Good afternoon, everyone, and welcome to the Superior Group of Companies Third Quarter 2020 Conference Call. With us today are Michael Benstock, Chief Executive Officer; and Mike Koempel, Chief Financial Officer. And as a reminder, this conference call is being recorded. This call may contain forward-looking statements regarding how the company's plans, initiatives and strategies and the anticipated financial performance of the company, including, but not limited to, sales and profitability. Such statements are based upon management's current expectations, projections, estimates and assumptions. Words such as expect, believe, anticipate, think, outlook, hope and variations of such words and similar expressions identify such forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties that may cause future results to differ materially from those suggested by the forward-looking statements. Such risks and uncertainties are further disclosed in the company's periodic filings with the Securities and Exchange Commission, including, but not limited to, the company's most recent annual report on Form 10-K and the quarterly reports on Form 10-Q. Shareholders, potential investors, and other readers are urged to consider these factors carefully in evaluating the forward-looking statements made herein and are cautioned not to place undue reliance on such forward-looking statements. The company does not undertake to update the forward-looking statements contained herein, except as required by law. And now I'll turn the call over to Mr. Michael Benstock.

Thank you, operator, and thanks, everyone, for joining us today. I'll start by highlighting our consolidated third quarter results, along with a discussion around our strategies that are setting us up for continued growth and margin expansion. I'll walk through each of our segments and what we're doing to more profitably grow each of our businesses. And then I'll turn it over to Mike to provide additional detail on our quarterly results as well as our updated full year outlook. We'll then open the call for Q&A. Earlier in the year, we discussed the back-end weighted nature of our financial performance this year. And as expected, our third quarter results were the strongest of the year so far, reflecting sequential improvement across the business. We generated consolidated third quarter revenues of $136 million, down only 2% year-over-year, which was a significant improvement over the second quarter's 13% year-over-year decline and up 5% from the second quarter. Our third quarter consolidated adjusted EBITDA of $9.3 million is the highest quarterly result year-to-date, down just slightly compared to the prior year's $9.7 million, but up $1.8 million from the second quarter. Lastly, diluted EPS of $0.19 was down from adjusted EPS of $0.27 a year earlier, excluding last year's impairment charge, but up $0.11 sequentially from the second quarter. The effect of economic conditions on our business differs customer by customer, market by market and segment by segment. We see conditions slowly improving as clients are starting to buy more, rebrand more, and issue more RFPs than past periods. Again, it is really on a customer-by-customer, market-by-market basis. While we're feeling optimistic about the long-term outlook, our success will be determined by our team's remaining focused on what we can control. This includes continuing to drive positive cash flow and further strengthening our balance sheet while also increasing our investments to support longer-term growth when conditions normalize. Adhering to this focus, year-to-date, we were able to generate operating cash flow of $59 million through continued reductions in working capital and lower capital expenditures. We ended September with an improved net leverage ratio of 2.9 times covenant EBITDA, a full turn better than at the start of the year after significantly reducing our net debt by $48 million year-to-date. Let's turn now to our three businesses. Our Health Care Apparel segment, primarily consisting of the Wink and Fashion Seal Healthcare brands, produced its highest quarterly revenues for the year at $30 million for the third quarter, essentially flat year-over-year and up from $28 million in the second quarter. Adjusted EBITDA of $3.1 million was up from $2.2 million year-over-year and up from $1.9 million in the second quarter. The Health Care Apparel market remains soft, but inventory equilibrium is getting closer for SEC, and we believe for the broader industry. This remains a large and growing addressable market. We intend to expand our market share well beyond the 2 million-plus caregivers who already wear our brands every day. Back in the spring, we launched our direct-to-consumer website and went through an entire rebranding featuring our Weak product line, and it continues to perform above initial expectations. This new D2C channel is creating both higher consumer awareness and deeper engagement with our brand. We also launched earlier this year our B2B website, which is now helping wholesale accounts more efficiently engage with us. Overall, we see the improvement in our year-over-year growth rates continuing in the fourth quarter, and we're optimistic about the longer-term outlook. Turning to Branded products, which is our largest segment, we're seeing the back-end weighted nature of the year playing out, along with stronger profitability as our supply chain costs have normalized. We produced third quarter revenues of $84 million, while down from $87 million in the prior year, the third quarter result represents our highest quarterly revenues of the year and is up from $80 million in the second quarter. Our adjusted EBITDA of $7 million was up from $5.6 million year-over-year and about flat to the second quarter. We have seen an upward demand trend now for over 5 months and have no reason to believe this won't continue. So while the growth in this segment appears subdued, our pipeline and booking trends look very, very favorable, particularly with respect to the first part of next year. While this segment is generally related to HR and marketing spend and has surely been impacted by the ongoing macro environment, our confidence is bolstered by what we have consistently seen over the past months. I should mention that similar to our other business lines, our client retention remains strong, truly indicating it's a matter of seeing stronger economic conditions for us to further accelerate our growth potential. In the meantime, within branded products, we're focused on managing expenses and further expanding our margins such that we'll be ready to fully capitalize on even stronger demand ahead. Longer term, our aim is to significantly grow our branded products market share, now at less than 2% of this very, very large $26 billion market. Our third segment to review is contact centers, which continues to generate our highest EBITDA margins as we push towards the high-teens goal that we mentioned on our prior earnings call. Our third quarter revenues of $24 million were up approximately $1 million both year-over-year and from the second quarter and represent the highest revenue quarter in the office goers' history. Our third quarter adjusted EBITDA was $4.1 million, down from $5 million year-over-year, but up from $3.3 million in the second quarter. While we've incurred higher costs related to labor and talent, we're continuing to increase prices whenever possible to employ technology to create more efficiency as reflected by our higher gross margin for contact centers, which expanded nearly 2 percentage points from the second quarter to 55.5%. As a result, the third quarter EBITDA margin sequentially improved to 16.8% from 14.3% in the second quarter. Overall, we continue to add to our pipeline of new business for the office crews, and we see compelling longer-term opportunities to grow this segment at attractive margins. With that, I'll turn it over to Mike for a closer look at our financial performance and our updated outlook for the year before we take your questions.

Thank you, Michael, and thanks, everyone, for joining the call. Our third quarter results were the strongest so far in 2023, reflecting the back-end weighted pattern we described earlier in the year. Our quarterly revenue reached $136 million, up about $7 million from the second quarter. And importantly, we recorded stronger margins as well. Our gross margin came in at 39.1%, which is up 260 basis points versus a year ago and up 220 basis points from the second quarter. The margin expansion from last year was primarily led by our Branded Products business segment, which drove a 450 basis point improvement due to favorable pricing and customer mix and lower supply chain costs. Our third quarter SG&A cost of $47 million were up $3.4 million from last year and increased as a percent of sales to 34.7% for the quarter compared to 31.6% for the third quarter of 2022. The increase in SG&A was driven by a $1.8 million fair value benefit on written put options in the third quarter of 2022, combined with current quarter increases in acquisition-related earn-out liabilities, bad debt expense, and professional fees. Our interest expense for the third quarter was $2.5 million, up from $1.8 million in the prior year quarter due to higher interest rates. Interest expense did improve slightly from the second quarter, reflecting lower debt outstanding, as I'll discuss in a moment. Third quarter net income of $3.1 million or $0.19 per diluted share compared to the prior year quarter's net loss of $12.7 million or $0.80 per share. In the prior year third quarter, the company recognized pretax noncash impairment charges related to goodwill of $21.5 million or $17.1 million net of tax or $1.07 per diluted share. On an adjusted basis, which excludes impairment charges made in the prior year third quarter, this quarter's net income of $3.1 million or $0.19 per diluted share was down from $4.4 million or $0.27 per diluted share in the prior year but up significantly from $1.2 million or $0.08 per diluted share in the second quarter. Turning to our balance sheet. We continue to make meaningful improvements. We continue to drive significant free cash flow, enabling an additional $19 million reduction in our debt outstanding during the quarter while maintaining our cash and cash equivalents balance of $18 million, about flat with the start of the year. Since the beginning of the year, our focus on reducing working capital and generating strong operating cash flow has resulted in $59 million of operating cash flow, as Michael mentioned. Therefore, as of September 30, our total debt outstanding of $108 million improved from $156 million at the start of the year, representing a 30% reduction. Wrapping up on the balance sheet, our net leverage ratio ended the quarter at 2.9 times trailing 12-month covenant EBITDA much improved from the net leverage ratio at the beginning of the year of 3.9 times. I'll conclude with our updated full year outlook, which as we've indicated throughout the year, remains back-end loaded. We expect a full year revenue range of $538 million to $545 million relative to the earlier range of $550 million to $560 million, which continues to reflect back half improvement, albeit at a lower growth rate. However, for earnings per diluted share, we're tightening our outlook range to $0.46 to $0.53 relative to the prior range of $0.45 to $0.55, reflecting continued sequential improvement from the first half of the year. For Health Care Apparel, we expect to finish 2023 with low single-digit sales growth for the year as inventory levels and customer demand begin to normalize. For Branded products, while we look to finish the year stronger with sequential sales improvement in the fourth quarter, we expect a low-teen sales decline for the total year, primarily driven by the first and second quarter results. Lastly, for contact centers, we expect to achieve full year sales growth in the high single digits. With that, operator, we can now begin the question-and-answer session, if you would please open the lines.

Good afternoon. Congratulations on the sequentially improved results. Just as we look to the full year outlook, you adjusted the revenue range a bit. So just wondering that still, again, represents a stronger sequential quarter. You mentioned the upper demand trend in Branded products I guess the outlook came down just a bit. So I don't know - I'm just trying to put my finger on maybe what changed relative to your last outlook as this quarter progressed?

Sure, Kevin. This is Mike. I'll take that question. As you said, obviously, we pulled the sales guidance down a little bit. It still reflects continued growth in the fourth quarter within that range. Within branded products, as we said in our prepared remarks, they had demonstrated growth in the third quarter. We expect to see that growth continue into the fourth quarter. I think part of what plays into the range, particularly in branded products, we have a fair amount of volume in the back half of December, which we plan to deliver on, but could create some variability in the fourth quarter. And as it relates to our Contract business, we're also - as we manage our cash flow and manage inventory tightly, we're managing the build of our contract assets, which ultimately turns into revenue as well. So as we've been heightening more on the working capital front, that's also had a little bit of a pullback on revenues. But again, I think as we look to the fourth quarter, we still see growth in the business. Again, as I said, albeit at a slightly lower rate than we originally expected, but again, still anticipate that growth coming in the fourth quarter.

Okay. Good, thank you. And touching on Health Care Apparel, you mentioned there, the market still remains a bit soft, but you did have some pretty good sequential growth there in that segment. And I believe you mentioned that the market appears to be approaching inventory equilibrium. Do you think end of 2023 is still the way to think about the inventory coming back into balance? Maybe it's harder to read in the overall market, but just for you internally, how are things trending on the inventory side?

Kevin, from an internal standpoint, we are trending toward our goal by the end of the year. We see - you could see in the aggregate, our inventories across the peer group were down about $20 million from the beginning of the year, and that would obviously include our healthcare inventories coming down. So we're happy with the progress we've been making. We've got a little bit yet to go here in the fourth quarter. And again, our intent is to end the year in a much cleaner position than we did last year and entering 2024 in a way that we can really focus most of our energy forward rather than looking to reduce inventories and liquidate inventories. I think we're seeing the market in general, improved to some extent. But I can only, at this point, speak for ourselves. And again, we're satisfied with the progress we've made and feel good about where we'll end the year from a health care perspective.

Okay. Thank you. Also following up on Health Care Apparel, you mentioned the B2C e-commerce initiative continuing to trend well ahead of expectations. Maybe just any update on the outlook there and it starts becoming a more meaningful part of the business and potential growth in 2024 and beyond?

Kevin, this is Michael. That's a great question. We're really pleased with our progress, especially in the broader digital market, which includes all our online wholesale customers like Amazon, Walmart, and Target, as well as our direct-to-consumer and B2B channels. We're very enthusiastic about our digital developments. More consumers are shopping online than ever before. While foot traffic to stores remains low, and smaller retailers are facing more challenges than larger ones, our investments in digital capabilities have definitely yielded positive results this year. We anticipate these will continue to benefit us in 2024 as we increase our spending on marketing and rebranding, aiming to maximize our potential for the upcoming year. We're continuously learning and adapting, gathering important customer insights to refine our strategy for more effective spending. We expect the e-commerce segment to grow significantly over time, to the point where we may report on it separately in 2024. At this stage, I believe not doing so gives us a competitive edge as we work on expanding it and testing various strategies. I hope that in the coming years, it will become a substantial enough part of our business that it warrants meaningful discussion.

Thank you. I have a couple more questions. I noticed the impressive gross margin expansion both year-over-year and quarter-over-quarter, particularly driven by branded products. You mentioned that the supply chain is normalizing, which seems to contribute to a favorable mix. I'm trying to understand how sustainable these higher margins are or if you expect some fluctuations from quarter to quarter. I know that this can vary depending on the customer mix. Could you share your thoughts on the gross margin outlook moving forward?

Sure, Kevin. As you mentioned, there will be some fluctuations in the margin mix, especially in branded products where we are pricing on a case-by-case basis. We're pleased with the margins from the third quarter due to the mix of orders in the branded product sector and the gradual reduction of supply chain costs that we're now seeing in that segment. Looking ahead to the fourth quarter, we expect margins to remain above last year, likely aligning more closely with the beginning of the year than the third quarter. We will keep an eye on the fourth quarter as we aim to meet our end-of-year inventory target, which could influence how promotional we need to be. This consideration factors into the range of guidance we've provided. However, we still anticipate strong margins, which we believe will be more in line with the first half of the year compared to the third quarter margins.

Okay. thanks for the color. And just lastly, just looking at the selling administrative expense line sequential increase there on an absolute basis. It looks like that was driven by branded products. Just wondering if there's anything to call out there in terms of the increase in the expense base, if there's something more nonrecurring in there or some investments or perhaps just trying to get some color on what's going on there and what it might look like going forward.

Sure. In the case of branded products, a big portion of the increase really related to commissions. So in the branded products business, the commission is based on margins. So given the improvement in margin and the growth in margin despite sales being down single digits, really drove an increase in commission expense and therefore, a larger piece of SG&A for the third quarter.

Okay. thanks for taking the question. I'll jump back in the queue.

Hi, good morning or good afternoon and thanks for taking the questions. Just to follow up on the SG&A question. Can you talk about headcount? Are you - did you add salespeople in the third quarter? Or do you plan to add any more in the fourth quarter?

Are you speaking about a particular segment? Or are you thinking about overall for all SGC?

I guess, primarily for branded products.

Brand products, we have added people. We will continue to add people. It's one of our revenue growing strategies. It's right up there with the best of them, including other sales strategies that we have, Jim, including some inside sales strategies to try to go after smaller accounts, appointment centers, all kinds of things that we're doing right now differently than we've done before. But it is our intention to continue to grow branded products. So we're going to have to have more muscle behind us to do it, and it's going to take more people to do it. We're recruiting actively and even added some talent to our recruiting pool to help recruit more people faster.

Right. And then with regard to capital allocation, I mean you did a great job of generating cash and paying off debt in the third quarter. Should we see a similar trend in the fourth quarter? Or are there opportunities out there, inorganic opportunities that you might pull the trigger on?

For the remainder of the year, Jim, we will continue to concentrate on working capital. From the first nine months, we have made significant improvements, and our working capital is starting to normalize. Therefore, I do not expect a similar outcome in the fourth quarter. That said, we will keep our focus on this area for the rest of the year, aiming for a net leverage ratio between 2 and 2.5 times. We are getting closer to that target, which will guide our priorities for allocation moving forward once we reach our net leverage goal.

All right. And then you look at your three businesses, you think that are pretty definite growth drivers in all three businesses, different drivers in the different businesses. But out of the three businesses, what one do you think - are you most - you feel invest about at this point in this current line?

That's a hard question because I'm feeling pretty good about all of them. So like asking me which kid I love more. But look, long term, I believe health care has tremendous potential, and it's one of the smallest of our businesses, and it's right there in the middle, but it has two segments of wholesale and a retail and now consumer initiatives. If you look at the growth of health care workers in the coming years, you look at the fact that it's not as price-sensitive a business. Most of it isn't, the wholesale side is, but the retail side is not. You look at our capability to grow direct-to-consumer in the coming years and the continued choice of health care workers that is going to have to be built at one point or we're going to get out, we're all going to get old and not have anybody to take care of us. So the schools are going to have to fill that gap, whether it's through the schools or through integration or wherever they solve it, and that will bring millions of more health care workers into the workforce. I'm feeling great about that, but it's - I would say that our call center business is basically in its infancy, if you want to know the truth. I mean, we're a small call center business doing right now under $100 million. That has great opportunity. It provides great free cash flow for us to invest more in it as time goes on. And we've invested greatly in new strategies. We put on our first sales executive this year, putting on a second one, building out a sales team around that. First, marketing dollars we've really ever spent will be this year and more so into next year and not be so reliant on others to bring us business. We've never actually had a sales force. We've grown the business from zero to $80 million without a sales force. And what Jake has done and Phil had done prior to him and branded products was sort of amazing to take a business that was doing $32 million 7 years ago that's doing - if you just take the merchandise side of that over $250 million a year. So why should I not be equally as excited about all these three businesses? So I didn't answer your question because I don't want any of my children to be angry at me after this call. But I'm excited about it. I think we're in three great businesses that we do not have enough market share in, and I don't think it's going to be that hard to take market share away from our competition in the coming years with all that we're doing internally to make our business stronger.

All right. Thank you.

Thank you, guys for taking the questions. First, I wanted to touch on the GAAP income tax expense in the quarter, which was extremely low as a percentage of continuing income from continuing ops. Could you just touch on that and give us some idea of what you expect in the next quarter and in the coming year? Were there some - were there some tax loss carry-forwards that benefited you in the quarter and that will continue to benefit you as you roll forward?

Dave, it's really in the quarter and so far this year, it's really been the mix of our profit domestic versus international. And obviously, we have a large amount of profit through our contact center business in Central America. So that we benefit from that mix, which has driven a lower rate this year in the, I'll call it, high single digits, and we would expect that to be the case through the balance of the year. And then obviously, next year, as we look to plan next year, we'll relook obviously at the mix of where, again, our profit is from a foreign and domestic perspective. But that's really been the driver of the rate this year. We haven't had this year as many discrete items as we did last year, which drove the rate higher last year, again, due to the discrete nature of what we had. But at this point, it's really a reflection of our foreign versus domestic profit.

Thank you. Regarding the call center business, in the last quarterly call, you mentioned that some customers had to refresh at high levels, yet there's been nice growth this quarter. I'm trying to understand the guidance you provided for the year. Are you anticipating a fairly flat fourth quarter? Additionally, could you provide more insight into how your renewals in the third quarter compare to the second quarter, and how the beginning of the fourth quarter measures up? Have you observed any improvements, and what is the overall sentiment in this segment?

We are noticing some improvement. Last quarter, I mentioned that up to June, we had lost a few hundred existing customers due to the macro environment, and they haven't increased the number of seats we have with them. However, we've managed to replace all of those lost seats with new ones, which I discussed last quarter as well. We're adding new seats at a rate we haven't experienced before, although we are still working to make up for the deficit of about 300 seats that has persisted throughout the year. On a positive note, we are pursuing more significant opportunities than ever before, and we have acquired more customers than in the past. Additionally, we are tackling more opportunities that, when realized, will contribute to increased revenue in the future. We have continued to add seats in November and expect to do the same in December, although this month typically sees less activity as customers prepare for January. Overall, I believe the upcoming quarter will align well with our guidance, and I will let Mike provide more details regarding the call centers and our direction in that area.

Sure. Yes. I mean we expect to continue to see growth in that segment in the fourth quarter. I think as we touched on, there's been sequential growth throughout the year, certainly from an EBITDA perspective, given that we started at a pretty low point in the first quarter with some of the cost increases and being a little late in terms of increasing pricing. But the pipeline is strong as we've had before. We're onboarding more new customers, and it's looking strong for the first quarter. So we feel, again, like the contact center business is picking up momentum throughout the year and into 2024.

Great. That's really very helpful. And then lastly for me, with regard to free cash flow, I mean, fantastic job on debt repayment year-to-date. Would we expect that there would be a little bit more sequential debt repayment in the fourth quarter? Or do you start to kind of fight against some working cap trends a little bit? I mean I guess just if you could just kind of give us a holistic picture of what fourth quarter free cash flow looks like and where it's going?

Yes, I believe we've made significant progress over the first nine months. I expect things to stabilize a bit in the fourth quarter. Looking ahead to Q1, we may need to invest based on our inventory levels and revenue projections. In Q4, we'll continue to seek opportunities to generate free cash flow and aim to reduce our debt levels to achieve our targeted ratio, though not at the pace we've seen in the past three quarters. If you review our cash flow statement, you'll notice we've significantly reduced inventories this year, and receivables have decreased as well. While there's still some opportunity for improvement, it won't be to the same extent as in the first three quarters.

Right, right. That makes a lot of sense. Thank you, guys very much for taking the questions and congrats on the quarter.

Okay. Thank you, operator. I'll jump the gun there a little bit. I want to thank everybody for joining our call. We're looking forward to finishing the year strong. Our intention is to continually grow SGC's market share across all of our three attractive markets and to do so profitably. The ultimate goal, obviously, is further enhancing shareholder value. We're confident that we can do so even during uncertain times. We look forward to updating you on our full year results, and please don't hesitate to reach out with any questions before then enjoy this evening, and thanks again.

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