Earnings Call Transcript - SGC Q1 2023

Operator, Operator

Good afternoon, everyone. Welcome to the Superior Group of Companies’ First Quarter 2023 Conference Call. With us today are Michael Benstock, the company's Chief Executive Officer, and Mike Koempel, Chief Financial Officer. As a reminder, this conference call is being recorded. This call may contain forward-looking statements regarding the company's plans, initiatives, and strategies and the anticipated financial performance of the company, including but not limited to sales and revenue. Such statements are based upon management's current expectations, projections, estimates, and assumptions. Words such as will, expect, believe, anticipate, think, outlook, hope, and variations of such words and similar expressions identify such forward-looking statements. 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 we 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 would like to turn the call over to Mr. Michael Benstock.

Michael L. Benstock, CEO

Thank you, operator, for the introduction, and I’d like to welcome everyone to our call today. I’ll start by reviewing our first quarter highlights, including the performance for each of our three business segments. During the discussion, I’ll also provide updated thoughts on the evolving macro environment and our strategy to grow the business more profitably. I’ll then turn the call over to Mike, who will take us through the first quarter results in more detail and discuss our 2023 outlook. We’ll then open it up for Q&A. Consolidated revenues were $131 million, relative to $144 million a year ago, and our consolidated EBITDA was $7 million, down from $10 million in the prior year quarter. We view this overall performance as consistent with both our expectations and messaging on our last call with respect to the softness we anticipated and still anticipate in the first half of this year. This is also reflective of the continued strategic investments we’re making to tap into the attractive addressable markets across all three of our business segments. Starting with Healthcare Apparel, which includes the brands under CID Resources and Fashion Seal Healthcare, first quarter revenues of $28 million compare to $31 million in the prior year's first quarter, as conditions across the healthcare market remain subdued. EBITDA came in at $1.6 million, which was down from $2.9 million a year earlier, primarily due to a combination of the lower revenues and gross margin rate pressure. As mentioned in March, we are focused on achieving better inventory equilibrium by the end of this year through already significantly reduced purchasing and a more disciplined inventory approach. Our strategy for Healthcare Apparel centers around capturing market share beyond the two million caregivers who already wear our brands every day. Healthcare apparel is a large and growing addressable market, and we are increasing our focus on digital growth. On that point, we soft-launched our own direct-to-consumer website featuring our Wink Product line a few weeks ago, which has more than met our initial expectations. Over time, our direct-to-consumer strategy will nicely complement our omni-channel approach, driving higher consumer awareness and engagement with our brands. In the coming weeks, we expect to launch a new B2B website to our wholesale accounts to make their engagement with us even more efficient. We’re confident in the attractive long-term prospects for Healthcare Apparel, with stronger year-over-year results anticipated in the second half. Turning to Branded Products, our largest segment, revenues of $82 million during the first quarter compare to $97 million a year ago. Again, this is in line with the outlook we described last quarter, with the cloudy economic environment suppressing demand. EBITDA decreased during the quarter to $7.5 million from $8.0 million in the prior year period due to the sales decline. Notwithstanding near-term economic challenges, our plan is to continue expanding our less than 2% market share in this $26 billion marketplace. Contact Centers, our highest margin segment, continues to generate robust top line growth. Revenues of $22 million were up 23% over the prior year's first quarter, slightly above the fourth quarter growth rate. The pipeline for new customers remains strong as the Contact Center segment onboarded the same number of new customers during the first quarter of this year as we did for all of last year. While revenues remain strong, first quarter EBITDA of $2.8 million was down from $4.8 million in the prior year period due to a combination of higher labor costs negatively impacting gross margins and our continued investment in talent, technology, and infrastructure. Moving forward during the year, a combination of price increases, some of which were already implemented in March, and cost reductions, of which most have already been implemented as well, are expected to improve profitability toward achieving a normalized annual EBITDA margin approaching 19% to 20%. Strategically, we continue to see The Office Gurus as having significant growth potential with high margins and a large addressable market. With that, I’m going to turn it over to Mike for additional detail on our financial results and our 2023 outlook.

Michael Koempel, CFO

Thank you, Michael, and we appreciate everyone being on the call today. Overall, the first quarter was as expected. Consolidated revenues of $131 million compare to $144 million in the prior year first quarter, and our gross margin improved to 36%, which was up from 34.7%. The expansion of our overall gross margin was driven by favorable pricing and customer mix shift within Branded Products, our largest segment, as well as the Contact Center Segment, our highest-margin segment, becoming a larger portion of the overall revenue mix. While the overall gross margin rate was up, the Contact Centers gross margin rate declined during the first quarter due to increased labor costs that were only partially offset by price increases implemented later in the first quarter, as Michael mentioned. Our first quarter SG&A expense of $43 million, or 33.2% of sales, was up from $42 million or 29.4% of sales in the prior year first quarter. While SG&A expenses were down year-over-year for both the Healthcare Apparel and Branded Products segments, due in part to successful cost reduction actions, the SG&A rate was up due to deleveraging on the sales declines in both segments. Contact Centers drove the overall increase in SG&A expenses, reflecting the investments in talent, technology, and infrastructure to enhance future growth. I should note that while Contact Center SG&A expense was up year-over-year, the level of spending was fairly consistent with recent quarters. Interest expense for the quarter was $2.6 million, up from approximately $300,000 a year earlier, primarily due to higher interest rates and, to a lesser extent, higher average debt outstanding. Net income for the quarter was approximately $900,000, or $0.06 per diluted share, as compared to net income of $5.2 million, or $0.32 per diluted share in the prior year quarter. Let’s turn to the balance sheet and an update on our covenant compliance. We ended the first quarter with cash and cash equivalents of approximately $27 million, up from $18 million at the end of 2022. The increase in cash was driven by our focus on driving significant free cash flow, lowering working capital, and reducing capital expenditures. As a result, our first quarter net leverage ratio was 3.83 times our trailing 12 months covenant EBITDA, which is within our required covenant ratio of less than 4 times. While we are currently in compliance, as I mentioned on our last call, it is more likely than not that we will exceed our maximum net leverage covenant ratio during 2023. As a result, we executed an amendment to our credit agreement which temporarily increases our maximum net leverage ratio to 4.8 times and 4.5 times covenant EBITDA for the second and third quarters, respectively. We will continue to focus on cash flow enhancement by improving our working capital position, particularly by optimizing our inventory levels within our Healthcare Apparel segment, as well as scrutinizing our operating expenses and capital expenditures. I’ll wrap up with a reiteration of the outlook we provided for full-year 2023 on our last call. On a consolidated basis, we continue to look for full-year sales of $585 million to $595 million, up from $579 million last year, and earnings per diluted share of $0.92 to $0.97, up from adjusted earnings per diluted share of $0.62 last year. More specifically, for Healthcare Apparel, we continue to expect low-single-digit sales growth that gradually improves throughout the year as inventory levels and customer demand return to normalized levels. For Branded Products, we now expect a flat to mid-single-digit sales decline, again with meaningful improvement during the second half of the year. And for Contact Centers, we continue to expect strong double-digit sales growth, with the strong profitability of this segment enhancing our overall margins. As referenced last quarter, these segment-by-segment expectations for improvement should result in consolidated financial performance this year that is back-end loaded, and our strategic plan to capitalize on the large addressable markets for each of our three business segments should drive significant shareholder value creation over time. With that, operator, Michael, and I would be happy to take questions.

Operator, Operator

We will now begin the question and answer session. At this time, we will pause momentarily to assemble our roster. The first question comes from Mitra Ramgopal with Sidoti. Please go ahead.

Mitra Ramgopal, Analyst

Yes. Hi. Good afternoon. Thanks for taking the questions, Mike. I just wanted to start regarding the covenant compliance and the relief you received after 3Q. Is it reasonable to expect that 2Q will probably be our peak? Or in terms of the highest ratio?

Mike Koempel, CFO

That's correct, Mitra. As I mentioned in the year-end earnings call, we really felt like we would start to feel the pressure more in the short term. And as we get into the second quarter, or actually through the first quarter of this year, we had some favorable add-backs in our covenant calculation which expired at the end of the first quarter. So the expiration of some of those add-backs combined with the calendarization of our forecast really creates some peak pressure in the second quarter. And then obviously, we see that improving as we move forward, which ties into how we set up the amendment with our bank syndicate.

Mitra Ramgopal, Analyst

Okay. That's great. Thanks. And then on the quarter, just a couple of questions I wanted to zero in on. First on the inventory issue, is that pretty much behind you when you speak to your customers now?

Mike Koempel, CFO

Well, I think, as we said before, Mitra, especially from a healthcare perspective, it will take the full year to really work through inventory and get it to the targeted levels that we’re focused on achieving by the end of the year. I think we’re making progress, but it’s early. As we talked about even the guidance in healthcare, we expect the first half to still be somewhat soft, the market somewhat soft, and to accelerate as we move throughout the year. So, I think at this point from an inventory standpoint we are making the progress we expected, recognizing we have more to go, and again still focused on really driving turns and reductions through the year-end to achieve our target.

Mitra Ramgopal, Analyst

Okay. Thanks. And then I believe a year ago, PPE revenue was north of $4 million. Just curious how much that was in 1Q this year?

Mike Koempel, CFO

Mitra, our PPE sales were really fairly immaterial this year. So the first quarter of last year was probably the last year where it was a meaningful number for the business.

Mitra Ramgopal, Analyst

Okay. Thanks. And I know on the BAMKO segment, clearly you continue to see some softness there. But when we look at the guidance, it's obviously assuming a meaningful pickup in the second half of the year and when we look at BAMKO, for example, are you expecting the new sales reps to have a meaningful contribution towards that goal?

Mike Koempel, CFO

Sure. It's a couple of things, Mitra. Obviously, our guidance assumes that we have an improvement in the market as we move forward. We're seeing some of the tech companies reporting more favorable earnings this quarter, which are important customers to the branded product space. So we're anticipating that there will be some opening of the budgets, if you will, to move forward. But just in terms of focusing on the things that we can control, we're really happy with our rep recruiting at this point. We're ahead of last year. It does take a little bit of time for new reps to begin adding incremental sales. As we're adding those reps at a faster pace this year, it'll drive additional sales growth as we get to the back half of the year.

Mitra Ramgopal, Analyst

Okay. Thanks and contact centers—another really nice quarter. Just curious how the new center in the Dominican Republic is coming along.

Michael L. Benstock, CEO

Yeah. The Dominican Republic is still in the beta stage. We actually have some new customers who will be making use of that and give us a little bit more insight into what the future of that is. So far, it's going well. But, you know, we—it's early and I think we have probably 18 months until we're certain about that being a place that we want to invest more money. But we should know in the next six to eight months have a fair degree of certainty with respect to that. In the meantime, we are moving ahead as though it is going to be important to our future. As I said on the last call, it's a little bit less important than when we first opened it or we first conceived of it because we still have a fair amount of our agents working from home. That seems to be a dynamic that our customers are very happy with, to have a percentage of their workforce working from home in the event of any kind of future disaster.

Mitra Ramgopal, Analyst

Okay. Thanks. And how should we think of interest expense and tax rate for the remainder of the year?

Mike Koempel, CFO

Interest expense. If you look at the first quarter, interest expense was just about $2.6 million. I'd say that's a fairly good proxy as we move forward. Obviously, we're focused on bringing that down over the year, offset somewhat by interest rates continuing to tick up. So I think the first quarter is a pretty good proxy. And from a tax rate perspective, Mitra, I would say if you look at our effective tax rate over the last couple of years in our 10-K, given that the majority of our earnings have been with our contact center, which is offshore, I think the last couple of years would represent a pretty good proxy of how we think about tax expense as we move forward.

Mitra Ramgopal, Analyst

Okay. Thanks for taking the questions.

Michael L. Benstock, CEO

Thank you.

Operator, Operator

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

Kevin Mark Steinke, Analyst

Good afternoon. I wanted to first start it off by asking about healthcare apparel. You mentioned you expect the first half in aggregate to be fairly soft and pick up in the second half. Can you just talk about the expectations that you believe will drive that pickup? Is it more about inventory clearing out of the market or how much do your own internal efforts factor into that in terms of you mentioned the soft launch of the direct-to-consumer? Just any comments on how the ramp plays out in healthcare apparel this year as you expect?

Michael L. Benstock, CEO

That's a good multipart question. Hi Kevin, thank you. I'll take that. As we said, we continue to see some economic headwinds and downward pricing pressure, and we certainly will even see it into the second half of the year. What it really comes down to is that it's manifesting in a really smaller basket size as consumers seem to be taking advantage of a very promotional marketplace. Their comparison shopping really to find the best deals. The market will work its way through all this excess inventory. We expect to see increased demand for newness of products and price products during the latter half of the year. We're focused on controlling what we can control. The relaunch of the Wink scrub brand on our D2C website launched very, very successfully exceeded our expectations and certainly elevated our spirits with respect to this marketplace. There was a great elevation of our team in accomplishing this and a great elevation in our technology to accomplish this. We pulled it off pretty seamlessly. As we've said in the past, we have new executive leadership in place. They all got 12 heads when I called them the Dream Team on the last call. But they are focused on transforming the business and executing against a strategic plan that we believe is achievable that we released in early 2023. We're going to continue investing in the scene and the technologies to drive our brand and digital efficiencies as well as our product innovation. We believe the potential of this marketplace is huge.

Kevin Mark Steinke, Analyst

So that's good. Thanks. So, yeah, you touched on it there, and you mentioned in the prepared comments that first quarter results reflect investments you're making. Can you just walk us through some of those various investments? Are we talking about salesforce and branded products? And you mentioned healthcare. What other investments should we be thinking about, and do those taper off as the year goes on? And I assume you start to get some leverage from those investments in the back half of the year as the investments perhaps start to drive some growth? Is that the right way to think about it?

Michael L. Benstock, CEO

It's somewhat the right way. I mean, we'll continue to make the investments beyond the end of the year for further growth. Understand, we did a soft launch of the data. So you can understand all what goes on around that is a big investment in branding, a big investment in analysis and digital site—direct to consumer sites, consumer studies that we did and everything else. Obviously, a lot of that's an upfront investment, but much of that is also an ongoing investment and it'll be ongoing as we see how the digital marketplace grows for us. We will continue to make investments in marketing and in talent and in analysis and so on to take full advantage of the marketplace as we’re growing it. Do I expect that to be more accretive to the bottom line as time goes on? Yes, of course I do. Otherwise, we wouldn't do it. So, we should get some leverage from that as time goes on.

Kevin Mark Steinke, Analyst

Okay. Thanks. And then on the contact centers gross margin, you mentioned the higher labor cost there. It sounded like you implemented some price increases to help offset that maybe later in the year. Is that something where you can think you can fully recoup the higher cost, or should we think about maybe gross margin in that segment being a bit lower than it was historically?

Michael L. Benstock, CEO

I will jump in, and then I will let Mike finish for me. But yes, we feel very confident. We lagged in price increases and there are a number of reasons for that. One is we had some contractual obligations with customers that we couldn’t raise their prices until the time was right within the context of the contract. I have to tell you too, we have never seen a cost increase as drastic as our cost went up in a very short period of time. Not anticipating that, not having experienced that before, we lagged a little bit in notifying our customers of a price increase, and it was a requirement that we notify them and then give them time for the implementation of that. So we were unable to implement those until March. Had we taken all the actions that we could have and should have a few months earlier, we might have been able to recoup much of what we were not able to garner in the first quarter as a result of that lag. So, you know, it's a learning experience for us, quite frankly. We're in some very unusual times and I'm just trying to be as transparent as possible that it won't happen again. That we will begin our budgeting process, which really triggered the price increases to begin with. We will begin it earlier with respect to the Office Gurus to ensure that we know what kind of price increases we should be giving and we give them early enough so that it doesn't impact our financials.

Mike Koempel, CFO

And Kevin…

Kevin Mark Steinke, Analyst

Yeah. Go ahead.

Mike Koempel, CFO

I would just add it ties back to, I think, Michael's prepared comments where we, obviously, we looked at it from two sides. One was price increases, which Michael just described, and as a team, we also looked at where could we garner some efficiencies and how we're organized to provide the service. We really looked across the P&L. I’d say it’s a combination of implementing price increases, as well as driving some efficiencies in the cost structure as a way of trying to recoup what we had seen decline in the first quarter.

Kevin Mark Steinke, Analyst

Okay. Thank you. And could you just touch on the market dynamics that, I guess, drove that rapid and somewhat unexpected increase in labor costs? Is this the tight labor market or more competition in contact centers for labor? What was going on there?

Michael L. Benstock, CEO

If you look at the jobs numbers and the unemployment in the United States and the shortage, the disparity between 13 million open jobs and only 5 million people to fill those jobs, you start to understand that people looking for entry-level employees, which are typically the agent level that we hire, aren't able to find them in the United States. I think there's an awakening to that going into an inflationary or being in an inflationary period, perhaps going into recession, that people are going to get their act together. Nearshore has become a more viable solution than ever before. A lot of people who were not open-minded to that possibility of outsourcing or outsourcing to a foreign country have realized they don't have much choice. The demand for workers in each of the countries that we're in has been raised, and as demand has been raised, there's not an unlimited supply of people. There is a large supply of people who want those jobs. We demand a very high level of proficiency in English. So it is more limited, and we've had to pay to ensure we recruit the best of those for our clients. There have been signing bonuses and referral bonuses and higher levels of pay that we've had to institute in order to do that. That's not a bad thing. I mean, inflation is not the worst thing that can happen. We’ve been able to raise our prices. We will be able to improve our margins over time because of that, but it is the driving force behind what's happening. We're not alone in this— we're seeing it across the regions where we operate and in the call center world period. I think the demand is going to get greater and greater if we don't figure out a way to take care of those 8 million jobs that we can't seem to fill in this country for many reasons.

Kevin Mark Steinke, Analyst

Okay. Yeah. Makes sense. But yeah, as you mentioned on the other side of that, the demand environment is very strong. I think you said you onboarded as many new customers in the first quarter in contact centers as you did all of last year, is that correct? And, does that change the growth trajectory? How should we think about the growth trajectory over the next several years?

Michael L. Benstock, CEO

We're on a steady path to grow the business by over 20%, just as we said in the last quarter. We need to do it diligently. We need to be careful about how we do it with the right customers, picking customers to ensure we can maintain the types of margins that we've made previously with new customers and they are ultimately the right customers for us. We're not changing our guidance with respect to our growth. We feel very good that over 20% is something we can hit. And, should we feel in the future that we can beat it, we will certainly provide guidance for that.

Kevin Mark Steinke, Analyst

Okay. Thanks for taking the questions. I'll turn it over.

Michael L. Benstock, CEO

Thanks, Kevin. Waiting for the operator.

Operator, Operator

Hello? I turn the call—the question over to Tim Moore, EF Hutton.

Tim Moore, Analyst

Thanks. The gross margin was good in the quarter and it was nice to hear about the Covenant Amendment in place. A few of my questions have already been asked, but let me just start out maybe with a two-part question about healthcare. You know, how should we think about possibly monitoring the institutional side as a leading indicator ahead of the retail side pick up? If you think of our punishments, does the institutional side tend to start picking up three to four months ahead of the retail side?

Michael L. Benstock, CEO

It's a really good question. Nobody's asked that in a long time. Typically, you know, healthcare on the wholesale side, the institutional side, which is to the laundries who are servicing the hospitals, tends to see buying reduced later, anywhere from three to six months later than other retail buying. It tends to come out of a recession sooner. The explanation we've gotten for that over the years is that, when there's a looming recession, people tend to make sure they see their doctors, avail themselves of healthcare under their insurance because they're concerned that in a bad recession there would be a lot of layoffs. They’d lose their job and lose their healthcare. We believe this will hold true despite previously untested factors like the Affordable Care Act. When we see the institutional side coming out of its slump, we would expect within six months to see the retail wholesale side as well as the consumer side doing the same. We're seeing some light on the wholesale side. Now, the wholesale side for us is not as pressured as the consumer retail side, and we're hoping that the past models of three to six months work out this time as well.

Tim Moore, Analyst

Michael, thank you for that. It's really helpful color. And the other part of my healthcare apparel question is, as you look at the discounting more so, I understand it has been industry-wide. Have you seen it calm down a bit in the past month or two, and how do you feel about your position, or Catherine, feels your position with your attractive pricing relative to peers for some of the new launches and items coming out as you add some more items and features to the apparel offerings later this year?

Michael L. Benstock, CEO

We haven't seen a slowdown in discounting; it's still pretty heavy. A lot of the discount buyers are full of merchandise right now, so it's slowed down a little bit. Quite frankly, oftentimes for certain products, there's no price that anybody would want to buy them at this point. We have to see a diminishing of some of those inventories at retail before we see a big impact. But we expect to be where we planned to be at the end of the year. We took some significant write-downs last year, which gave us a little bit of breathing room. However, this hasn't stopped us from developing new products. With our direct-to-consumer, we must engage customers with it, increasing our new offerings. We're being conservative in how much newness we bring out. A lot of it consists of aligning our brand strategy so that we're adapting to every customer demographic that might want to buy scrubs. We're aiming to be as omnichannel as possible, spending marketing and technology dollars wisely and getting the fastest return on the investments we're making.

Tim Moore, Analyst

Thanks for that color. And just switching gears to BAMKO and its related subsidiaries, is there anything that they're doing to stay engaged specifically with the technology downturn in some other end markets? It seems like some of those layoffs started leveling out the last few weeks or months. Are they doing anything to reach out to customers who might have had buying moratoriums or at least budget cuts at the end of the year last year?

Michael L. Benstock, CEO

For sure, they are on their customers like white on rice. They've been in touch with their customers all throughout the last six months as buying habits have changed and even through the layoffs. Some of the people we were dealing with got laid off, so they've got to make new connections with new people as well. We're not losing customers; we just have customers who are buying less. We can't necessarily create the demand for them to buy more if they don't have the marketing or HR dollars to spend, but we can stay in front of them. We're also exploring other paths, other areas we might not be dealing with. Often, we have customers that might have 20 different departments purchasing branded merchandise and branded uniforms, and we may only be dealing with three or four of them. This is a prime opportunity for us to be aggressive in picking up a few more departments through the connections we have. I must say I was disappointed in our recruiting last year, but this year, I'm not at all; we're right on track with where we budgeted and planned to be. This will make a difference in the latter half of the year in particular and certainly in the next year.

Tim Moore, Analyst

Great. That's helpful to hear. My last question is just about the contact centers and the Office Gurus. When you think about, there's a phenomenal business there; I feel like investors are underappreciating—I always write about that in my reports. Do you think about the two headwinds to EBITDA margin this year? One being cost inflation and it’s great that you got the pricing to offset that soon, and the other just being sensible growth spending for infrastructure and hiring as you roll out the Dominican Republic and expand some of the other areas. Do you think that, I know you're not giving guidance for next year, but it would seem like there's a 200 basis points to 300 basis points EBITDA drag this year. And when you look out to next year and you start lapping that and the Dominican Republic investments come down a little bit, do you think you can recover a lot of that margin next year?

Michael L. Benstock, CEO

To give some perspective on this, I'm going to let Mike jump in after this. But Dominican investment was pretty small—no more than a few hundred thousand dollars, quite frankly, and a lot of that was capitalized over the course of our leases. As we said, we didn't go in full bore, we went in doing it as a beta opportunity. We've spent very little getting there. I wouldn't blame the Dominican or any of our infrastructure moves for why we're at where we're at right now. Really, where we're at right now is costs got ahead of us, and they went up very quickly and we couldn't respond quickly enough. That's not completely our fault, but that is on us. Now that we’ve readjusted, as Mike described earlier and I have, we are on the right track at this point. I think there is, as we grow, the opportunity to leverage what we've already done and leverage the fact a certain percentage of our workforce is going to continue to work from home for many years. That should help us as well.

Mike Koempel, CFO

I think you said it well, Michael. I would just say, Tim, obviously we talked just about some cost pressure that we're seeing from a labor standpoint. It is difficult to predict what it might look like next year. We certainly feel like we have a level of pricing power. At the same time, we also recognize we need to remain competitive. We'll undoubtedly keep an eye on that going forward, and that'll be a key determining factor as we get past 2023. I do think that as the business continues to grow, we will obviously gain leverage on the operating expense side. If you go back to last year, you see a steady growth in operating expense dollars in that segment for obvious reasons, with last year growing in certain quarters in excess of 30%. There are certain things we need to do to build out infrastructure. We're making those investments, as you're seeing quarter to quarter, and as the business continues to grow at double digits, we expect to begin getting more leverage out of those investments as we move forward.

Tim Moore, Analyst

Well, thanks for clarifying the contact centers' net pricing realization, the readjustment there over cost inflation. So that's it for my questions; I'll turn it back over.

Operator, Operator

This concludes the question and answer session, and I would like to turn the call back over to Michael Benstock for closing remarks.

Michael L. Benstock, CEO

All right. Thank you again, operator. As we progress while navigating some pretty uncertain times, what you need to know is that our team is extremely energized, and I hope you are feeling that on the call about the opportunities ahead and the investments we're making to drive growth and future profitability. Thank you, everyone for joining us. We look forward to updating again on the next call; please don't hesitate to reach out with any questions. Thanks again.