國

證券交易委員會

華盛頓特區20549

 

表格 10-Q

(標記一個)

 

 

根據1934年證券交易法第13或第15條(d)條款,進行季度報告

截至2024年6月30日季度結束 2024年9月30日

 

 

根據1934年證券交易所法第13條或第15條(d)的規定,提交的過渡報告。

過渡期從________到________

 

委員會文件號碼: 001-05869

 

依其章程所述的註冊人確切名稱:

SUPERIOR GROUP OF COMPANIES, INC.

 

成立或组织的州或其他管辖区:

国税局雇主识别号码:

佛羅里達 

11-1385670

 

主要行政办公地址:

中央大道200号,2000套房

圣彼得堡, 佛羅里達 33701

 

註冊人電話號碼(包括區號):

727-397-9611

 

如有更改,請提供前名稱、前地址和前財年:

 

根據法案第12(b)條規定註冊的證券:

 

每種類別的名稱

 

交易標的(s)

 

每個註冊交易所的名稱

普通股每股面值0.001美元

 

SGC

 

納斯達克

 

請回答以下問題:(1)公司是否在過去12個月內依據 1934年交易所法第13條或第15(d)條呈報了所有要求呈報的報告(或者在更短的期限內公司是否需要呈報此類報告),(2)公司是否在過去90天內需要呈報此類報告。☒ 否 ☐

 

請用勾記號表示公司是否在過去12個月內(或申報對象所需提交的較短期間內)已遞交所有應遞交的交互式資料檔案,根據S-t法規405條款(本章規232.405節)的要求。☒ 不 ☐

 

請回答以下問題,根據《交易所法》120億2條,填上打勾符號以表示公司是否是大型快速檔案聲明提交者(large accelerated filer)、加速檔案聲明提交者(accelerated filer)、非加速檔案聲明提交者(non-accelerated filer)、小型報告公司(smaller reporting company)或新興增長公司(emerging growth company)的其中之一。

 

大型快速檔案聲明提交者 ☐

加速歸檔人  ☒

 

非加速歸檔者 ☐

 

較小的報告公司

 

 

新興成長公司

 

如果是新興成長公司,則應勾選此方框,以表明申報人已選擇不使用《交易所法》第13(a)條所提供的任何新的或修訂財務會計準則的延遲實施期。 ☐

 

請打勾表示該公司是否為殼公司(根據交易所法規第1202條所定義)。是  No ☒

 

The number of shares of common stock of the registrant outstanding as of October 31, 2024 was 16,341,231股份。

 

 

 

 
 

目錄

 

 
   

 

頁面

第一部分財務資料

 

項目一。財務報表

 

簡明綜合綜合收益表(未經審核) 

4

簡明綜合資產負債表(未經審核)

5

簡明綜合股東權益表(未經審核)

6

簡明綜合現金流量報表 (未經審核)

8

簡明綜合財務報表附註 (未經審核)

9

項目二。管理層對財務狀況及營運結果進行討論及分析

19

第三項目。關於市場風險的定量和定性披露

31

第四項。控制和程序

32

第二部分。其他資訊

 

項目一。法律程序

33

項目 1A。風險因素

33

項目二。非登記股份證券銷售及所得款項的使用

34

第三項高級證券違約

34

第四項。礦山安全披露

34

第五項。其他資訊

35

第六項。展品

36

簽名

37

 

2

 

 

  

 
   

 

頁面

基本報表

 

綜合損益簡明綜合表(未經審核) 

4

縮編合併貸方賬戶余額表(未經審計)

5

未經審核的股東權益簡明綜合報表

6

綜合現金流量表(未經核數)

8

基本報表註解(未經核數)  

認股權證1 - 業務描述和呈獻基礎

9

           附註2 - 存貨 10
           附註3 - 長期負債 11
           附註4 - 凈銷售額 12
           附註5 - 條件

13

           附註6 - 股份報酬

13

           附註7 - 所得稅

16

           附註8 - 每股凈利潤

16

           附註9 - 營運部門資訊

17

 

 

3

 

 SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands, except shares and per share data)

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2024

   

2023

   

2024

   

2023

 

Net sales

  $ 149,690     $ 136,126     $ 420,268     $ 396,061  
                                 

Costs and expenses:

                               

Cost of goods sold

    89,144       82,928       253,650       248,159  

Selling and administrative expenses

    52,215       47,246       149,339       134,007  

Other periodic pension costs

    189       214       567       642  

Interest expense

    1,569       2,464       4,897       7,658  
      143,117       132,852       408,453       390,466  

Income before income tax expense

    6,573       3,274       11,815       5,595  

Income tax expense

    1,170       160       1,900       380  

Net income

  $ 5,403     $ 3,114     $ 9,915     $ 5,215  
                                 

Net income per share:

                               

Basic

  $ 0.34     $ 0.19     $ 0.62     $ 0.33  

Diluted

  $ 0.33     $ 0.19     $ 0.60     $ 0.32  
                                 

Weighted average shares outstanding during the period:

                               

Basic

    16,107,549       15,992,792       16,118,885       15,954,264  

Diluted

    16,543,990       16,155,355       16,588,914       16,132,832  
                                 

Other comprehensive income (loss), net of tax:

                               

Recognition of net losses included in net periodic pension costs

  $ 23     $ 41     $ 68     $ 123  

Foreign currency translation adjustment

    530       (424 )     (1,201 )     160  

Other comprehensive income (loss)

    553       (383 )     (1,133 )     283  

Comprehensive income

  $ 5,956     $ 2,731     $ 8,782     $ 5,498  
                                 

Cash dividends per common share

  $ 0.14     $ 0.14     $ 0.42     $ 0.42  

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.

 

4

 

 

SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES

 CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except shares and par value data)

 

  

September 30,

  

December 31,

 
  

2024

  

2023

 
   (Unaudited)     

ASSETS

    

Current assets:

        

Cash and cash equivalents

 $18,373  $19,896 

Accounts receivable, less allowance for doubtful accounts of $3,836 and $4,237, respectively

  98,822   103,494 

Inventories

  93,771   98,067 

Contract assets

  50,326   48,715 

Prepaid expenses and other current assets

  10,177   9,188 

Total current assets

  271,469   279,360 

Property, plant and equipment, net

  42,859   46,890 

Operating lease right-of-use assets

  16,282   17,909 

Deferred tax asset

  12,333   12,356 

Intangible assets, net

  47,959   51,160 

Other assets

  16,448   14,775 

Total assets

 $407,350  $422,450 
         

LIABILITIES AND SHAREHOLDERS’ EQUITY

     

Current liabilities:

        

Accounts payable

 $46,292  $50,520 

Other current liabilities

  42,381   43,978 

Current portion of long-term debt

  5,625   4,688 

Current portion of acquisition-related contingent liabilities

  740   1,403 

Total current liabilities

  95,038   100,589 

Long-term debt

  78,755   88,789 

Long-term pension liability

  13,517   13,284 

Long-term acquisition-related contingent liabilities

  -   557 

Long-term operating lease liabilities

  11,295   12,809 

Other long-term liabilities

  9,236   8,784 

Total liabilities

  207,841   224,812 

Commitments and contingencies (Note 5)

          

Shareholders’ equity:

        

Preferred stock, $.001 par value - authorized 300,000 shares (none issued)

  -   - 

Common stock, $.001 par value - authorized 50,000,000 shares, issued and outstanding 16,331,962 and 16,564,712 shares, respectively

  16   16 

Additional paid-in capital

  81,859   77,443 

Retained earnings

  121,052   122,464 

Accumulated other comprehensive loss, net of tax:

        

Pensions

  (1,054)  (1,122)

Foreign currency translation adjustment

  (2,364)  (1,163)

Total shareholders’ equity

  199,509   197,638 

Total liabilities and shareholders’ equity

 $407,350  $422,450 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.

 

5

 

 

SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

THREE MONTHS ENDED September 30, 2024 AND 2023

(Unaudited)

(In thousands, except shares and per share data)

 

                  

Accumulated

     
                  

Other

     
          

Additional

      

Comprehensive

  

Total

 
  

Common

  

Common

  

Paid-In

  

Retained

  

Income (Loss),

  

Shareholders’

 
  

Shares

  

Stock

  

Capital

  

Earnings

  

net of tax

  

Equity

 

Balance, July 1, 2023

  16,499,312  $16  $75,078  $120,490  $(2,345) $193,239 

Common shares issued upon exercise of options and SARs, net

  6,514   -   54   -   -   54 

Share-based compensation expense

  -   -   1,103   -   -   1,103 

Written put options

  -   -   280   -   -   280 

Cash dividends declared ($0.14 per share)

  -   -   -   (2,296)  -   (2,296)

Comprehensive income:

                        

Net income

  -   -   -   3,114   -   3,114 

Pensions, net of taxes of $13

  -   -   -   -   41   41 

Change in currency translation adjustment, net of taxes of $0

  -   -   -   -   (424)  (424)

Balance, September 30, 2023

  16,505,826  $16  $76,515  $121,308  $(2,728) $195,111 
                         

Balance, July 1, 2024

  16,792,577  $16  $82,759  $122,106  $(3,971) $200,910 

Common shares issued upon exercise of options and SARs, net

  3,092   -   42   -   -   42 

Common shares repurchased and retired

  (451,786)  -   (2,227)  (4,120)  -   (6,347)

Restricted shares issued, net of forfeitures

  (11,921)  -   -   -   -   - 

Share-based compensation expense

  -   -   1,285   -   -   1,285 

Cash dividends declared ($0.14 per share)

  -   -   -   (2,337)  -   (2,337)

Comprehensive income (loss):

                        

Net income

  -   -   -   5,403   -   5,403 

Pensions, net of taxes of $8

  -   -   -   -   23   23 

Change in currency translation adjustment, net of taxes of $0

  -   -   -   -   530   530 

Balance, September 30, 2024

  16,331,962  $16  $81,859  $121,052  $(3,418) $199,509 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.

 

6

 

SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

NINE MONTHS ENDED September 30, 2024 AND 2023

(Unaudited)

(In thousands, except shares and per share data)

 

                  

Accumulated

     
                  

Other

     
          

Additional

      

Comprehensive

  

Total

 
  

Common

  

Common

  

Paid-In

  

Retained

  

Income (Loss),

  

Shareholders’

 
  

Shares

  

Stock

  

Capital

  

Earnings

  

net of tax

  

Equity

 

Balance, January 1, 2023

  16,376,683  $16  $72,615  $122,979  $(3,011) $192,599 

Common shares issued upon exercise of options and SARs, net

  12,118   -   97   -   -   97 

Restricted shares issued, net of forfeitures

  117,025   -   -   -   -   - 

Share-based compensation expense

  -   -   3,523   -   -   3,523 

Written put options

  -   -   280   -   -   280 

Cash dividends declared ($0.42 per share)

  -   -   -   (6,886)  -   (6,886)

Comprehensive income:

                        

Net income

  -   -   -   5,215   -   5,215 

Pensions, net of taxes of $41

  -   -   -   -   123   123 

Change in currency translation adjustment, net of taxes of $0

  -   -   -   -   160   160 

Balance, September 30, 2023

  16,505,826  $16  $76,515  $121,308  $(2,728) $195,111 
                         

Balance, January 1, 2024

  16,564,712  $16  $77,443  $122,464  $(2,285) $197,638 

Common shares issued upon exercise of options and SARs, net

  116,438   -   1,331   (213)  -   1,118 

Common shares repurchased and retired

  (451,786)     (2,227)  (4,120)  -   (6,347)

Performance based shares issued

  9,896   -   -   -   -   - 

Restricted shares issued, net of forfeitures

  92,702   -   -   -   -   - 

Share-based compensation expense

  -   -   2,905   -   -   2,905 

Written put options

  -   -   2,407   -   -   2,407 

Cash dividends declared ($0.42 per share)

  -   -   -   (6,994)  -   (6,994)

Comprehensive income (loss):

                        

Net income

  -   -   -   9,915   -   9,915 

Pensions, net of taxes of $23

  -   -   -   -   68   68 

Change in currency translation adjustment, net of taxes of $0

  -   -   -   -   (1,201)  (1,201)

Balance, September 30, 2024

  16,331,962  $16  $81,859  $121,052  $(3,418) $199,509 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.

 

7

 

 

SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

   

Nine Months Ended September 30,

 
   

2024

   

2023

 

CASH FLOWS FROM OPERATING ACTIVITIES

               

Net income

  $ 9,915     $ 5,215  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation and amortization

    9,872       10,331  

Inventory write-downs

    1,893       1,609  

Provision for bad debts - accounts receivable

    251       64  

Share-based compensation expense

    2,905       3,523  

Change in fair value of acquisition-related contingent liabilities

    363       (442 )

Change in fair value of written put options

    653       (460 )

Changes in assets and liabilities:

               

Accounts receivable

    3,891       9,650  

Contract assets

    (1,671 )     6,208  

Inventories

    2,241       18,280  

Prepaid expenses and other current assets

    (1,292 )     3,462  

Other assets

    (959 )     (844 )

Accounts payable and other current liabilities

    (4,292 )     2,148  

Payment of acquisition-related contingent liabilities

    (686 )     (279 )

Long-term pension liability

    325       561  

Other long-term liabilities

    1,088       362  

Net cash provided by operating activities

    24,497       59,388  
                 

CASH FLOWS FROM INVESTING ACTIVITIES

               

Additions to property, plant and equipment

    (2,911 )     (4,023 )

Net cash used in investing activities

    (2,911 )     (4,023 )
                 

CASH FLOWS FROM FINANCING ACTIVITIES

               

Proceeds from borrowings of debt

    31,000       4,000  

Repayment of debt

    (40,281 )     (51,813 )

Debt issuance costs

    -       (300 )

Payment of cash dividends

    (6,994 )     (6,886 )

Payment of acquisition-related contingent liabilities

    (897 )     (553 )

Proceeds received on exercise of stock options

    1,118       97  

Common shares repurchased and retired

    (6,346 )     -  

Net cash used in financing activities

    (22,400 )     (55,455 )
                 

Effect of currency exchange rates on cash

    (709 )     97  

Net increase (decrease) in cash and cash equivalents

    (1,523 )     7  

Cash and cash equivalents balance, beginning of period

    19,896       17,722  

Cash and cash equivalents balance, end of period

  $ 18,373     $ 17,729  

 

See accompanying Notes to the Condensed Consolidated Financial Statements.

 

8

 

 

Superior Group of Companies, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements (Unaudited)

 

 

NOTE 1 – Description of Business and Basis of Presentation:

 

Description of business

 

Superior Group of Companies, Inc. (together with its subsidiaries, “the Company,” “Superior,” “we,” “our,” or “us”) was organized in 1920 and was incorporated in 1922 as a New York company under the name Superior Surgical Mfg. Co., Inc. In 1998, the Company changed its name to Superior Uniform Group, Inc. and redomiciled to Florida. Effective on May 3, 2018, Superior Uniform Group, Inc. changed its name to Superior Group of Companies, Inc.

 

Superior’s Branded Products segment, primarily through its signature marketing brands BAMKO® and HPI®, produces and sells customized merchandising solutions, promotional products and branded uniform programs. Branded products are manufactured through third parties or in Superior’s own facilities, and are sold to customers in a wide range of industries, including retail chain, food service, entertainment, technology, transportation and other industries. The segment currently has sales offices in the United States, Canada, and Brazil, with support services in China and India.

 

Superior’s Healthcare Apparel segment, primarily through its signature marketing brands Fashion Seal Healthcare®, Wink® and CID Resources, manufactures (through third parties or in its own facilities) and sells a wide range of healthcare apparel, such as scrubs, lab coats, protective apparel and patient apparel. This segment sells its products to healthcare laundries, dealers, distributors, retailers and consumers primarily in the United States.

 

Superior’s Contact Centers segment, through multiple The Office Gurus® entities, including subsidiaries in El Salvador, Belize, Jamaica, Dominican Republic and the United States (collectively, “TOG”), provides outsourced, nearshore business process outsourcing, contact and call-center support services to North American customers.

 

Basis of presentation

 

The accompanying unaudited condensed consolidated financial statements of Superior included herein have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") ("U.S." or "United States") and the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. Intercompany items have been eliminated in consolidation. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, and filed with the SEC. Management believes that the information furnished includes all adjustments of a normal recurring nature that are necessary to fairly present our consolidated financial position, results of operations and cash flows for the periods indicated. The results of operations for any interim period are not necessarily indicative of results to be expected for the full year.

 

The Company refers to the condensed consolidated financial statements collectively as “financial statements,” and individually as “statements of comprehensive income (loss),” “balance sheets,” “statements of shareholders’ equity,” and “statements of cash flows” herein.

 

Reclassifications

 

The accompanying financial statements for the previous year contain certain reclassifications. Reclassifications impact the reporting of accounts receivable-other within the condensed consolidated balance sheets and statements of cash flows as well as the presentation of segment performance as described within Note 9. These reclassifications have no effect on previously reported results of operations.

 

9

 

Written Put Options

 

During the second quarter of 2022, the Company entered into written put options with a former employee that, if exercised by the former employee, required the Company to repurchase up to 207,970 shares of its common stock at fair market value (as defined in the agreement), subject to certain limitations. The original fair value of the written put options upon entering into the agreement was $3.6 million. The written put options were liabilities under ASC 480,Distinguishing Liabilities from Equity” because the options embody obligations to repurchase the Company’s shares by paying cash. As of December 31, 2023, the fair value of the written put options were $1.8 million. The fair value of the written put options was based directly on the Company’s stock price and were included in other current liabilities in our balance sheets. The written put options expire after twenty-four months and contain certain quarterly maximums. During the nine months ended September 30, 2024, the remaining unexpired options of 132,924 expired resulting in a $2.4 million reduction in other current liabilities with an offset to additional paid-in capital. Unrealized gains and losses from changes in the fair value of the written put options were included within selling and administrative expenses in our statements of comprehensive income. 

 

Recent Accounting Pronouncements

 

We consider the applicability and impact of all Accounting Standard Updates (“ASUs”). ASUs not listed below were assessed and determined to not be applicable.

 

Recently Issued Accounting Pronouncements Not Yet Adopted

 

In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280)Improvements to Reportable Segment Disclosures". The ASU requires that an entity disclose significant segment expenses impacting profit and loss that are regularly provided to the chief operating decision maker ("CODM"). The update is required to be applied retrospectively to prior periods presented, based on the significant segment expense categories identified and disclosed in the period of adoption. The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We will adopt the disclosure requirements of ASU 2023-07 in our December 31, 2024 annual financial statements. The adoption of the ASU will only impact our disclosures, which will be made on a retrospective basis, with no impacts on our results of operations, cash flows or financial condition. The Company’s adoption of this standard is not expected to have a material impact on its financial statements.

 

In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740)Improvements to Income Tax Disclosures". The ASU requires that an entity disclose specific categories in the effective tax rate reconciliation as well as provide additional information for reconciling items that meet a quantitative threshold. Further, the ASU requires certain disclosures of state versus federal income tax expense and taxes paid. The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2024, which for the Company is the calendar year beginning January 1, 2025. Early adoption is permitted for annual financial statements that have not yet been issued. The amendments should be applied on a prospective basis although retrospective application is permitted. The adoption of this guidance will not affect the Company’s consolidated results of operations, financial position or cash flows and the Company is currently evaluating the effect the guidance will have on its disclosures.

 

 

NOTE 2 – Inventories:

 

Inventories consisted of the following amounts (in thousands):

 

   

September 30,

   

December 31,

 
   

2024

   

2023

 

Finished goods

  $ 67,416     $ 72,370  

Work in process

    1,462       671  

Raw materials

    24,893       25,026  

Inventories

  $ 93,771     $ 98,067  

 

 

10

 
 

NOTE 3 – Long-Term Debt:

 

Debt consisted of the following (in thousands):

 

   

September 30,

   

December 31,

 
    2024     2023  

Credit Facilities:

               

Revolving credit facility due August 2027

  $ 19,000     $ 25,000  

Term loan due August 2027

    66,094       69,375  
      85,094       94,375  

Less:

               

Payments due within one year included in current liabilities

    5,625       4,688  

Debt issuance costs

    714       898  

Long-term debt less current maturities

  $ 78,755     $ 88,789  

 

On August 23, 2022, the Company entered into a Credit Agreement (the “Credit Agreement”) among the Company, the domestic subsidiaries of the Company, as guarantors, the lenders party thereto (the “Lenders”), and PNC Bank, National Association, as administrative agent for the Lenders (the “Administrative Agent”), pursuant to which the Lenders are providing the Company senior secured credit facilities maturing in August 2027 consisting of a revolving credit facility in the aggregate maximum principal amount of $125.0 million and a term loan in the original aggregate principal amount of $75.0 million (collectively, the “Credit Facilities”), and the ability to request incremental revolving credit or term loan facilities in an aggregate amount of up to an additional $75.0 million, subject to obtaining additional lender commitments and satisfying certain other conditions. 

 

Obligations outstanding under the Credit Facilities accrue interest at a variable rate equal to the secured overnight financing rate ("SOFR") plus an adjustment between 0.10% and 0.25% (depending on the applicable interest period) plus a margin between 1.0% and 2.0% (depending on the Company’s net leverage ratio). The weighted average interest rate on our outstanding borrowings under the Credit Facilities was 6.0% as of  September 30, 2024. During the term of the revolving credit facility, the Company will pay a commitment fee on the unused portion of the revolving credit facility equal to between 0.125% and 0.250% (depending on the Company’s net leverage ratio). The available balance under the revolving credit facility is reduced by outstanding letters of credit. As of September 30, 2024, there were no outstanding letters of credit under the revolving credit facility.

 

Contractual principal payments for the term loan are as follows: remainder of 2024 - $1.4 million; 2025 - $5.6 million; 2026 - $6.6 million and 2027 - $52.5 million. The term loan does not contain pre-payment penalties.

 

The Credit Facilities are secured by substantially all of the operating assets of the Company, and the Company’s obligations under the Credit Facilities are guaranteed by all of its domestic subsidiaries. The Company’s obligations under the Credit Facilities are subject to acceleration upon the occurrence of an event of default as defined in the Credit Agreement. The Credit Agreement contains customary events of default and negative covenants, including but not limited to those governing indebtedness, liens, fundamental changes, investments, restricted payments (including dividends and related distributions), liquidations, mergers, consolidations or acquisitions, affiliate transactions and sales of assets or subsidiaries. The Credit Agreement also requires the Company to comply with a fixed charge coverage ratio of at least 1.25 to 1.0 and a net leverage ratio not to exceed 4.0 to 1.0. The Company’s net leverage ratio (as defined in the Credit Agreement) is generally calculated as the ratio of (a) indebtedness minus unrestricted cash to (b) consolidated EBITDA for the four most recently ended fiscal quarters. As of September 30, 2024, the Company was in compliance with these ratios.

 

11

 
 

NOTE 4 – Net Sales:

 

For our Branded Products and Healthcare Apparel segments, revenue is primarily generated from the sale of finished products to customers. Revenues for our Branded Products and Healthcare Apparel segments are recognized when the performance obligations under the contract terms are satisfied. For certain contracts with customers in which the Company has an enforceable right to payment for goods with no alternative use, revenue is recognized over time upon receipt of finished goods into inventory. Revenue for goods that do have an alternative use or that the customer is not obligated to purchase under the terms of a contract is generally recognized when the goods are transferred to the customer. The Company includes shipping and handling fees billable to customers in net sales. Shipping and handling activities that occur after the transfer of promised goods are accrued as control is transferred to the customer rather than being treated as a separate performance obligation.

 

For our Contact Centers segment, revenue is generated from providing our customers with contact center services. Revenue for our Contact Centers segment is recognized as services are delivered. 

 

Revenue is measured at the amount of consideration we expect to receive in exchange for the goods or services. Variable consideration for estimated returns, allowances and other price variances is recorded based upon historical experience and current allowance programs. Contract terms may involve variable consideration clauses such as sales discounts and customer rebates, and revenue is adjusted accordingly for these provisions. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The promised amount of consideration in a contract is not adjusted for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised good or service to a customer and when the customer pays for that product or service will be one year or less. Sales taxes are excluded from the measurement of a performance obligation’s transaction price. Sales commissions are expensed as incurred when we expect that the amortization period of such costs will be one year or less.

 

For further information regarding our net sales disaggregated by reportable segment see Note 9.

 

Contract Assets and Contract Liabilities

 

The following table provides information about accounts receivable, contract assets and contract liabilities from contracts with customers (in thousands):

 

  

September 30,

  

December 31,

 
  

2024

  

2023

 

Accounts receivable

 $98,822  $103,494 

Current contract assets

  50,326   48,715 

Current contract liabilities

  2,845   5,346 

 

Contract assets relate to goods produced without an alternative use for which the Company has an enforceable right to payment but which has not yet been invoiced to the customer. The majority of the amounts included in contract assets on December 31, 2023 were transferred to accounts receivable during the nine months ended September 30, 2024. Contract liabilities relate to payments received in advance of the Company completing its performance under a contract. Contract liabilities are included in other current liabilities in our balance sheets. During the nine months ended September 30, 2024, $4.9 million of revenue was recognized from the contract liabilities balance as of December 31, 2023.

 

12

 
 

NOTE 5 – Contingencies:

 

The purchase price to acquire substantially all of the assets of Sutter’s Mill Specialties, Inc. (“Sutter’s Mill”) in December 2021 included contingent consideration based on varying levels of Sutter’s Mill’s EBITDA in each measurement period from 2022 to 2024. In July 2023, management agreed to settle the remaining contingent consideration obligation associated with this acquisition for $0.5 million, which was paid in the first quarter of 2024. The purchase price to acquire substantially all of the assets of Guardian Products, Inc. (“Guardian”) in  May 2022 included contingent consideration based on varying levels of Guardian’s EBITDA in each measurement period through  April 2025. The estimated fair value of Guardian acquisition-related contingent consideration payable as of September 30, 2024 was $0.7 million, all of which is expected to be paid in the third quarter of 2025. In the third quarter of 2024, $1.0 million was paid for the 2023 measurement period. The total estimated undiscounted remaining payment related to this contingent consideration payable is between $0.9 million and $1.0 million. The Company will continue to evaluate the Guardian liability for remeasurement at the end of each reporting period and any changes will be recorded in the Company’s statements of comprehensive income. The carrying amount of the liability may fluctuate significantly and actual amounts paid may be different from the estimated value of the liability.

 

The Company is involved in various legal actions and claims arising from the normal course of business. In the opinion of management, the ultimate outcome of these matters is not expected to have a material impact on the Company’s results of operations, cash flows, or financial position.

 

 

NOTE 6 – Share-Based Compensation:

 

Share-based compensation expense is recorded in selling and administrative expense in the statements of comprehensive income. The following table details the share-based compensation expense by type of award for the periods presented (in thousands):

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2024

   

2023

   

2024

   

2023

 

Stock options and SARs

  $ 289     $ 319     $ 784     $ 1,018  

Restricted stock

    582       599       1,550       1,956  

Performance shares

    414       185       571       549  

Total share-based compensation expense

  $ 1,285     $ 1,103     $ 2,905     $ 3,523  

 

Stock Options and Stock Appreciation Rights (“SARs”)

 

The Company grants stock options and stock-settled SARs to employees that allow them to purchase shares of the Company’s common stock. Stock options are also granted to outside members of the Board of Directors of the Company. The Company determines the fair value of stock options and SARs at the date of grant using the Black-Scholes valuation model.

 

All stock options and SARs vest between one and three years after the grant date. Employee awards expire five years after the grant date, and those issued to directors expire ten years after the grant date. The Company issues new shares upon the exercise of stock options and SARs. Stock options, as well as SARs granted in tandem with stock options, are subject to accelerated vesting under certain circumstances as outlined in the 2013 Incentive Stock and Awards Plan (the “2013 Plan”) or 2022 Equity Incentive and Awards Plan (the “2022 Plan”), as applicable. 

 

13

 

A summary of stock option transactions during the nine months ended September 30, 2024 follows:

 

                Weighted Average     Aggregate  
   

No. of

   

Weighted Average

   

Remaining Life

   

Intrinsic Value

 
   

Shares

   

Exercise Price

   

(in years)

   

(in thousands)

 

Outstanding, January 1, 2024

    953,176     $ 14.73       2.80     $ 1,718  

Granted(1)

    183,800       14.38                  

Exercised

    (122,395 )     10.71                  

Lapsed or cancelled

    (199,984 )     16.49                  

Outstanding, September 30, 2024

    814,597       14.82       3.26       2,165  

Exercisable, September 30, 2024

    341,469       18.59       2.22       494  

 

(1)

The weighted average grant date fair value of stock options granted was $4.27 per share.

 

As of September 30, 2024, the Company had $0.8 million in unrecognized compensation cost related to nonvested stock options to be recognized over the remaining weighted average vesting period of 1.0 year.

 

A summary of stock-settled SARs transactions during the nine months ended September 30, 2024 follows:

 

                Weighted Average     Aggregate  
   

No. of

   

Weighted Average

   

Remaining Life

   

Intrinsic Value

 
   

Shares

   

Exercise Price

   

(in years)

   

(in thousands)

 

Outstanding, January 1, 2024

    292,508     $ 14.35       2.07     $ 506  

Granted(1)

    79,128       13.84                  

Exercised

    (17,920 )     8.48                  

Lapsed or cancelled

    (81,770 )     19.23                  

Outstanding, September 30, 2024

    271,946       13.12       2.34       832  

Exercisable, September 30, 2024

    137,742       13.37       0.79       479  

 

(1)

The weighted average grant date fair value of SARs granted was $3.80 per share.

 

As of September 30, 2024, the Company had $0.3 million in unrecognized compensation cost related to nonvested SARs to be recognized over the remaining weighted average vesting period of 1.0 year.

 

Restricted Stock

 

The Company has granted shares of restricted stock to directors and certain employees, which vest at a specified future date, generally after three years, over five years or when certain conditions are met. The shares are subject to accelerated vesting under certain circumstances as outlined in the 2013 Plan or 2022 Plan, as applicable. Expense for each of these grants is based on the fair value at the date of the grant and is being recognized on a straight-line basis over the respective service period.

 

14

 

A summary of restricted stock transactions during the nine months ended September 30, 2024 follows:

 

           

Weighted Average

 
   

No. of

   

Grant Date

 
   

Shares

   

Fair Value

 

Outstanding, January 1, 2024

    428,366     $ 18.14  

Granted

    146,303       14.77  

Vested

    (79,322 )     23.71  

Forfeited

    (34,029 )     19.75  

Outstanding, September 30, 2024

    461,318       15.99  

 

As of September 30, 2024, the Company had $3.8 million of unrecognized compensation cost related to nonvested restricted stock grants expected to be recognized over the remaining weighted average vesting period of 1.7 years.

 

Performance Shares

 

The Company has granted performance shares, which either contain only service-based vesting conditions or service-based and performance-based vesting conditions. The service-based awards vest after the service period is met, which is generally three to five years. Expense for these grants is based on the fair value on the date of the grant and is being recognized on a straight-line basis over the respective service period. The performance-based awards generally vest after five years if the performance and service targets are met. The Company evaluates the performance conditions associated with these grants each reporting period to determine the expected number of shares to be issued. Expense for grants of performance shares is recognized on a straight-line basis over the respective service period based on the grant date fair value and expected number of shares to be issued. The awards are subject to accelerated vesting on a pro rata basis under certain circumstances as outlined in the 2013 Plan or 2022 Plan, as applicable, except in those circumstances in which award agreements or change in control agreements specify full vesting.

 

On May 1, 2024, the Compensation Committee approved the Company entering into a grant of 125,000 and 75,000 performance shares to Michael Benstock, Chief Executive Officer and Michael Koempel, Chief Financial Officer, respectively, under the 2022 Equity Incentive and Awards Plan. The performance shares agreements were executed on May 6, 2024. Each performance share represents a contingent right to receive one share of common stock. The performance shares will vest if, in each case and during a four-year performance period beginning on January 1, 2024, subject to additional requirements, the average closing price of the Company’s common stock over a rolling thirty (30) day period equals or exceeds 115%, 130%, and 150% of the closing share price on May 10, 2024 and the executive is still employed by the Company twelve (12) months after the applicable stock price condition has been satisfied. The fair value and derived service periods of the shares were determined based on a Monte Carlo valuation model, which includes estimates of the Company’s stock price volatility. Expense for these grants is being recognized on a straight-line basis over each tranche’s derived service period.

 

A summary of performance share transactions during the nine months ended September 30, 2024 follows:

 

           

Weighted Average

 
   

No. of

   

Grant Date

 
   

Shares

   

Fair Value

 

Outstanding, January 1, 2024

    283,521     $ 18.13  

Granted

    200,000       14.73  

Vested

    (14,068 )     17.77  

Forfeited

    (99,439 )     19.62  

Outstanding, September 30, 2024

    370,014       15.91  

 

As of September 30, 2024, the Company had $2.5 million of unrecognized compensation cost related to nonvested performance share grants expected to be recognized over the remaining weighted average service period of 1.5 years.

 

15

 
 

NOTE 7 – Income Taxes:

 

The Company calculates its interim income tax provision in accordance with the accounting guidance for income taxes in interim periods. At the end of each interim period, the Company makes its best estimate of the annual expected effective tax rate and applies that rate to its ordinary year-to-date income or loss. The tax expense or benefit related to significant, unusual, or extraordinary items that will be separately reported or reported net of their related tax effect are individually computed and recognized in the interim period in which those items occur.

 

The computation of the annual expected effective tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected operating income for the year and permanent and temporary differences. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or the tax environment changes.

 

For the three months ended September 30, 2024, the Company recorded a provision for income taxes of $1.2 million, which represents an effective tax rate of 17.8%. For the nine months ended September 30, 2024, the Company recorded a provision for income taxes of $1.9 million, which represents an effective tax rate of 16.1%. The income tax provision and the effective tax rate for the three and nine months ended September 30, 2024 was primarily impacted by the variability in the mix of earnings across the Company’s foreign and domestic operations, subject to various statutory tax rates in those jurisdictions.

 

For the three months ended  September 30, 2023, the Company recorded a provision for income taxes of $0.2 million, which represents an effective tax rate of 4.9%. For the nine months ended  September 30, 2023, the Company recorded a provision for income taxes of $0.4 million, which represents an effective tax rate of 6.8%. The income tax provision and the effective tax rate for the three and nine months ended September 30, 2023 was primarily impacted by the variability in the mix of earnings across the Company’s foreign and domestic operations subject to various statutory tax rates in those jurisdictions.

 

 

NOTE 8 – Net Income Per Share:

 

The Company’s basic net income per share is computed based on the weighted average number of shares of common stock outstanding for the period. Diluted net income per share includes the effect of the Company’s outstanding stock options, stock appreciation rights, nonvested shares of restricted stock and nonvested performance shares, if the inclusion of these items is dilutive.

 

The following table presents a reconciliation of basic and diluted net income per share for the periods presented:

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2024

   

2023

   

2024

   

2023

 

Net income used in the computation of basic and diluted net income per share (in thousands)

  $ 5,403     $ 3,114     $ 9,915     $ 5,215  
                                 

Weighted average shares outstanding - basic

    16,107,549       15,992,792       16,118,885       15,954,264  

Dilutive common stock equivalents

    436,441       162,563       470,029       178,568  

Weighted average shares outstanding - diluted

    16,543,990       16,155,355       16,588,914       16,132,832  

Net income per share:

                               

Basic

  $ 0.34     $ 0.19     $ 0.62     $ 0.33  

Diluted

  $ 0.33     $ 0.19     $ 0.60     $ 0.32  

 

Awards to purchase 309,778 and 1,198,603 shares of common stock with weighted average exercise prices of $21.44 and $15.32 per share were outstanding during the three months ended September 30, 2024 and 2023, respectively, but were not included in the computation of diluted net income per share because the awards’ exercise prices were greater than the average market price of the common shares.

 

Awards to purchase 335,071 and 1,158,819 shares of common stock with weighted average exercise prices of $21.40 and $15.84 per share were outstanding during the nine months ended September 30, 2024 and 2023, respectively, but were not included in the computation of diluted net income per share because the awards’ exercise prices were greater than the average market price of the common shares.

 

16

 
 

NOTE 9  Operating Segment Information:

 

The Company manages and reports the following segments:

 

Branded Products segment: Primarily through our signature marketing brands BAMKO® and HPI®, we produce and sell customized merchandising solutions, promotional products and branded uniform programs. Branded products are sold to customers in a wide range of industries, including retail chain, food service, entertainment, technology, transportation and other industries. The segment currently has sales offices in the United States, Canada, and Brazil, with support services in China and India.

 

Healthcare Apparel segment: Primarily through our signature marketing brands Fashion Seal Healthcare®, Wink® and CID Resources, we manufacture (through third parties or in our own facilities) and sell a wide range of healthcare apparel, such as scrubs, lab coats, protective apparel and patient apparel. This segment sells its products to healthcare laundries, dealers, distributors, retailers and consumers primarily in the United States.

 

Contact Centers: Through multiple The Office Gurus® entities, including our subsidiaries in El Salvador, Belize, Jamaica, Dominican Republic and the United States (collectively, “TOG”), we provide outsourced, nearshore business process outsourcing, contact and call-center support services to North American customers.

 

Intersegment eliminations include the elimination of revenues and costs from services provided by the Contact Centers segment to the Company’s two other segments. Such costs are recognized as selling and administrative expenses in the Branded Products and Healthcare Apparel segments. Income and expenses related to corporate functions that are not specifically attributable to an individual reportable segment are presented within Other in the tables below.

 

During the fourth quarter of 2023, our chief operating decision maker began to evaluate the performance of our segments using Segment EBITDA instead of income before income taxes. The Company has modified its presentation of segment performance to be consistent with this change, including prior periods presented for consistent and comparable presentation. Amounts that are included in income before income tax expense and excluded from Segment EBITDA include the following: interest expense and depreciation and amortization expense.

 

The following tables set forth financial information related to the Company’s operating segments (in thousands):

 

   

Branded Products

   

Healthcare Apparel

   

Contact Centers

   

Intersegment Eliminations

   

Other

   

Total

 

For the Three Months Ended September 30, 2024:

                                               

Net sales

  $ 92,547     $ 33,025     $ 25,038     $ (920 )   $ -     $ 149,690  

Segment EBITDA

    10,733       3,773       3,030       -       (5,882 )   $ 11,654  

Supplemental information:

                                               

Depreciation and amortization

  $ 1,446     $ 944     $ 770     $ -     $ 92     $ 3,252  

Capital expenditures

  $ 127     $ 259     $ 551     $ -     $ -     $ 937  
                                                 
   

Branded Products

   

Healthcare Apparel

   

Contact Centers

   

Intersegment Eliminations

   

Other

   

Total

 

For the Three Months Ended September 30, 2023:

                                               

Net sales

  $ 83,512     $ 29,649     $ 24,121     $ (1,156 )   $ -     $ 136,126  

Segment EBITDA

    6,958       3,055       4,053       -       (4,813 )     9,253  

Supplemental information:

                                               

Depreciation and amortization

  $ 1,452     $ 1,064     $ 880     $ -     $ 119     $ 3,515  

Capital expenditures

  $ 86     $ 115     $ 157     $ -     $ 22     $ 380  

 

17

 
   

Branded Products

   

Healthcare Apparel

   

Contact Centers

   

Intersegment Eliminations

   

Other

   

Total

 

For the Nine Months Ended September 30, 2024:

                                               

Net sales

  $ 260,911     $ 88,854     $ 73,422     $ (2,919 )   $ -     $ 420,268  

Segment EBITDA

    27,404       7,685       9,157       -       (17,402 )   $ 26,844  

Supplemental information:

                                               

Depreciation and amortization

  $ 4,513     $ 2,837     $ 2,246     $ -     $ 276     $ 9,872  

Capital expenditures

  $ 714     $ 986     $ 1,124     $ -     $ 87     $ 2,911  
                                                 
   

Branded Products

   

Healthcare Apparel

   

Contact Centers

   

Intersegment Eliminations

   

Other

   

Total

 

For the Nine Months Ended September 30, 2023:

                                               

Net sales

  $ 244,955     $ 85,875     $ 68,935     $ (3,704 )   $ -     $ 396,061  

Segment EBITDA

    21,456       6,556       10,098       -       (14,526 )     23,584  

Supplemental information:

                                               

Depreciation and amortization

  $ 4,826     $ 3,014     $ 2,210     $ -     $ 281     $ 10,331  

Capital expenditures

  $ 2,093     $ 641     $ 1,221     $ -     $ 68     $ 4,023  

 

The following table reconciles income before income tax expense to Segment EBITDA (in thousands):

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2024

   

2023

   

2024

   

2023

 

Income before income tax expense

  $ 6,573     $ 3,274     $ 11,815     $ 5,595  

Interest expense

    1,569       2,464       4,897       7,658  

Depreciation and amortization

    3,252       3,515       9,872       10,331  

Impairment charge

    260       -       260       -  

Segment EBITDA

  $ 11,654     $ 9,253     $ 26,844     $ 23,584  

 

18

 
 

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and the notes thereto included in the Condensed Consolidated Financial Statements in Part I, Item 1 (“Financial Statements”) of this report and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023.

 

The financial position, results of operations, cash flows and other information included herein are not necessarily indicative of the financial position, results of operations and cash flows that may be expected in future periods. See "Cautionary Note Regarding Forward-Looking Statements" below for a discussion of uncertainties and assumptions that may cause actual results to differ materially from those expressed or implied in the forward-looking statements.

 

Business Outlook

 

Superior Group of Companies, Inc. (together with its subsidiaries, the “Company,” “Superior,” “we,” “our,” or “us”) is comprised of three reportable business segments: (1) Branded Products, (2) Healthcare Apparel and (3) Contact Centers. 

 

Branded Products

 

In our Branded Products segment, we produce and sell customized merchandising solutions, promotional products and branded uniform programs to our customers. As a strategic branding partner, we offer our customers customized branding solutions and strategies that generate favorable brand impressions, bolster customer retention and enhance employee engagement. Our products are sold to customers in a wide range of industries, including retail chain, food service, entertainment, technology, transportation and other industries. Sales volumes in this segment are impacted by a number of factors, including marketing programs of our customers and turnover of our customers’ employees, often times driven by the opening and closing of locations. From a long-term perspective, we believe that synergies within this segment will create opportunities to cross-sell products to new and existing customers.

 

Healthcare Apparel

 

In our Healthcare Apparel segment, we manufacture (through third parties or in our own facilities) and sell a wide range of healthcare apparel, such as scrubs, lab coats, protective apparel and patient apparel. We sell our brands of healthcare service apparel to healthcare laundries, dealers, distributors, retailers and consumers primarily in the United States. From a long-term perspective, we expect that demand for our signature marketing brands, including Fashion Seal Healthcare® and Wink® (within CID Resources), will continue to provide opportunities for growth and increased market share.

 

Contact Centers

 

In our Contact Centers segment (also known as “The Office Gurus”), which operates in El Salvador, Belize, Jamaica, Dominican Republic, and the United States, we provide outsourced, nearshore business process outsourcing, contact and call-center support services to North American customers. These services are also provided internally to the Company’s other two operating segments. The Office Gurus has become an award-winning business process outsourcer offering inbound and outbound voice, email, text, chat and social media support. The nearshore call-center market has grown as businesses look to reduce operating costs while maintaining high-quality customer support. Nearshore operators are able to provide comparable service to their U.S. counterparts at a fraction of the price. With an environment and career path designed to attract and maintain top talent across all sites, we believe The Office Gurus is positioned well to continue growing this business.

 

19

 

Global Economic and Political Conditions

 

Economic and political events over the past several years have altered the landscape in which we and other U.S. companies operate in a variety of ways. World events, including the Russian invasion of Ukraine and the resulting economic sanctions have impacted the global economy, including by exacerbating inflationary and other pressures. The ongoing conflict in the Middle East could continue to affect oil prices and have other negative effects on the global economy. Civil unrest in countries where we manufacture products, such as Haiti, may result in our facilities incurring damage or destruction that interrupts our manufacturing processes and adversely affects our reputation and our relationships with our customers. While inflation and interest rates decreased in 2024, the effects of the ongoing conflict in the Middle East, further fluctuations in inflationary conditions and interest rates, additional sanctions or retaliatory measures related to the Russia-Ukraine crisis or other situations, including deteriorating or prolonged diplomatic tension between the United States and China, could further negatively affect U.S. and international commerce and exacerbate or prolong the period of high energy prices.

 

Prolonged or recurring disruptions or instability in the United States and global economies, and how the world reacts to those disruptions or instability, could have long-term impacts on our business. These business impacts could negatively affect us in a number of ways, including, but not limited to, reduced demand for our core products and services, reductions to our revenue and profitability, costs associated with complying with new or amended laws and regulations affecting our business, declines in our stock price, reduced availability and less favorable terms of future borrowings, valuation of our pension obligations, reduced credit-worthiness of our customers, and potential impairment of the carrying value of indefinite-lived intangible assets.

 

20

 

Results of Operations

 

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023

 

   

For the Three Months Ended September 30,

                 
   

2024

   

2023

   

$ Change

   

% Change

 

Net sales:

                               

Branded Products

  $ 92,547     $ 83,512     $ 9,035       10.8 %

Healthcare Apparel

    33,025       29,649       3,376       11.4 %

Contact Centers

    25,038       24,121       917       3.8 %

Net intersegment eliminations

    (920 )     (1,156 )     236       (20.4 %)

Consolidated net sales

    149,690       136,126       13,564       10.0 %
                                 

Gross margin:

                               

Branded Products

    33,510       28,924       4,586       15.9 %

Healthcare Apparel

    13,809       11,484       2,325       20.2 %

Contact Centers

    13,742       13,397       345       2.6 %

Net intersegment eliminations

    (515 )     (607 )     92       (15.2 %)

Consolidated gross margin

    60,546       53,198       7,348       13.8 %
                                 

Selling and administrative expenses:

                               

Branded Products

    24,223       23,418       805       3.4 %

Healthcare Apparel

    11,240       9,493       1,747       18.4 %

Contact Centers

    11,482       10,224       1,258       12.3 %

Intersegment Eliminations

    (515 )     (607 )     92       (15.2 %)

Other

    5,785       4,718       1,067       22.6 %

Consolidated selling and administrative expenses

    52,215       47,246       4,969       10.5 %
                                 

Other periodic pension cost

    189       214       (25 )     (11.7 %)

Interest expense

    1,569       2,464       (895 )     (36.3 %)

Income before income tax expense

    6,573       3,274       3,299       100.8 %

Income tax expense

    1,170       160       1,010       631.3 %

Net income

    5,403       3,114       2,289       73.5 %

EBITDA

  $ 11,654     $ 9,253     $ 2,401       25.9 %

 

21

 

Net Income

 

The Company generated net income of $5.4 million and $3.1 million during the three months ended September 30, 2024 and 2023, respectively. The increase in net income during the three months ended September 30, 2024 compared to the three months ended September 30, 2023 was primarily due to an increase in net sales and gross margins at our Branded Products and Healthcare Apparel segments, a decrease in interest expense, partially offset by an increase in selling and administrative expenses across all three of our reportable segments.

 

EBITDA

 

EBITDA was $11.7 million and $9.3 million during the three months ended September 30, 2024 and 2023, respectively. EBITDA increase was primarily due to increased net sales and gross margins at our Branded Products and Healthcare Apparel segments, partially offset by an increase in selling, general and administrative expenses across all of our reportable segments. For a reconciliation of EBITDA to net income, its most directly comparable financial measure calculated and presented in accordance with GAAP, please read “Non-GAAP Financial Measure” below.

 

Net Sales

 

Net sales for the Company increased 10.0%, or $13.6 million, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase was attributable to net sales increases in all three of our reportable segments.

 

Branded Products net sales increased 10.8%, or $9.0 million, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase was primarily due to expansion of business within existing accounts and new client wins.

 

Healthcare Apparel net sales increased 11.4%, or $3.4 million, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase was primarily due to higher online sales from both our wholesale customers and our direct-to-consumer website, as well as, the timing of wholesale orders as compared to last year. 

 

Contact Centers net sales increased 3.8% or $0.9 million, before intersegment eliminations for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase was primarily attributable to new customers, partially offset by a decrease in existing customer volume.

 

22

 

Gross Margin

 

Gross margin rate for the Company was 40.4% for the three months ended September 30, 2024 and 39.1% for the three months ended September 30, 2023. The gross margin rate increase was driven by the Branded Products and Healthcare Apparel segments.

 

Gross margin rate for our Branded Products segment was 36.2% for the three months ended September 30, 2024 and 34.6% for the three months ended September 30, 2023. The gross margin rate increased as compared to the prior year period primarily driven by sourcing mix resulting in lower product costs and pricing increases to existing customers.

 

Gross margin rate for our Healthcare Apparel segment was 41.8% for the three months ended September 30, 2024 and 38.7% for the three months ended September 30, 2023. The gross margin rate increased as compared to the prior year period primarily due to costs of goods favorability associated with our Haiti manufacturing facility during the current period.

 

Gross margin rate for our Contact Centers segment was 54.9% for the three months ended September 30, 2024 and 55.5% for the three months ended September 30, 2023. The rate decrease was primarily due to increased employee related costs of our agents.

 

Selling and Administrative Expenses

 

As a percentage of net sales, total selling and administrative expenses was 34.9% for the three months ended September 30, 2024 and 34.7% for the three months ended September 30, 2023. The rate increase was primarily driven by increases in employee related costs, third-party professional services and expenditures related to marketing and advertising activities.

 

As a percentage of net sales, selling and administrative expenses for our Branded Products segment was 26.2% for the three months ended September 30, 2024 and 28.0% for the three months ended September 30, 2023. The rate decrease was primarily driven by expense leverage from an increase in net sales as compared to the prior period, partially offset by increases in sales commissions and employee related costs.

 

As a percentage of net sales, selling and administrative expenses for our Healthcare Apparel segment was 34.0% for the three months ended September 30, 2024 and 32.0% for the three months ended September 30, 2023. The rate increased as compared to the prior year period as a result of increases in marketing and advertising activities along with employee related costs, which were partially offset by expense leverage from an increase in net sales. 

 

As a percentage of net sales, selling and administrative expenses for our Contact Centers segment was 45.9% for the three months ended September 30, 2024 and 42.4% for the three months ended September 30, 2023. The rate increased as compared to the prior year period driven by an increase in the provision for bad debts and an increase in employee related costs.

 

Selling and administrative expenses for our Other segment, which represents unallocated Corporate costs, increased by $1.1 million, primarily driven by an increase in employee related costs and third party professional services.

 

Interest Expense

 

Interest expense decreased to $1.6 million for the three months ended September 30, 2024 from $2.5 million for three months ended September 30, 2023. This decrease was due to a $36.2 million decrease in our weighted average outstanding borrowings along with a decrease in the weighted average interest rate on those borrowings from 7.4% for the three months ended September 30, 2023 to 6.3% for the three months ended September 30, 2024.

 

Income Taxes

 

Income tax expense increased to $1.2 million for the three months ended September 30, 2024 from $0.2 million for the three months ended September 30, 2023. The effective tax rate was 17.8% and 4.9% for the three months ended September 30, 2024 and 2023, respectively. Income tax expense and the effective tax rate for the three months ended September 30, 2024 and September 30, 2023 was primarily impacted by the variability in the mix of earnings across the Company’s foreign and domestic operations, subject to various statutory tax rates in those jurisdictions. The effective tax rate may vary from quarter to quarter due to discrete, unusual or non-recurring items, the resolution of income tax audits, changes in tax laws, the tax impact from employee share-based payments, or other items.

 

23

 

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

 

   

For the Nine Months Ended September 30,

                 
   

2024

   

2023

   

$ Change

   

% Change

 

Net sales:

                               

Branded Products

  $ 260,911     $ 244,955     $ 15,956       6.5 %

Healthcare Apparel

    88,854       85,875       2,979       3.5 %

Contact Centers

    73,422       68,935       4,487       6.5 %

Net intersegment eliminations

    (2,919 )     (3,704 )     785       (21.2 %)

Consolidated net sales

    420,268       396,061       24,207       6.1 %
                                 

Gross margin:

                               

Branded Products

    93,377       80,463       12,914       16.0 %

Healthcare Apparel

    35,519       32,003       3,516       11.0 %

Contact Centers

    39,347       37,390       1,957       5.2 %

Net intersegment eliminations

    (1,625 )     (1,954 )     329       (16.8 %)

Consolidated gross margin

    166,618       147,902       18,716       12.7 %
                                 

Selling and administrative expenses:

                               

Branded Products

    70,486       63,833       6,653       10.4 %

Healthcare Apparel

    30,931       28,461       2,470       8.7 %

Contact Centers

    32,436       29,502       2,934       9.9 %

Intersegment Eliminations

    (1,625 )     (1,954 )     329       (16.8 %)

Other

    17,111       14,165       2,946       20.8 %

Consolidated selling and administrative expenses

    149,339       134,007       15,332       11.4 %
                                 

Other periodic pension cost

    567       642       (75 )     (11.7 %)

Interest expense

    4,897       7,658       (2,761 )     (36.1 %)

Income before income tax expense

    11,815       5,595       6,220       111.2 %

Income tax expense

    1,900       380       1,520       400.0 %

Net income

    9,915       5,215       4,700       90.1 %

EBITDA

  $ 26,844     $ 23,584     $ 3,260       13.8 %

 

24

 

Net Income

 

The Company generated net income of $9.9 million and $5.2 million during the nine months ended September 30, 2024 and 2023, respectively. The increase in net income during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was primarily due to increases in net sales and gross margins at our Branded Products and Healthcare Apparel segments, and a decrease in interest expense, partially offset by an increase in selling and administrative expenses across all of our reportable segments.

 

EBITDA

 

EBITDA was $26.8 million and $23.6 million during the nine months ended September 30, 2024 and 2023, respectively. EBITDA increase was primarily due to increased net sales and gross margins at our Branded Products and Healthcare Apparel segments, partially offset by an increase in selling, general and administrative expenses across all of our reportable segments. For a reconciliation of EBITDA to net income, its most directly comparable financial measure calculated and presented in accordance with GAAP, please read “Non-GAAP Financial Measure” below.

 

Net Sales

 

Net sales for the Company increased 6.1%, or $24.2 million, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was attributable to net sales increases in all three of our reportable segments.

 

Branded Products net sales increased 6.5%, or $16.0 million, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was primarily due to expansion of business within existing accounts and new client wins.

 

Healthcare Apparel net sales increased 3.5%, or $3.0 million, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was primarily due to higher online sales from both our wholesale customers and our direct-to-consumer website, partially offset by lower volume from our store-based wholesale customers.

 

Contact Centers net sales increased 6.5% or $4.5 million, before intersegment eliminations for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase in net sales was attributed to sales growth from both new and existing customers.

 

Gross Margin

 

Gross margin rate for the Company was 39.6% for the nine months ended September 30, 2024 and 37.3% for the nine months ended September 30, 2023. The rate increase was due to an improvement in gross margin rates in our Branded Products and Healthcare Apparel segments.

 

Gross margin rate for our Branded Products segment was 35.8% for the nine months ended September 30, 2024 and 32.8% for the nine months ended September 30, 2023. The gross margin rate increased as compared to the prior year period primarily driven by sourcing mix resulting in lower product costs and pricing increases to existing customers.

 

Gross margin rate for our Healthcare Apparel segment was 40.0% for the nine months ended September 30, 2024 and 37.3% for the nine months ended September 30, 2023. The rate increase was primarily driven by lower supply chain costs.

 

Gross margin rate for our Contact Centers segment was 53.6% for the nine months ended September 30, 2024 and 54.2% for the nine months ended September 30, 2023. The rate decrease was primarily due to increased employee related costs of our agents.

 

25

 

Selling and Administrative Expenses

 

As a percentage of net sales, total selling and administrative expenses was 35.5% for the nine months ended September 30, 2024 and 33.8% for the nine months ended September 30, 2023. The rate increase was primarily driven by increased commissions, employee related costs, increased expenditures related to marketing, advertising activities and the expiration of our written put option.

 

As a percentage of net sales, selling and administrative expenses for our Branded Products segment was 27.0% for the nine months ended September 30, 2024 and 26.1% for the nine months ended September 30, 2023. The rate increase was primarily due to increased employee related costs, including sales commissions, partially offset by an increase in net sales.

 

As a percentage of net sales, selling and administrative expenses for our Healthcare Apparel segment was 34.8% for the nine months ended September 30, 2024 and 33.1% for the nine months ended September 30, 2023. The rate increase was primarily attributable to an increase in expenditures related to marketing and advertising activities along with employee related costs which were partially offset by an increase in net sales. 

 

As a percentage of net sales, selling and administrative expenses for our Contact Centers segment was 44.2% for the nine months ended September 30, 2024 and 42.8% for the nine months ended September 30, 2023. The rate increase was primarily attributable to an increase in employee related expenses, including both headcount and select pay rate increases to support sales growth, as well as, an increase in the provision for bad debts.

 

Selling and administrative expenses for our Other segment, which represents unallocated Corporate costs, increased by $2.9 million, primarily driven by an increase in employee related costs, third party professional services and the fair value recognition of a written put option which expired in the second quarter of 2024.

 

Interest Expense

 

Interest expense decreased to $4.9 million for the nine months ended September 30, 2024 from $7.7 million for nine months ended September 30, 2023. This decrease was due to a $42.4 million decrease in our weighted average outstanding borrowings along with a decrease in the weighted average interest rate on our outstanding borrowings from 7.0% for the nine months ended September 30, 2023 to 6.5% for the nine months ended September 30, 2024.

 

Income Taxes

 

Income tax expense increased to $1.9 million for the nine months ended September 30, 2024 from $0.4 million for the nine months ended September 30, 2023. The effective tax rate was 16.1% and 6.8% for the nine months ended September 30, 2024 and 2023, respectively. Income tax expense and the effective tax rate for the nine months ended September 30, 2024 and September 30, 2023 was primarily impacted by the variability in the mix of earnings across the Company’s foreign and domestic operations, subject to various statutory tax rates in those jurisdictions. The effective tax rate may vary from quarter to quarter due to discrete, unusual or non-recurring items, the resolution of income tax audits, changes in tax laws, the tax impact from employee share-based payments, or other items.

 

26

 

Liquidity and Capital Resources

 

Overview
 
Management uses a number of standards in measuring the Company’s liquidity, such as: working capital, profitability ratios, cash flows from operating activities, and activity ratios. The Company’s balance sheet generally provides the ability to pursue acquisitions, invest in new product lines and technologies and invest in additional working capital as necessary.

 

The Company’s primary source of liquidity has been its net income and the use of credit facilities and term loans as described further below. In the future, the Company may continue to use credit facilities and other secured and unsecured borrowings as a source of liquidity. The Company may also begin relying on the issuance of equity or debt securities. There can be no assurance that any such financings would be available to us on reasonable terms. Any future issuances of equity securities or securities convertible into or exercisable for equity securities may be dilutive to our shareholders. Additionally, the cost of the Company’s future sources of liquidity may differ from the costs of the Company’s sources of liquidity to date.

 

Working Capital Needs

 

We utilize working capital to fund the operations of our business and have certain related contractual obligations, including commitments under site leases and other non-cancelable contracts.

 

One of our largest cash requirements is for the purchase of inventory. Superior carries inventories of both raw materials and finished products, the practice of which requires substantial working capital, which we believe to be common in the industry.  

 

Material Short-Term Plans for Cash

 

For the next twelve months, our primary capital requirements are to maintain our operations, meet contractual obligations, fund capital expenditures, pay dividends and for other general corporate purposes. Management currently believes that the combination of our current cash level, cash flows provided by operating activities and availability under the revolving credit facility will be sufficient to satisfy the above requirements for the next twelve months.

 

Material Long-Term Plans for Cash

 

Beyond the next twelve months, our principal demand for funds will be for maintenance of our core business, to satisfy long term contractual obligations and the continuation of the Company’s ongoing capital expenditure program designed to improve the effectiveness and capabilities of our facilities and technology. The Company at all times evaluates its capital expenditure program in light of prevailing economic conditions. The Company’s material contractual obligations include outstanding debt, operating leases, long-term pension liability and non-qualified deferred compensation plan liabilities in Other Liabilities. Management currently believes that the combination of our current cash level, cash flows provided by operating activities and availability under the revolving credit facility will be sufficient to satisfy the above requirements.

 

27

 

Cash Flows
 
Our cash flows from operating, investing and financing activities, as reflected in the statements of cash flows, are summarized in the following table (in thousands):

 

   

Nine Months Ended September 30,

 
   

2024

   

2023

 

Net cash provided by (used in):

               

Operating activities

  $ 24,497     $ 59,388  

Investing activities

    (2,911 )     (4,023 )

Financing activities

    (22,400 )     (55,455 )

Effect of exchange rates on cash

    (709 )     97  

Net increase (decrease) in cash and cash equivalents

  $ (1,523 )   $ 7  


Operating Activities. The decrease in net cash provided by operating activities during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was primarily attributable to cash outflows for inventories, contract assets, accounts payable and other current liabilities, accounts receivable and prepaid expenses and other current assets, partially offset by an increase in net income. Working capital cash changes during the nine months ended September 30, 2024 primarily included decreases of $16.0 million in inventories, $7.9 million in contract assets, $6.4 million in accounts payable and other current liabilities, $5.8 million in accounts receivable and $4.8 million in prepaid expenses and other current assets, partially offset by an increase of $4.7 million in net income.

 

Investing Activities. The decrease in net cash used in investing activities during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was attributable to a decrease of $1.1 million in capital expenditures. 

 

Capital expenditures by reportable segment are as follows:

 

   

For the Nine Months Ended September 30,

 
   

2024

   

2023

 

Capital Expenditures:

               

Branded Products

  $ 714     $ 2,093  

Healthcare Apparel

    986       641  

Contact Centers

    1,124       1,221  

Other

    87       68  

Consolidated capital Expenditures

    2,911       4,023  

 

Financing Activities. The decrease in net cash used in financing activities during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was primarily attributable to a decrease of $38.5 million in net repayments of debt and cash paid to acquire shares of the Company's common stock as part of the new repurchase program.

 

28

 

Debt Activity

 

For the nine months ended September 30, 2024, the Company had $9.3 million of net debt payments, consisting of $31.0 million in borrowings net of $40.3 million of payments. For the nine months ended September 30, 2023, the Company had $47.8 million of net debt payments, consisting of $4.0 million in borrowings net of $51.8 million of payments. Both the debt payments and borrowings during 2024 and 2023 primarily related to the utilization of our revolving credit facility in the normal course of business. 

 

Please refer to Note 5 to our Condensed Consolidated Financial Statements located in Item 1 of Part I of this Quarterly Report on Form 10-Q for additional details on our outstanding long-term debt, which disclosure is incorporate herein by reference.    

 

Dividends and Share Repurchase Program
 
During the nine months ended September 30, 2024 and 2023, the Company paid cash dividends of $7.0 million and $6.9 million, respectively. The Company anticipates that it will continue to pay dividends in the future as financial conditions permit.

 
On August 9, 2024, the Company’s Board of Directors approved a new stock repurchase plan. Under the plan, the Company is authorized to repurchase up to $10 million of its common stock over a period of one year ending in August 2025. This plan replaces the May 2, 2019 plan, as amended, which authorized the repurchase of up to 750,000 shares. 92,549 shares had been repurchased under the May 2, 2019 plan as of August 9, 2024. No further shares will be repurchased under that plan. The new stock repurchase plan allows the Company to purchase common stock from time to time through, among other ways, open market purchases, privately negotiated transactions, block purchases, and/or pursuant to Rule 10b5-1 trading plans, subject to applicable securities laws and other legal requirements and relevant factors. The number of shares purchased and the timing of any purchases will depend upon a number of factors, including the price and availability of the Company’s stock and general market conditions. The stock repurchase plan may be modified, suspended or terminated at any time, without prior notice. Shares repurchased may be reissued later in connection with employee benefit plans and other general corporate purposes. Shares purchased under the common stock repurchase plan are constructively retired and returned to unissued status. See Part II-Other Information, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

29

 

Critical Accounting Estimates

 

See Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates" in our Annual Report on Form 10-K for the year ended December 31, 2023.

 

Non-GAAP Financial Measure

 

EBITDA, which is a non-GAAP financial measure, is defined as net income excluding interest expense, income tax expense and depreciation and amortization expense. The Company believes EBITDA is an important measure of operating performance because it allows management, investors and others to evaluate and compare the Company’s core operating results from period to period by removing (i) the impact of the Company’s capital structure (interest expense from outstanding debt), (ii) tax consequences and (iii) asset base (depreciation and amortization). The Company uses EBITDA internally to monitor operating results and to evaluate the performance of its business. In addition, the compensation committee has used EBITDA in evaluating certain components of executive compensation, including performance-based annual incentive programs.

 

EBITDA is not a measure of financial performance under GAAP.  EBITDA should not be considered in isolation or as an alternative to net income, cash flows from operating activities or any other measure determined in accordance with GAAP. The items excluded to calculate EBITDA are significant components in understanding and assessing the Company’s results of operations. The presentation of the Company’s EBITDA may change from time to time, including as a result of changed business conditions, new accounting pronouncements or otherwise. If the presentation changes, the Company undertakes to disclose any change between periods and the reasons underlying that change. The Company’s EBITDA may not be comparable to a similarly titled measure of another company because other entities may not calculate EBITDA in the same manner.

 

The following table reconciles net income to EBITDA (in thousands):

 

   

Three Months Ended September 30,

   

Nine Months Ended September 30,

 
   

2024

   

2023

   

2024

   

2023

 

Net income

  $ 5,403     $ 3,114     $ 9,915     $ 5,215  

Interest expense

    1,569       2,464       4,897       7,658  

Income tax expense

    1,170       160       1,900       380  

Depreciation and amortization

    3,252       3,515       9,872       10,331  

Impairment Charge

    260       -       260       -  

EBITDA

  $ 11,654     $ 9,253     $ 26,844     $ 23,584  

 

30

 

Cautionary Note Regarding Forward Looking Statements

 

Certain matters discussed in this Form 10-Q are “forward-looking statements” intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified by use of the words “may,” “will,” “should,” “could,” “expect,” "anticipate,” “estimate,” “believe,” “intend,” “project,” “potential,” or “plan” or the negative of these words or other variations on these words or comparable terminology. Forward-looking statements in this Quarterly Report on Form 10-Q may include, without limitation: (1) projections of revenue, income, and other items relating to our financial position and results of operations, including short term and long term plans for cash, (2) statements of our plans, objectives, strategies, goals and intentions, (3) statements regarding the capabilities, capacities, market position and expected development of our business operations and (4) statements of expected industry and general economic trends.

 

Such forward-looking statements are subject to certain risks and uncertainties that may materially adversely affect the anticipated results. Such risks and uncertainties include, but are not limited to, the following: the impact of competition; uncertainties related to supply disruptions, inflationary environment (including with respect to the cost of finished goods and raw materials and shipping costs), employment levels (including labor shortages) and general economic and political conditions in the areas of the world in which the Company operates or from which it sources its supplies or the areas of the United States of America (“U.S.” or “United States”) in which the Company’s customers are located; changes in the healthcare, retail chain, food service, transportation and other industries where uniforms and service apparel are worn; our ability to identify suitable acquisition targets, discover liabilities associated with such businesses during the diligence process, successfully integrate any acquired businesses, or successfully manage our expanding operations; the price and availability of raw materials; attracting and retaining senior management and key personnel; the effect of the Companys previously disclosed material weakness in internal control over financial reporting; the Companys ability to successfully remediate its material weakness in internal control over financial reporting and to maintain effective internal control over financial reporting; and other factors described in the Company’s filings with the Securities and Exchange Commission, including those described in the “Risk Factors” section herein and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2024. 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 forward-looking statements made herein are only made as of the date of this Form 10-Q and we disclaim any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances, except as may be required by law.

 

ITEM 3.          Quantitative and Qualitative Disclosures about Market Risk

 

Interest Rate Risk

 

We are subject to market risk exposure related to changes in interest rates on our debt. Interest on our Credit Facilities is based upon the secured overnight financing rate (“SOFR”). As SOFR is a relatively new reference rate with a limited history, there may or may not be more volatility than with other reference rates such as LIBOR, which may result in increased borrowing costs for the Company. A hypothetical increase in the SOFR of 100 basis points as of January 1, 2024 would have resulted in approximately $0.7 million in additional pre-tax interest expense for the nine months ended September 30, 2024. For further information regarding our debt instruments, see Note 3 to the Financial Statements.

 

Foreign Currency Exchange Risk

 

Sales to customers outside of the United States are subject to fluctuations in foreign currency exchange rates, which may negatively impact gross margin realized on our sales. Less than 5% of our sales contracts are denominated in foreign currencies. We cannot predict the effect of exchange rate fluctuations on our operating results. In certain cases, we may enter into foreign currency cash flow hedges to reduce the variability of cash flows associated with our sales and expenses denominated in foreign currency. There can be no assurance that our strategies will adequately protect our operating results from the effect of exchange rate fluctuations.

 

31

 

Financial results of our foreign subsidiaries in the Branded Products segment are denominated in their local currencies, which include the Hong Kong dollar, the Chinese renminbi, the British pound, the Indian rupee, the Brazilian real, Colombian peso and the Canadian dollar. These operations may also have net assets and liabilities not denominated in their functional currency, which exposes us to changes in foreign currency exchange rates that impact income. Excluding intercompany payables and receivables considered to be long-term investments, changes in exchange rates for assets and liabilities not denominated in their functional currency are reported as foreign currency transaction gains (losses) within selling and administrative expenses in our statements of comprehensive income. During the nine months ended September 30, 2024 and 2023, foreign currency losses were not significant. We also have exposure to foreign currency exchange risk from the translation of foreign subsidiaries from the local currency into the U.S. dollar. Comprehensive income during the nine months ended September 30, 2024 and 2023 included a foreign currency translation adjustment loss of $1.2 million and a foreign currency translation adjustment gain of $0.2 million, respectively.

 

ITEM 4.          Controls and Procedures

 

Disclosure Controls and Procedures

 

The Company conducted an evaluation, under supervision and with the participation of the Company’s principal executive officer, Michael Benstock, and the Company’s principal financial officer, Michael Koempel, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report (the “Evaluation Date”). Based on such evaluation, the Company’s principal executive officer and principal financial officer concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were not effective because of the material weakness in the Company’s internal control over financial reporting described below and as previously disclosed in the Company's Annual Report on Form 10-K for the years ended December 31, 2022 and 2023.

 

A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

 

As of December 31, 2022, management identified a material weakness relating to segregation of duties, change management and user access within certain proprietary information technology systems of the Contact Centers segment. The Company determined that management’s review controls over these areas are not designed effectively to detect a material misstatement related to the completeness, accuracy, and presentation of the financial statements. This material weakness continues to exist as of September 30, 2024.

 

Notwithstanding the identified material weakness, management, including our principal executive officer and principal financial officer have determined, based on the procedures we have performed, that the consolidated financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, our financial condition, results of operations and cash flows at September 30, 2024 and for the periods presented in accordance with U.S. GAAP.

 

Ongoing Remediation Efforts with Respect to the Material Weakness

 

The Company’s management, under the oversight of the Audit Committee, has taken the following actions to remediate the material weakness relating to certain proprietary information technology systems of the Contact Centers segment identified as of December 31, 2022: (i) deployed enhanced change management software and reassessed approval authority levels in order to better manage access and program changes within our proprietary system; (ii) implemented processes and controls to better identify and manage segregation of duties; and (iii) designed and implemented additional enhanced review and monitoring controls.

 

While the Company was able to test the design effectiveness of the enhanced controls, the material weakness will not be considered remediated until the enhanced controls operate for a sufficient period of time, and management has concluded, through testing, that the related controls are effective. Therefore, the material weakness continued to exist as of September 30, 2024. The Company will monitor the effectiveness of its remediation plan and will refine its remediation plan as appropriate.

 

Changes in Internal Control over Financial Reporting

 

Except as discussed above under “Ongoing Remediation Efforts with Respect to the Material Weakness,” there were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

32

 

PART II - OTHER INFORMATION

 

ITEM 1.        Legal Proceedings

 

We are a party to certain lawsuits in the ordinary course of business. We do not believe that these proceedings, individually or in the aggregate, will have a material adverse effect on our financial position, results of operations or cash flows.

 

ITEM 1A.     Risk Factors

 

We are exposed to certain risks and uncertainties that could have a material adverse impact on our business, financial condition and operating results. Except as set forth below, there have been no material changes to the Risk Factors described in Part I, Item 1A-Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2023.

 

Our manufacturing facilities and warehouses in Haiti are at risk of damage or disruptions from civil unrest and other occurrences.

 

Our Healthcare Apparel segment relies on our manufacturing facilities and warehouses in Haiti for the manufacturing and storage of finished goods. Our manufacturing facilities and warehouses may be damaged or our ability to use or access them may be disrupted as a result of civil unrest or other occurrences in Haiti. Such events may interfere with our manufacturing processes, information systems, telecommunication services, and product delivery for sustained periods and may also may make it difficult or impossible for employees to reach our business locations. Damage or destruction that interrupts our manufacturing facilities could adversely affect our reputation, our relationships with our customers, our leadership team’s ability to administer and supervise our business, and cause us to incur substantial additional expenditures to repair or replace damaged equipment or facilities or commence alternate production locations. While we currently have commercial liability insurance, our insurance coverage may not be sufficient. Prolonged disruption of our manufacturing processes in Haiti also may entitle some of our customers to amend or terminate their contracts with us. Worsening conditions in Haiti may also result in the displacement of native Haitians looking for refuge in neighboring Dominican Republic which may result in the closure of roads and port access which may limit or restrict our normal and recurring business in Haiti. Any of the above factors may adversely affect our business, results of operations and financial condition.

 

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ITEM 2.         Unregistered Sales of Equity Securities and Use of Proceeds

 

There were no unregistered sales of equity securities during the quarter ended September 30, 2024, that were not previously reported in a current report on Form 8-K.

 

The table below sets forth information with respect to purchases made by or on behalf of Superior Group of Companies, Inc. or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of our common stock during the three months ended September 30, 2024.

 

Period

 

Total Number of Shares Purchased

   

Average Price Paid per Share

   

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

   

Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)

 

July 1, 2024 to July 31, 2024

    -     $ -       -          

August 1, 2024 to August 31, 2024

    263,231       13.67       263,231          

September 1, 2024 to September 30, 2024

  188,555     14.57     188,555          

Total

  451,786     $14.05     451,786          

 

(1)

On August 9, 2024, the Company’s Board of Directors approved a new stock repurchase plan. Under the plan, the Company is authorized to repurchase up to $10 million of its common stock over a period of one year ending in August 2025. The stock repurchase plan allows the Company to purchase common stock from time to time through, among other ways, open market purchases, privately negotiated transactions, block purchases, and/or pursuant to Rule 10b5-1 trading plans, subject to applicable securities laws and other legal requirements and relevant factors. The number of shares purchased and the timing of any purchases will depend upon a number of factors, including the price and availability of the Company’s stock and general market conditions.

 

Under our Credit Agreement, if an event of default exists, we may not make distributions to our shareholders. The Credit Agreement also contains other restrictions. See Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity & Capital Resources" in our Annual Report on Form 10-K for the year ended December 31, 2023. The Company is in full compliance with all terms, conditions and covenants of such agreement.

 

ITEM 3.     Defaults upon Senior Securities

 

Not applicable.

 

ITEM 4.     Mine Safety Disclosures

 

Not applicable.

 

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ITEM 5.     Other Information

 

Effective November 4, 2024 (the “Effective Date”), the Company amended its employment agreements with Jake Himelstein and Dominic Leide, and in connection with the amendments, granted each of them shares of restricted stock. 

 

The amendments to both employment agreements, dated July 1, 2021, (1) extend the term of employment to December 31, 2027, (2) provide for an initial annual salary of $400,000 beginning on January 1, 2025, (3) replace the existing bonus plan, (4) solely with respect to Mr. Himelstein’s employment agreement, removes the Company’s obligation to provide annual contributions to a life insurance deferred compensation plan, (5) add a new sale compensation provision, (6) provide that the Company may terminate employment without cause with 30 days’ prior written notice, (7) beginning January 1, 2027, reduce severance payable upon a change of control, resignation for good reason or termination without cause to 100% of  the executive’s highest total annual compensation over a three year period, (8) require that the executive provide the Company with an opportunity to cure prior to permitting a resignation for good reason, (9) revise the restrictions on competition, and (10) solely with respect to Mr. Leide’s employment agreement, change the notice of termination period to six months. 

 

The new bonus plan for each executive is effective as of January 1, 2025, and entitles the executive to a non-discretionary incentive bonus for each of 2025, 2026 and 2027 equal to 2.5% of (a) the EBITDA of the Branded Product segment (for Mr. Himelstein) or of The Office Gurus, LLC and certain affiliated entities (for Mr. Leide) and of any other division or entity added to the executive’s responsibility during the applicable year, plus (b) any expense from contingent liabilities, plus (c) the accrued annual incentive bonus for the executive, minus (d) any income recognized from adjustments to contingent liabilities from acquisitions made by the Branded Products segment (for Mr. Himelstein) or by The Office Gurus, LLC and certain affiliated entities (for Mr. Leide) and by any such other division or entity, minus (e) for any acquisition(s) that closed between the Effective Date and December 31, 2027, inclusive, 80% of the greater of (i) the projected amount of acquired EBITDA that is expected to be achieved over the 12 months starting with the date that the acquisition closed, as determined by the Company, or (ii) the trailing 12-month EBITDA of the entity from which the acquired assets and/or equity were purchased as of the date that the acquisition closed, as determined by the Company (in the case of (i) and/or (ii), prorated during the fiscal year in which the acquisition closed based on the amount of time from the closing of the acquisition through the end of that fiscal year).

 

The amendment adds a sales compensation provision that if the Company sells to an unaffiliated entity all or substantially all of the assets or equity of one of its subsidiaries and/or divisions that is not part of the executive’s direct area of responsibility and with the proceeds from and within ninety (90) days after that sale pays a special dividend to its shareholders, the Company must within ninety (90) days after December 31, 2026 pay the executive an amount equal to the product of (x) the per share amount of that special dividend times (y) the number of Performance Shares granted to the executive pursuant to the executive’s Performance Shares Agreement, dated July 1, 2021 (“PSA”) that are unvested as of the date the special dividend was paid and that vested as of the vesting date (as defined in the PSA). 

 

In connection with the amendments, the Company also awarded shares of restricted stock to Messrs. Himelstein and Leide effective on the Effective Date.  Mr. Himelstein was granted 100,000 shares of restricted stock and Mr. Leide was granted 25,000 shares of restricted stock.   The awards were made under the Company’s 2022 Equity Incentive and Awards Plan (the “2022 Plan”). The shares of restricted stock vest on the third anniversary of the grant date, unless the executive has been terminated for cause or has resigned without good reason. Unvested shares of restricted stock carry full voting and dividend rights, but are forfeited upon a termination for cause or resignation without good reason, as such terms are defined in the restricted stock agreement. The shares of restricted stock subject to the award vest immediately upon a change of control, as defined in the 2022 Plan. 

 

35

 
 

ITEM 6.     Exhibits

 

Exhibit No.   Description
31.1*   Certification by the Chief Executive Officer (Principal Executive Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*   Certification by the Chief Financial Officer (Principal Financial Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32**   Certification by the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS+

 

Inline XBRL Instance Document.

101.SCH+

 

Inline XBRL Taxonomy Extension Schema.

101.CAL+

 

Inline XBRL Taxonomy Extension Calculation Linkbase.

101.DEF+

 

Inline XBRL Taxonomy Extension Definition Linkbase.

101.LAB+

 

Inline XBRL Taxonomy Extension Label Linkbase.

101.PRE+

 

Inline XBRL Taxonomy Extension Presentation Linkbase.

104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

                  *  Filed herewith.

**Furnished herewith.

+  Submitted electronically herewith.

 

36

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: November 6, 2024 SUPERIOR GROUP OF COMPANIES, INC.
     
                By /s/ Michael Benstock                           
    Michael Benstock
    Chief Executive Officer
    (Principal Executive Officer)
     
     
Date: November 6, 2024    
                By /s/ Michael Koempel                           
    Michael Koempel
   

Chief Financial Officer

(Principal Financial Officer)

 

37