| UNITED STATES |
| SECURITIES AND EXCHANGE COMMISSION |
| WASHINGTON, D.C. 20549 |
| FORM |
| (Mark One) |
| QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||
| For the quarterly period ended | |||||||
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||
| For the transition period from ________ to __________ |
| Commission file number: |
| Exact name of registrant as specified in its charter: |
| SUPERIOR GROUP OF COMPANIES, INC. |
| State or other jurisdiction of incorporation or organization: | I.R.S. Employer Identification No.: |
| | |
| Address of principal executive offices: | ||||||||
| | ||||||||
| |
| Registrant’s telephone number, including area code: | ||||||||
| |
| Former name, former address and former fiscal year, if changed since last report: |
| Securities registered pursuant to Section 12(b) of the Act: |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | |
| |
| Non-accelerated filer ☐ |
| Smaller Reporting Company | |
|
|
| Emerging Growth Company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares of common stock of the registrant outstanding as of July 24, 2024 was
TABLE OF CONTENTS
| SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES |
| CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) |
| (Unaudited) |
| (In thousands, except shares and per share data) |
| Three Months Ended June 30, | ||||||||
| 2024 |
2023 |
|||||||
| Net sales |
$ | $ | ||||||
| Costs and expenses: |
||||||||
| Cost of goods sold |
||||||||
| Selling and administrative expenses |
||||||||
| Other periodic pension costs |
||||||||
| Interest expense |
||||||||
| Income before income tax expense |
||||||||
| Income tax expense |
||||||||
| Net income |
$ | $ | ||||||
| Net income per share: |
||||||||
| Basic |
$ | $ | ||||||
| Diluted |
$ | $ | ||||||
| Weighted average shares outstanding during the period: |
||||||||
| Basic |
||||||||
| Diluted |
||||||||
| Other comprehensive income (loss), net of tax: |
||||||||
| Recognition of net losses included in net periodic pension costs |
$ | $ | ||||||
| Foreign currency translation adjustment |
( |
) | ||||||
| Other comprehensive income (loss) |
( |
) | ||||||
| Comprehensive income (loss) |
$ | ( |
) | $ | ||||
| Cash dividends per common share |
$ | $ | ||||||
See accompanying Notes to the Condensed Consolidated Financial Statements.
| SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES |
| CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
| (Unaudited) |
| (In thousands, except shares and per share data) |
| Six Months Ended June 30, |
||||||||
| 2024 |
2023 |
|||||||
| Net sales |
$ | $ | ||||||
| Costs and expenses: |
||||||||
| Cost of goods sold |
||||||||
| Selling and administrative expenses |
||||||||
| Other periodic pension costs |
||||||||
| Interest expense |
||||||||
| Income before income tax expense |
||||||||
| Income tax expense |
||||||||
| Net income |
$ | $ | ||||||
| Net income per share: |
||||||||
| Basic |
$ | $ | ||||||
| Diluted |
$ | $ | ||||||
| Weighted average shares outstanding during the period: |
||||||||
| Basic |
||||||||
| Diluted |
||||||||
| Other comprehensive income (loss), net of tax: |
||||||||
| Recognition of net losses included in net periodic pension costs |
$ | $ | ||||||
| Foreign currency translation adjustment |
( |
) | ||||||
| Other comprehensive income (loss) |
( |
) | ||||||
| Comprehensive income |
$ | $ | ||||||
| Cash dividends per common share |
$ | $ | ||||||
See accompanying Notes to the Condensed Consolidated Financial Statements.
| CONDENSED CONSOLIDATED BALANCE SHEETS |
|||||||||
| (In thousands, except shares and par value data) |
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, less allowance for doubtful accounts of $ and $, respectively | ||||||||
| Inventories | ||||||||
| Contract assets | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Deferred tax asset | ||||||||
| Intangible assets, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Other current liabilities | ||||||||
| Current portion of long-term debt | ||||||||
| Current portion of acquisition-related contingent liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term debt | ||||||||
| Long-term pension liability | ||||||||
| Long-term acquisition-related contingent liabilities | ||||||||
| Long-term operating lease liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 5) | ||||||||
| Shareholders’ equity: | ||||||||
| Preferred stock, $ par value - authorized shares ( issued) | ||||||||
| Common stock, $ par value - authorized shares, issued and outstanding and shares, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss, net of tax: | ||||||||
| Pensions | ( | ) | ( | ) | ||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
| See accompanying Notes to the Condensed Consolidated Financial Statements. |
| CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY |
| THREE MONTHS ENDED June 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, April 1, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Common shares issued upon exercise of options and SARs, net | ||||||||||||||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||||||
| Cash dividends declared ($ per share) | - | ( | ) | ( | ) | |||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||
| Pensions, net of taxes of $ | - | |||||||||||||||||||||||
| Change in currency translation adjustment, net of taxes of $ | - | |||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Balance, April 1, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Common shares issued upon exercise of options and SARs, net | ( | ) | ||||||||||||||||||||||
| Restricted shares issued, net of forfeitures | ( | ) | ||||||||||||||||||||||
| Share-based compensation expense | ||||||||||||||||||||||||
| Written put options | - | |||||||||||||||||||||||
| Cash dividends declared ($ per share) | - | ( | ) | ( | ) | |||||||||||||||||||
| Comprehensive income (loss): | ||||||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||
| Pensions, net of taxes of $ | - | |||||||||||||||||||||||
| Change in currency translation adjustment, net of taxes of $ | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| See accompanying Notes to the Condensed Consolidated Financial Statements. |
SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
SIX MONTHS ENDED June 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 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Common shares issued upon exercise of options and SARs, net | ||||||||||||||||||||||||
| Restricted shares issued, net of forfeitures | ||||||||||||||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||||||
| Cash dividends declared ($ per share) | - | ( | ) | ( | ) | |||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||
| Pensions, net of taxes of $ | - | |||||||||||||||||||||||
| Change in currency translation adjustment, net of taxes of $ | - | |||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Balance, January 1, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Common shares issued upon exercise of options and SARs, net | ( | ) | ||||||||||||||||||||||
| Performance based shares issued | - | |||||||||||||||||||||||
| Restricted shares issued, net of forfeitures | ||||||||||||||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||||||
| Written put options | - | |||||||||||||||||||||||
| Cash dividends declared ($ per share) | - | ( | ) | ( | ) | |||||||||||||||||||
| Comprehensive income (loss): | ||||||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||
| Pensions, net of taxes of $ | - | |||||||||||||||||||||||
| Change in currency translation adjustment, net of taxes of $ | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
See accompanying Notes to the Condensed Consolidated Financial Statements.
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
| (Unaudited) |
| (In thousands) |
| Six Months Ended June 30, |
||||||||
| 2024 |
2023 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||
| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
||||||||
| Inventory write-downs |
||||||||
| Provision for bad debts - accounts receivable |
( |
) | ( |
) | ||||
| Share-based compensation expense |
||||||||
| Change in fair value of acquisition-related contingent liabilities |
( |
) | ||||||
| Change in fair value of written put options |
( |
) | ||||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable |
||||||||
| Contract assets |
( |
) | ||||||
| Inventories |
||||||||
| Prepaid expenses and other current assets |
( |
) | ||||||
| Other assets |
( |
) | ( |
) | ||||
| Accounts payable and other current liabilities |
( |
) | ||||||
| Long-term pension liability |
||||||||
| Other long-term liabilities |
||||||||
| Net cash provided by operating activities |
||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||
| Additions to property, plant and equipment |
( |
) | ( |
) | ||||
| Net cash used in investing activities |
( |
) | ( |
) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||
| Proceeds from borrowings of debt |
||||||||
| Repayment of debt |
( |
) | ( |
) | ||||
| Debt issuance costs |
( |
) | ||||||
| Payment of cash dividends |
( |
) | ( |
) | ||||
| Payment of acquisition-related contingent liabilities |
( |
) | ||||||
| Proceeds received on exercise of stock options |
||||||||
| Net cash used in financing activities |
( |
) | ( |
) | ||||
| Effect of currency exchange rates on cash |
( |
) | ||||||
| Net increase (decrease) in cash and cash equivalents |
( |
) | ||||||
| Cash and cash equivalents balance, beginning of period |
||||||||
| Cash and cash equivalents balance, end of period |
$ | $ | ||||||
| See accompanying Notes to the Condensed Consolidated Financial Statements. |
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 and items as described within Note 9. These reclassifications have no effect on previously reported results of operations.
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
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.
Inventories consisted of the following amounts (in thousands):
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Finished goods | $ | $ | ||||||
| Work in process | ||||||||
| Raw materials | ||||||||
| Inventories | $ | $ | ||||||
Debt consisted of the following (in thousands):
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Credit Facilities: | ||||||||
| Revolving credit facility due August 2027 | $ | $ | ||||||
| Term loan due August 2027 | ||||||||
| Less: | ||||||||
| Payments due within one year included in current liabilities | ||||||||
| Debt issuance costs | ||||||||
| Long-term debt less current maturities | $ | $ | ||||||
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 $
Obligations outstanding under the Credit Facilities accrue interest at a variable rate equal to the secured overnight financing rate ("SOFR") plus an adjustment between
Contractual principal payments for the term loan are as follows: remainder of 2024 - $
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
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):
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Accounts receivable | $ | $ | ||||||
| Current contract assets | ||||||||
| Current contract liabilities | ||||||||
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 six months ended June 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 six months ended June 30, 2024, $
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 $
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 June 30, | Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Stock options and SARs | $ | $ | $ | $ | ||||||||||||
| Restricted stock | ||||||||||||||||
| Performance shares | ||||||||||||||||
| Total share-based compensation expense | $ | $ | $ | $ | ||||||||||||
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 and years after the grant date. Employee awards expire years after the grant date, and those issued to directors expire 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.
A summary of stock option transactions during the six months ended June 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 | $ | $ | ||||||||||||||
| Granted(1) | ||||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Lapsed or cancelled | ( | ) | ||||||||||||||
| Outstanding, June 30, 2024 | ||||||||||||||||
| Exercisable, June 30, 2024 | ||||||||||||||||
| (1) | The weighted average grant date fair value of stock options granted was $ |
As of June 30, 2024, the Company had $
A summary of stock-settled SARs transactions during the six months ended June 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 | $ | $ | ||||||||||||||
| Granted(1) | ||||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Lapsed or cancelled | ( | ) | ||||||||||||||
| Outstanding, June 30, 2024 | ||||||||||||||||
| Exercisable, June 30, 2024 | ||||||||||||||||
| (1) | The weighted average grant date fair value of SARs granted was $ |
As of June 30, 2024, the Company had $
Restricted Stock
The Company has granted shares of restricted stock to directors and certain employees, which vest at a specified future date, generally after years, over 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.
A summary of restricted stock transactions during the six months ended June 30, 2024 follows:
| Weighted Average | ||||||||
| No. of | Grant Date | |||||||
| Shares | Fair Value | |||||||
| Outstanding, January 1, 2024 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Outstanding, June 30, 2024 | ||||||||
As of June 30, 2024, the Company had $
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 to 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 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
A summary of performance share transactions during the six months ended June 30, 2024 follows:
| Weighted Average | ||||||||
| No. of | Grant Date | |||||||
| Shares | Fair Value | |||||||
| Outstanding, January 1, 2024 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Outstanding, June 30, 2024 | ||||||||
As of June 30, 2024, the Company had $
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 June 30, 2024, the Company recorded a provision for income taxes of $
For the three months ended June 30, 2023, the Company recorded a provision for income taxes of $
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 June 30, | Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net income used in the computation of basic and diluted net income per share (in thousands) | $ | $ | $ | $ | ||||||||||||
| Weighted average shares outstanding - basic | ||||||||||||||||
| Dilutive common stock equivalents | ||||||||||||||||
| Weighted average shares outstanding - diluted | ||||||||||||||||
| Net income per share: | ||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||
Awards to purchase
Awards to purchase
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 June 30, 2024: | ||||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
| Segment EBITDA | ( | ) | $ | |||||||||||||||||||||
| Supplemental information: | ||||||||||||||||||||||||
| Depreciation and amortization | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Capital expenditures | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Branded Products | Healthcare Apparel | Contact Centers | Intersegment Eliminations | Other | Total | |||||||||||||||||||
| For the Three Months Ended June 30, 2023: | ||||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
| Segment EBITDA | ( | ) | ||||||||||||||||||||||
| Supplemental information: | ||||||||||||||||||||||||
| Depreciation and amortization | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Capital expenditures | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Branded Products | Healthcare Apparel | Contact Centers | Intersegment Eliminations | Other | Total | |||||||||||||||||||
| For the Six Months Ended June 30, 2024: | ||||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
| Segment EBITDA | ( | ) | $ | |||||||||||||||||||||
| Supplemental information: | ||||||||||||||||||||||||
| Depreciation and amortization | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Capital expenditures | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Branded Products | Healthcare Apparel | Contact Centers | Intersegment Eliminations | Other | Total | |||||||||||||||||||
| For the Six Months Ended June 30, 2023: | ||||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
| Segment EBITDA | ( | ) | ||||||||||||||||||||||
| Supplemental information: | ||||||||||||||||||||||||
| Depreciation and amortization | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Capital expenditures | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The following table reconciles income before income tax expense to Segment EBITDA (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Income before income tax expense | $ | $ | $ | $ | ||||||||||||
| Interest expense | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Segment EBITDA | $ | $ | $ | $ | ||||||||||||
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.
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 Company’s previously disclosed material weakness in internal control over financial reporting; the Company’s 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 June 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.
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.
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. In response to inflationary pressures, the U.S. Federal Reserve has repeatedly raised interest rates, resulting in an increase in the cost of borrowing for us, our customers, our suppliers, and other companies relying on debt financing. 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. In addition, the threat of a wider 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. The effects of the Israel-Hamas war or a wider conflict in the Middle East, prolonged inflationary conditions, high and/or increased interest rates, additional sanctions or retaliatory measures related to the Russia-Ukraine crisis, the Middle East crisis, the civil unrest in Haiti, 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.
Summary of Results
Net Income
The Company generated net income of $0.6 million and $1.2 million during the three months ended June 30, 2024 and 2023, respectively. The decrease in net income during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 was primarily due to an increase in selling and administrative expenses, partially offset by an increase in gross margins in our Branded Products and Contact Centers segments and a decrease in interest expense. The Company generated net income of $4.5 million and $2.1 million during the six months ended June 30, 2024 and 2023, respectively. The increase in net income during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was primarily due to increases in net sales and gross margins, particularly in our Branded Products and Contact Centers segments, and a decrease in interest expense, partially offset by an increase in selling and administrative expenses.
EBITDA
EBITDA (a non-GAAP financial measure) was $5.6 million and $7.4 million during the three months ended June 30, 2024 and 2023, respectively. EBITDA during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 decreased primarily due to higher selling and administrative expenses, partially offset by an increase in gross margins in our Branded Products and Contact Centers segments. EBITDA was $15.2 million and $14.3 million during the six months ended June 30, 2024 and 2023, respectively. EBITDA during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 increased primarily due to increases in net sales and gross margins, particularly in our Branded Products and Contact Centers segments, partially offset by higher selling and administrative expenses. 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.
| Operations |
| Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023 |
| For the Three Months Ended June 30, |
||||||||||||||||
| 2024 |
2023 |
$ Change |
% Change |
|||||||||||||
| Net sales: |
||||||||||||||||
| Branded Products |
$ | 81,296 | $ | 79,592 | $ | 1,704 | 2.1 | % | ||||||||
| Healthcare Apparel |
26,592 | 28,072 | (1,480 | ) | (5.3 | %) | ||||||||||
| Contact Centers |
24,832 | 22,758 | 2,074 | 9.1 | % | |||||||||||
| Net intersegment eliminations |
(984 | ) | (1,260 | ) | 276 | (21.9 | %) | |||||||||
| Consolidated net sales |
131,736 | 129,162 | 2,574 | 2.0 | % | |||||||||||
| Gross margin: |
||||||||||||||||
| Branded Products |
28,126 | 25,640 | 2,486 | 9.7 | % | |||||||||||
| Healthcare Apparel |
10,200 | 10,419 | (219 | ) | (2.1 | %) | ||||||||||
| Contact Centers |
12,961 | 12,204 | 757 | 6.2 | % | |||||||||||
| Net intersegment eliminations |
(532 | ) | (667 | ) | 135 | (20.2 | %) | |||||||||
| Consolidated gross margin |
50,755 | 47,596 | 3,159 | 6.6 | % | |||||||||||
| Selling and administrative expenses: |
||||||||||||||||
| Branded Products |
22,969 | 20,362 | 2,607 | 12.8 | % | |||||||||||
| Healthcare Apparel |
9,879 | 9,466 | 413 | 4.4 | % | |||||||||||
| Contact Centers |
10,533 | 9,614 | 919 | 9.6 | % | |||||||||||
| Intersegment Eliminations |
(532 | ) | (667 | ) | 135 | (20.2 | %) | |||||||||
| Other |
5,526 | 4,607 | 919 | 19.9 | % | |||||||||||
| Consolidated selling and administrative expenses |
48,375 | 43,382 | 4,993 | 11.5 | % | |||||||||||
| Other periodic pension cost |
189 | 214 | (25 | ) | (11.7 | %) | ||||||||||
| Interest expense |
1,541 | 2,624 | (1,083 | ) | (41.3 | %) | ||||||||||
| Income before income tax expense |
650 | 1,376 | (726 | ) | (52.8 | %) | ||||||||||
| Income tax expense |
50 | 163 | (113 | ) | (69.3 | %) | ||||||||||
| Net income |
$ | 600 | $ | 1,213 | $ | (613 | ) | (50.5 | %) | |||||||
Net Sales
Net sales for the Company increased 2.0%, or $2.6 million, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The increase was attributable to net sales increases in our Contact Centers and Branded Products segments, partially offset by a decrease in net sales in our Healthcare Apparel segment.
Branded Products net sales increased 2.1%, or $1.7 million, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The increase was primarily due to higher order volume from larger customers driven by increased demand for our products, as well as increased pricing.
Healthcare Apparel net sales decreased 5.3%, or $1.5 million, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The decrease was primarily due to lower volume from our store-based wholesale customers, partially offset by an increase in online sales volume from both our wholesale customers, as well as, from our direct-to-consumer website. The lower volume from our store-based wholesale customers was primarily driven by lower demand and timing of customer orders.
Contact Centers net sales increased 9.1% or $2.1 million, before intersegment eliminations for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The increase was primarily attributable to sales growth from expanding services to existing customers.
Gross Margin
Gross margin rate for the Company was 38.5% for the three months ended June 30, 2024 and 36.8% for the three months ended June 30, 2023. The rate increase was due to an improvement in gross margin rates in our Branded Products and Healthcare Apparel segments, partially offset by a decrease in gross margin rate in our Contact Centers segment.
Gross margin rate for our Branded Products segment was 34.6% for the three months ended June 30, 2024 and 32.2% for the three months ended June 30, 2023. The rate increase was primarily driven by an increase in sales volume from higher margin customers in the current year period.
Gross margin rate for our Healthcare Apparel segment was 38.4% for the three months ended June 30, 2024 and 37.1% for the three months ended June 30, 2023. The rate increase was primarily driven by lower sourcing costs.
Gross margin rate for our Contact Centers segment was 52.2% for the three months ended June 30, 2024 and 53.6% for the three months ended June 30, 2023. The rate decrease was primarily due to increased employee related costs of our agents including agent training resulting in an increase in non-billable hours during the current year period, partially offset by sales growth from existing customers.
Selling and Administrative Expenses
As a percentage of net sales, total selling and administrative expenses was 36.7% for the three months ended June 30, 2024 and 33.6% for the three months ended June 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 28.3% for the three months ended June 30, 2024 and 25.6% for the three months ended June 30, 2023. The rate increase was primarily driven by increased employee related costs, including sales commissions, and an increase in expense relating to acquisition-related contingent liabilities driven by fair market value adjustments in 2024 as compared to 2023.
As a percentage of net sales, selling and administrative expenses for our Healthcare Apparel segment was 37.2% for the three months ended June 30, 2024 and 33.7% for the three months ended June 30, 2023. The rate increase was primarily driven by an increase in expenditures related to marketing and advertising activities.
As a percentage of net sales, selling and administrative expenses for our Contact Centers segment was 42.4% for the three months ended June 30, 2024 and 42.2% for the three months ended June 30, 2023. The increase in selling and administrative expenses was primarily driven by increased employee related expenses, including both headcount and select pay rate increases to support sales growth.
Interest Expense
Interest expense decreased to $1.5 million for the three months ended June 30, 2024 from $2.6 million for three months ended June 30, 2023. This decrease was due to a $52.8 million decrease in our weighted average outstanding borrowings along with a decrease in the weighted average interest rate on those borrowings from 7.2% for the three months ended June 30, 2023 to 6.5% for the three months ended June 30, 2024.
Income Taxes
Income tax expense decreased to $0.1 million for the three months ended June 30, 2024 from $0.2 million for the three months ended June 30, 2023. The effective tax rate was 7.7% and 11.8% for the three months ended June 30, 2024 and 2023, respectively. Income tax expense and the effective tax rate for the three months ended June 30, 2024 and June 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 tax rate was further favorably impacted by the windfall benefits associated with the stock option exercises during the three months ended June 30, 2024. 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.
| Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023 |
| For the Six Months Ended June 30, |
||||||||||||||||
| 2024 |
2023 |
$ Change |
% Change |
|||||||||||||
| Net sales: |
||||||||||||||||
| Branded Products |
$ | 168,364 | $ | 161,443 | $ | 6,921 | 4.3 | % | ||||||||
| Healthcare Apparel |
55,829 | 56,226 | (397 | ) | (0.7 | %) | ||||||||||
| Contact Centers |
48,384 | 44,814 | 3,570 | 8.0 | % | |||||||||||
| Net intersegment eliminations |
(1,999 | ) | (2,548 | ) | 549 | (21.5 | %) | |||||||||
| Consolidated net sales |
270,578 | 259,935 | 10,643 | 4.1 | % | |||||||||||
| Gross margin: |
||||||||||||||||
| Branded Products |
59,867 | 51,539 | 8,328 | 16.2 | % | |||||||||||
| Healthcare Apparel |
21,710 | 20,519 | 1,191 | 5.8 | % | |||||||||||
| Contact Centers |
25,605 | 23,993 | 1,612 | 6.7 | % | |||||||||||
| Net intersegment eliminations |
(1,110 | ) | (1,347 | ) | 237 | (17.6 | %) | |||||||||
| Consolidated gross margin |
106,072 | 94,704 | 11,368 | 12.0 | % | |||||||||||
| Selling and administrative expenses: |
||||||||||||||||
| Branded Products |
46,263 | 40,415 | 5,848 | 14.5 | % | |||||||||||
| Healthcare Apparel |
19,691 | 18,968 | 723 | 3.8 | % | |||||||||||
| Contact Centers |
20,954 | 19,278 | 1,676 | 8.7 | % | |||||||||||
| Intersegment Eliminations |
(1,110 | ) | (1,347 | ) | 237 | (17.6 | %) | |||||||||
| Other |
11,326 | 9,447 | 1,879 | 19.9 | % | |||||||||||
| Consolidated selling and administrative expenses |
97,124 | 86,761 | 10,363 | 11.9 | % | |||||||||||
| Other periodic pension cost |
378 | 428 | (50 | ) | (11.7 | %) | ||||||||||
| Interest expense |
3,328 | 5,194 | (1,866 | ) | (35.9 | %) | ||||||||||
| Income before income tax expense |
5,242 | 2,321 | 2,921 | 125.9 | % | |||||||||||
| Income tax expense |
730 | 220 | 510 | 231.8 | % | |||||||||||
| Net income |
$ | 4,512 | $ | 2,101 | $ | 2,411 | 114.8 | % | ||||||||
Net Sales
Net sales for the Company increased 4.1%, or $10.6 million, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The increase was attributable to net sales increases in our Branded Products and Contact Centers segments, slightly offset by a decrease in net sales in our Healthcare Apparel segment.
Branded Products net sales increased 4.3%, or $6.9 million, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The increase was primarily due to higher order volume from larger customers, as well as increased pricing.
Healthcare Apparel net sales decreased 0.7%, or $0.4 million, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The decrease was primarily due to lower volume from our store-based wholesale customers, partially offset by an increase in online sales volume from both our wholesale customers, as well as, from our direct-to-consumer website.
Contact Centers net sales increased 8.0% or $3.6 million, before intersegment eliminations for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The increase in net sales was primarily attributed to sales growth from existing customers.
Gross Margin
Gross margin rate for the Company was 39.2% for the six months ended June 30, 2024 and 36.4% for the six months ended June 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 35.6% for the six months ended June 30, 2024 and 31.9% for the six months ended June 30, 2023. The rate increase was primarily driven by a favorable shift in the mix of pricing and customers.
Gross margin rate for our Healthcare Apparel segment was 38.9% for the six months ended June 30, 2024 and 36.5% for the six months ended June 30, 2023. The rate increase was primarily driven by lower supply chain costs, as well as, challenging market conditions experienced in the prior year period.
Gross margin rate for our Contact Centers segment was 52.9% for the six months ended June 30, 2024 and 53.5% for the six months ended June 30, 2023. The rate decrease was primarily due to increased employee related costs of our agents, partially offset by sales growth from existing customers.
Selling and Administrative Expenses
As a percentage of net sales, total selling and administrative expenses was 35.9% for the six months ended June 30, 2024 and 33.4% for the six months ended June 30, 2023. The rate increase was primarily driven by increased employee related costs, an increase in expense relating to acquisition-related contingent liabilities from a gain of $0.7 million in 2023 to a loss of $0.3 million in 2024, unrealized losses of $0.7 million recognized in 2024 compared to unrealized gains of $0.1 million recognized in the prior year period on written put options and increased expenditures related to marketing and advertising activities.
As a percentage of net sales, selling and administrative expenses for our Branded Products segment was 27.5% for the six months ended June 30, 2024 and 25.0% for the six months ended June 30, 2023. The rate increase was primarily attributed to increased employee related costs, including sales commissions, and an increase in expense relating to acquisition-related contingent liabilities driven by fair market value adjustments in 2024 as compared to 2023.
As a percentage of net sales, selling and administrative expenses for our Healthcare Apparel segment was 35.3% for the six months ended June 30, 2024 and 33.7% for the six months ended June 30, 2023. The rate increase was primarily attributable to an increase in expenditures related to marketing and advertising activities.
As a percentage of net sales, selling and administrative expenses for our Contact Centers segment was 43.3% for the six months ended June 30, 2024 and 43.0% for the six months ended June 30, 2023. The increase in selling and administrative expenses was primarily driven by increased employee related expenses, including both headcount and select pay rate increases to support sales growth.
Interest Expense
Interest expense decreased to $3.3 million for the six months ended June 30, 2024 from $5.2 million for six months ended June 30, 2023. This decrease was due to a $55.1 million decrease in our weighted average outstanding borrowings along with a decrease in the weighted average interest rate on our outstanding borrowings from 6.9% for the six months ended June 30, 2023 to 6.6% for the six months ended June 30, 2024.
Income Taxes
Income tax expense increased to $0.7 million for the six months ended June 30, 2024 from $0.2 million for the six months ended June 30, 2023. The effective tax rate was 13.9% and 9.5% for the six months ended June 30, 2024 and 2023, respectively. Income tax expense and the effective tax rate for the six months ended June 30, 2024 and June 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 tax rate was further favorably impacted by the windfall benefits associated with the stock option exercises during the six months ended June 30, 2024 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.
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
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.
Cash and cash equivalents was $13.4 million as of June 30, 2024 and $19.9 million as of December 31, 2023. Working capital was $169.3 million at June 30, 2024 compared to $178.8 million at December 31, 2023. The decrease in working capital was primarily due to decreases in accounts receivable, cash and cash equivalents, and inventories, partially offset by a decrease in current liabilities and an increase in prepaid expenses and other current assets. The decrease in accounts receivable was primarily related to lower sales in our Branded Products segment during the six months ended June 30, 2024 compared to the six months ended December 31, 2023 and the collection of aged customer receivables. The decrease in cash and cash equivalents was driven by the repayment of outstanding borrowings with excess cash generated from operating activities during the six months ended June 30, 2024. The reduction of inventories was driven by the sale of existing inventory stock and the targeted reduction in certain inventory products within our Branded Products segment. The decreases in current liabilities include a reduction in accounts payable primarily driven by the timing of payments for inventory purchases within our Branded Products segment and a decrease in other current liabilities which was primarily related to employee-related accruals as of December 31, 2023 that were paid in 2024, including accrued bonus compensation, and the expiration of written put options. The increase in prepaid expenses and other current assets was driven by increases in prepaid income taxes and insurance.
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. We currently anticipate that we will spend more in capital expenditures in 2024 than we spent in 2023. 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, acquisition-related contingent liabilities, unfunded supplemental executive retirement plan liabilities and non-qualified deferred compensation plan 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.
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):
| Six Months Ended June 30, |
||||||||
| 2024 |
2023 |
|||||||
| Net cash provided by (used in): |
||||||||
| Operating activities |
$ | 16,300 | $ | 38,095 | ||||
| Investing activities |
(1,974 | ) | (3,643 | ) | ||||
| Financing activities |
(20,013 | ) | (33,722 | ) | ||||
| Effect of exchange rates on cash |
(835 | ) | 297 | |||||
| Net increase (decrease) in cash and cash equivalents |
$ | (6,522 | ) | $ | 1,027 | |||
Operating Activities. The decrease in net cash provided by operating activities during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was primarily attributable to increases in cash outflows for accounts payable and other current liabilities and inventories and a decrease in cash inflows from contract assets, partially offset by an increase in net income. Working capital cash changes during the six months ended June 30, 2024 primarily included decreases of $10.6 million in accounts receivable, $6.4 million in accounts payable and other current liabilities and $3.9 million in inventories, and increases of $4.5 million in contract assets. Working capital cash changes during the six months ended June 30, 2023 primarily included increases of $10.6 million in inventories, $8.9 million in accounts receivable and $5.4 million in contract assets.
Investing Activities. The decrease in net cash used in investing activities during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was attributable to a decrease of $1.7 million in capital expenditures.
Financing Activities. The decrease in net cash used in financing activities during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was primarily attributable to a decrease of $13.0 million in net repayments of debt.
Credit Facilities (See Note 3 to the Financial Statements)
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.
As of June 30, 2024, the Company had $78.5 million in outstanding borrowings under its Credit Facilities, consisting of $11.0 million outstanding under the revolving credit facility and $67.5 million outstanding under a term loan. As of June 30, 2024, the Company had undrawn capacity of $114.0 million under the revolving credit facility.
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 6.4% as of June 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 June 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 - $2.8 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 June 30, 2024, the Company was in compliance with these ratios.
Dividends and Share Repurchase Program
During the six months ended June 30, 2024 and 2023, the Company paid cash dividends of $4.7 million and $4.6 million, respectively. The Company anticipates that it will continue to pay dividends in the future as financial conditions permit.
On May 2, 2019, the Company’s Board of Directors approved a stock repurchase program of up to 750,000 shares of the Company’s outstanding common stock. There is no expiration date or other restriction governing the period over which the Company can make share repurchases under the program. All purchases under this program will be open market transactions. At June 30, 2024, the Company’s remaining repurchase capacity under its common stock repurchase program was 657,451 shares. Shares purchased under the common stock repurchase program are constructively retired and returned to unissued status. The Company considers several factors in determining when to make share repurchases, including among other things, the cost of equity, the after-tax cost of borrowing, the debt to total capitalization targets and its expected future cash needs.
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 and 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 June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2024 |
2023 |
2024 |
2023 |
|||||||||||||
| Net income |
$ | 600 | $ | 1,213 | $ | 4,512 | $ | 2,101 | ||||||||
| Interest expense |
1,541 | 2,624 | 3,328 | 5,194 | ||||||||||||
| Income tax expense |
50 | 163 | 730 | 220 | ||||||||||||
| Depreciation and amortization |
3,368 | 3,428 | 6,620 | 6,816 | ||||||||||||
| EBITDA |
$ | 5,559 | $ | 7,428 | $ | 15,190 | $ | 14,331 | ||||||||
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 $0.4 million in additional pre-tax interest expense for the six months ended June 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. As of June 30, 2024, we had no foreign currency exchange hedging contracts. There can be no assurance that our strategies will adequately protect our operating results from the effect of exchange rate fluctuations.
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 six months ended June 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 six months ended June 30, 2024 and 2023 included a foreign currency translation adjustment loss of $1.7 million and a foreign currency translation adjustment gain of $0.6 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 June 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 June 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 June 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 June 30, 2024, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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.
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.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no unregistered sales of equity securities during the quarter ended June 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 June 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 |
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) |
||||||||||||
| April 1, 2024 to April 30, 2024 |
- | $ | - | - | ||||||||||||
| May 1, 2024 to May 31, 2024 |
- | - | - | |||||||||||||
| June 1, 2024 to June 30, 2024 |
- | - | - | |||||||||||||
| Total |
- | - | - | 657,451 | ||||||||||||
| (1) |
On May 2, 2019, the Company’s Board of Directors approved a stock repurchase program of up to 750,000 shares of the Company’s outstanding common stock. There is no expiration date or other restriction governing the period over which the Company can make share repurchases under the program. All purchases under this program will be open market transactions. |
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 “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Credit Facilities.” 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.
applicable.
† Management contracts and compensatory plans and arrangements.
* Filed herewith.
**Furnished herewith.
+ Submitted electronically herewith.
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: August 6, 2024 | SUPERIOR GROUP OF COMPANIES, INC. | |
| By | /s/ Michael Benstock | |
| Michael Benstock | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: August 6, 2024 | ||
| By | /s/ Michael Koempel | |
| Michael Koempel | ||
| Chief Financial Officer (Principal Financial Officer) |
||