Earnings Call Transcript - SGC Q2 2021

Operator, Operator

Good afternoon, everyone. Welcome to Superior Group of Companies Second Quarter 2021 Conference Call. With us today on behalf of the company are Michael Benstock, company's Chief Executive Officer; Andy Demott, Chief Operating Officer, Chief Financial Officer and Treasurer; Phil Koosed, Chief Strategy Officer. And from the Promotional Products Division, we have Jake Himelstein, BAMKO's President. After the speakers' opening remarks, there will be a question-and-answer session. This call is being recorded and your participation implies that you agree to this. If you don't then simply drop off the line.

Hala Elsherbini, Legal Advisor

Thank you, and good afternoon, everyone. This conference call may contain forward-looking statements about the Superior Group of Companies, the Company, within the meaning of Securities Act of 1933, the Securities Exchange Act of 1935, the Private Securities Litigation Reform Act of 1995 and all rules and regulations issued thereunder. Such statements are based upon management's current expectations, projections, estimates, and assumptions. Words such as will, expect, believe, anticipate, think, outlook, hope, and variations of such words and similar expressions identify such forward-looking statements, which include statements on the impact of COVID-19 on the company's business, including inventory, supply chain, manufacturing capacity at the company's own and contract manufacturing facilities, service capacity, and customer demand. Forward-looking statements involve known and unknown risks and uncertainties that may cause future results to differ materially from those suggested by the forward-looking statements. Such risks and uncertainties include but are not limited to the following; the effect of the COVID-19 crisis on the US and global markets; our business operations, customers, suppliers, and employees; general economic conditions in the areas of the United States in which the company's customers are located; changes in the markets where uniforms are worn, where promotional products are sold, and where call center services are used; the impact of competition; the company's ability to successfully integrate operations following confirmation of acquisitions; and the availability of manufacturing materials, as well as the risks and uncertainties disclosed in the company's periodic filings with the Securities and Exchange Commission, including the company's Annual Report on Form 10-K for the year ended December 31, 2020, the quarterly report on Form 10-Q for the quarter ended June 30, 2021, and the 8-K filed recently. Shareholders, potential investors, and other readers are urged to consider these factors carefully in evaluating the forward-looking statements made hereunder and are cautioned not to place undue reliance on such forward-looking statements. The company does not undertake to update the forward-looking statements contained herein to conform to actual results or changes in the company's expectations, whether as a result of new information, future events or otherwise, except as required by law. Please note that all growth comparisons that management makes today will relate to the corresponding period in 2020 unless otherwise noted.

Michael Benstock, CEO

Good afternoon, everyone. Thank you, Hala. I think your portion of this gets longer and longer every quarter. Thank you all for joining us to discuss our Q2 results. In addition to Andy and Jake, I'm pleased to be joined by Phil Koosed, our recently appointed Chief Strategy Officer and the newest member of our C-suite. Phil is a dynamic leader with proven strategic acumen, and we're excited to further tap into his expertise. Additionally, Jake has been an invaluable leader serving as COO and CFO of BAMKO these past few years. His depth and breadth of business and industry experience, as well as his prior M&A work, is a tremendous asset. His recent promotion to President is certainly well deserved. For the call format, I’ll open the second quarter highlights, and Phil will provide the higher level thoughts on our strategic direction, followed by Jake's review of BAMKO. Andy will then provide an operational and financial review. As usual, when we are done we will open the line for questions. So let's get started. Sales are quickly moving in the right direction and our core businesses are prospering. In particular, we're seeing a faster than expected recovery in most of the sectors of our uniform business that were weakened by the pandemic. We're also seeing a return to normalized yet strong levels in our other uniform channels. Overall, second-quarter results in visibility for a strong second half give us greater confidence to update our sales guidance that we gave during our first quarter call. We now expect to approach $525 million in revenue for fiscal 2021 versus our guidance last quarter of approaching the $500 million mark. This puts our revenue target on par with 2020's spectacular numbers. To keep some perspective here, I’m going to throw out a lot of numbers now; I hope we keep up with it. In 2019, our total sales revenue was $377 million. In 2020, our sales revenue was $527 million, exceeding our budgeted $408 million by $119 million. Our core non-PPE sales for 2020, this is last year, was $396 million. Our anticipated sales for this fiscal year will greatly eclipse our actual core sales results last year. Our 12.5% guidance with respect to our growth from 2025 remains the same. We are on track to meet our consolidated CAGR goals of organically achieving nearly $900 million in revenue in 2025 and along with acquisitions expect to exceed $1 billion. Let's take a closer review of our segments. As anticipated, our uniform division, serving both healthcare and essential employee ID end markets, are normalizing when compared to the frenetic pace of pandemic purchasing last year. For HPI, activity is booming with some customers’ demand nearing and even exceeding pre-pandemic levels. This is particularly evident in lodging, entertainment, hospitality, food service, and transportation. As corporate customers realize rebounding sales, they are returning to an issue that’s paused during the pandemic, including uniform upgrades and market checking RFPs. As a result, we are also seeing a market increase in customer acquisition opportunities.

Phil Koosed, Chief Strategy Officer

Thank you, Michael. I’m very excited to take on this new role and to help shape the future strategic direction of SGC as we enter our second 100 years of growth. I'm an entrepreneur by nature, so I know that growth and the ability to reinvent is really central to the success of any company. This ability to reimagine the future of this business is built into the DNA of SGC. It's the reason why after 100 years we are more than just surviving; we are thriving. Reimagining the future of this business is the main focus of this role and the primary reason I'm so excited about it. We have built an incredible foundation upon which we can create future growth. Some critical areas to build upon will be shaping our technology strategy, focusing on client experience, expanding our M&A efforts, and enhancing our talent throughout the organization. I will touch on each of these briefly. First, shaping our technology strategy. Nowadays, every company needs to be a tech company, and SGC is no different. Technology already weaves into every aspect of our business. This will expand rapidly in the next decade as we benefit from the developments in AI, machine learning, advanced robotics, and blockchain. Some of these developments will involve building upon our existing proprietary technologies that we have developed in-house, and some of these efforts will require being at the forefront of new technologies that can improve our business. On the client experience side, we have some amazing highlights with some of the largest companies in the world, showing just how good we are at customer experience. However, we must not rest on our laurels. We will be obsessed with client experience, and we will work diligently to improve it at every level. Our M&A strategy will continue to build upon our rich success we have had with previous acquisitions. We have made six acquisitions in the last eight years, and their effect has been transformational. We will be focused on maintaining a robust acquisition pipeline so we can continue our current strategy of being extremely selective in terms of who we acquire.

Jake Himelstein, President, BAMKO

Thank you, Phil. This is such an exciting time for SGC and for BAMKO. I'm honored and humbled to lead such an incredible team. Now onto the quarterly review. As expected, PPE sales slowed down substantially this quarter. Our extraordinary PPE sales of Q2 2020 did not recur in Q2 2021; that did not come as a surprise. However, we are thrilled to report that our core promotional product business has experienced a resurgence in sales and we expect that to continue throughout the rest of the year. Overall, BAMKO ended the second quarter of 2021 with revenue of $48.7 million, gross profit of $16 million, and operating income of $5 million. While these figures represent year-over-year decreases from our extraordinary PPE-driven Q2 of 2020, when you consider the anomalous nature of our PPE sales a year ago, this quarter’s results were phenomenal. I'm particularly happy to report that this quarter's promotional product revenue was at an all-time high at $47.7 million. Promotional product revenue made up over 98% of total quarterly revenue. Perhaps most impressively, this is an 85% increase over the same period last year. This now marks the third consecutive quarter that our division has set a new all-time high watermark from promotional product revenue in the quarter. This is our core business. This comeback is flourishing, and it's exciting that we continue to trend upwards to even greater heights. With the rollout of the vaccine in the US and the easing of COVID restrictions, the promotional products industry started to see an increase in spend during Q2. Clients in the entertainment and travel sectors have increased their spend much quicker than we anticipated. Marketing budgets have started to open back up and we have already seen companies planning for year-end employee gifting. While the promotional products industry as a whole was up about 3% or 4% in the first half of 2021 compared to the first half of 2020, it remained down by about 20% when compared to pre-COVID levels. Our backlog at June 30th was $67.6 million, almost entirely made up of core promotional products. This backlog is 66% higher than at March 31st. Another sign of the continued resurgence in promotional product spend.

Andy Demott, CFO

Thanks, Jake and good afternoon, everyone. We’re all pace with capital investment initiatives across our distribution facilities at our Eudora, Arkansas center, beta testing of new upgraded robotics are slated for Q4 with the go-live launch expected early next year. The consolidation is expected to yield approximately $2 million of annual savings, as well as provide significant technology advantages and efficiency. We continue to reap the benefits of improved efficiencies resulting from higher automation and robotics in our CID Dallas distribution center as well. Our third manufacturing facility in Haiti is now beginning operations. Turning to the financial highlights. Consolidated net sales, exclusive of PPE sales, increased by $23 million or approximately 23% compared to the second quarter of 2020 as we continue to see a rebound in markets, and we continue to take additional market share. Including PPE, consolidated sales declined 18% compared to the prior year quarter to $130.8 million. This decrease in PPE sales was in line with our expectations. Uniforms and related products’ net sales excluding PPE decreased 7% or $4.5 million compared to last year. PPE sales were $5.8 million versus $8.9 million a year ago. Additionally, second quarter 2020 sales of non-PPE healthcare products included an extraordinary surge in demand that has been reduced as we move through the pandemic. We were successful in adding new business and channels to offset this change and are well positioned to continue to capitalize on this growing part of the market. We're seeing an offset to the higher PPE healthcare uniform demand in the second quarter last year with a resurgence of demand for non-healthcare recovering industries, such as restaurants, transportation, and the hospitality industries. As we progressed through the pandemic, we felt it was critical to provide backlog information each quarter to provide transparency on the PPE business that had been booked but not yet delivered. Now the crisis PPE is not expected to be a significant portion of our uniform revenue moving forward. Our backlog for uniform sales is primarily made up of orders that will shift very quickly and is not meaningful for evaluating the state of the uniform business. Jake’s already reviewed BAMKO's results. I’ll move to the office bureaus. The team reported tremendous growth and exceeded expectations with net sales after intersegment eliminations up an impressive 73% to $13.9 million. Growth is attributed to expanded customer relationships and onboarding new customer engagement at an incredible rate. We continue to have tremendous tailwinds in this segment. For the quarter, consolidated gross margin as a percentage of sales increased to 36.1%, a 100 basis point improvement from 35.1% in second quarter 2020. Our total SG&A expenses decreased approximately 7%, reflecting a decrease in bad debt expense of $2.8 million. As a percentage of sales, SG&A was 25.9% versus 22.8% in second quarter last year due primarily to the lower PPE sales in the current period. Income from operations for the second quarter was $13.3 million compared to $19.6 million in 2020's second quarter. Operating margin was a solid 10.1% compared to 12.3% last year. During the second quarter, we terminated our two non-contributory qualified defined benefit pension plans, which were fully funded. Consequently, we recognized a settlement charge of $6.9 million during the three months ended June 30th, which represents the acceleration of deferred charges previously included within accumulated and other comprehensive loss and the impact of remeasuring the plan's assets and obligations of termination. The pension plan terminations did not require cash outlay by the Company. Net of the recognized tax benefit of $0.6 million, this charge resulted in a reduction of diluted earnings per share of $0.39 during the second quarter of 2021. Our effective tax rate for the quarter was 17.3% compared to 19.6% a year ago. The effective rate for the second quarter '21 was favorably impacted by $0.8 million of windfall tax benefit from stock options exercised during the quarter and $0.6 million of stranded tax benefits that were recognized as a result of the termination of the pension plans. These benefits were partially offset by the non-deductible pension termination charge. Net income was $4.6 million or $0.28 per diluted share compared to $15.2 million or $1 per diluted share in quarter two last year. Excluding the impact of the pension termination charge and related tax benefit, net income would have been $0.67 per diluted share in the second quarter of '21. Also of note, our second quarter 2020 represented the highest quarterly earnings in the company's 100-year history. We are in a strong liquidity position and at June 30th we had cash and cash equivalents of $7.5 million, an increase of $2.4 million in the current year. CapEx for the first half of the year was $11.3 million. We are on target with our CapEx investments in automation and efficiency, and still expect to be in the range of $16 million to $17 million for 2021. In recognition of our continuing strong performance, the Board of Directors increased our regular quarterly dividend by 20% in the second quarter to $0.12 per share. In total for the six months ended June 30, 2021 and 2020, we paid $3.4 million and $1.5 million respectively in dividends. I'll now turn the call back to Michael for his closing remarks and a general outlook.

Michael Benstock, CEO

Thanks, Andy. That was long but a lot of information in there. Those of you who have been with us before know that we're always laser-focused on our future. And our top priority still remains having a disciplined execution of our long-term strategies, both organically and via targeted acquisitions. SGC is on its best footing ever, and I'm confident that our talented, hardworking, passionate leadership and workforce will take us to new heights in the coming year. We strongly believe we have the right plans in place to grow beyond being a $1 billion business in less than five years from now. These are very exciting times for SGC. With that, we'd like to open the call for your questions.

Operator, Operator

First question comes from Tim Mulrooney, William Blair.

Tim Mulrooney, Analyst

So on the uniform business, excluding PPE, I think the uniform business was down about 7% on a tough comparison. But I do think those comparisons start to get easier in the back half of the year. So with that in mind, based on what you know today, would you expect to see year-over-year growth in this business in the second half of 2021, excluding PPE?

Michael Benstock, CEO

We are witnessing a resurgence of businesses that were previously deemed non-essential during the pandemic, and we are currently working to catch up. We've explained that from a service perspective, we've encountered some unusual logistical challenges. Additionally, our customers are ordering two or three times more than usual in a quarter, which has led to some shortages in safety supplies. As we catch up, we anticipate a quick rebound in that business. Meanwhile, while the healthcare sector has started to stabilize, we are entering new markets and selling our fashion scrubs on platforms like walmart.com, target.com, and zappos.com. The institutional market will largely depend on the ongoing situation with the pandemic. As hospital patient numbers rise, we expect a revival in our scrub apparel, patient clothing, isolation gowns, and barrier coats, all of which saw significant demand last year. We expect our uniform business to stabilize by the end of the year, cover the shortfalls, and we are striving to create conditions that will allow us to exceed those expectations.

Tim Mulrooney, Analyst

And you kind of addressed my next question, which was going to be specifically on the healthcare opportunity, because you mentioned new channels helping to make up for some of the difficult comparisons with PPE. My question was going to be, are these new channels mostly on the institutional side or on the retail side, but you named a bunch of retail channels. So is it fair to say that, is that what the larger opportunity is for you guys moving forward, is it mostly on the retail side when it comes to where the growth is going to come from?

Michael Benstock, CEO

It's really a mixed bag. We are on the retail side for sure, but we also have a new distributor, we press released a couple of months ago, SanMar, who's moving our product through the branded merchandise, customers of theirs, the 22,000 customers of theirs. We also have a product, which is kind of a crossover between fashion, healthcare, and that I believe UniFirst and others have announced that they're adopting as their fashion product for the institutional healthcare side of the business. So it's a very mixed bag. It really is going to come from both of them.

Tim Mulrooney, Analyst

And I wanted to say congratulations to Phil and Jake on your promotions. Jake, to you specifically. It looks like the backlog of BAMKO is very strong. I know you helped out a lot of folks during the pandemic with PPE, including a lot of new customers that you hadn't previously engaged. So I guess my question is, how much of this increase in backlog, if any, do you think is the result of converting some of those PPE customers into traditional promotional products customers?

Jake Himelstein, President, BAMKO

Certainly, there is some of that, right? We've said it before and it stays pretty consistent. We've converted about a third of our PPE-only customers into 2022 promotional product customers, right? We were there and they trusted us in their toughest times when they needed PPE, and we've been able to convert about a third of those into promotional product customers. We continue to work with these customers to find additional opportunities to penetrate and get the promotional product business. So we think that's only going to continue to expand. And I think across the board, our backlog is really strong. And I mentioned in the script but the most impressive part of it is that virtually none of that is PPE; it's all promotional products and branded merchandise. And that's what's most exciting is that we're seeing that resurgence coming into what we think is going to be a really strong holiday season as well.

Tim Mulrooney, Analyst

If I could just sneak one more in, I don't know if this would be for Michael, or Andy, or Phil. But it's not PPE. So you expect PPE to be, I guess, about $45 million this year down from $130 million last year. But still well above the $4 million or so that you generated in 2018 and 2019. Is this level, this $45 million kind of what you'd expect moving forward for PPE revenue to be much lower than the peak in 2020 but still remain elevated relative to pre-COVID levels?

Andy Demott, CFO

I believe the $45 million includes some PPE that we had from the first quarter. Our expectation is that part of the PPE products we are selling has become integrated into uniform programs for starter kits targeting gig economy workers. Moving forward, I anticipate that starter kits will come with hand sanitizer, masks, and gloves. Some of these items will be considered part of our regular product line and won't specifically show up as PPE. On an ongoing basis, for genuine PPE revenues, you can expect figures in the range of $5 million to $10 million.

Operator, Operator

Next question comes from Tim Investments.

Unidentified Analyst, Analyst

I had two questions. The first outlook for 2021, it looks like in the first half of the year, there's a big use of working capital. And you mentioned that CapEx was sort of heavily weighted there. So I was wondering if you could just sort of address how the free cash flow will go for the full year of 2021? And then the second question was address the sale, just to talk a little bit more about the specifics around the technology strategy and the customer experience, which were the first two items you highlighted in your focus?

Andy Demott, CFO

Relative to the cash flows, I mean, the first half of the year really included some extraordinary incentive-type payments that were based off of last year relative to really executive and sales comp across the company, as well as significant earn-out from some of our acquisitions, primarily in the commercial products arena, as well as paying income taxes on those items. So it was a heavy use of that during the first half. We also, as Michael mentioned, we did beef up our inventories a bit due to supply chain and just to be prepared for that as we go forward. We would expect to see that start leveling and also work its way back down as the supply chain continues to work its way out. From a capital expenditure perspective, as I mentioned in my remarks, we do expect for the year that number is going to be somewhere between $16 million and $17 million. So we would expect from here we should be positive from a cash flow perspective. Michael, do you want to answer to it?

Phil Koosed, Chief Strategy Officer

The second part of that question. So without disclosing too much, on the technology front, we've been heavy into technology for quite some time. And I would say we've been well ahead on the technology curve in our industry and our respective industries for quite some time. The exciting part now is we're seeing more and more ability to integrate technology further into our business. So over the course of the last couple of decades, I would say the technology has been an advantage and been an advantage that we've been able to stay ahead of our competitors on. But we believe that we can widen that gap by embracing some of the newer technologies out there that are really making advancements in permitting various industries across the board. I mentioned AI, machine learning, advanced robotics, and blockchain on the supply chain side, and that's that we’re already working towards. In many cases, we already have some pretty advanced robotics right now in our warehouse, and we have some pretty good direction in terms of how AI might affect our business in the coming years. So we're looking forward to seeing that really come through, because we think it'll widen the gap between us and our competitors on the technology front. On the customer side, to the second part of your question, focusing on our client experience and making sure that what we've done in the past and what we deliver from an experiential perspective continues in the future. That's first and foremost. I mean, I think that's something that any business out there that's worth their sales is going to be focused on their customers’ experience and making sure that their customer not only goes and is happy with what they've got and what the services that we're providing but are actually fans of our business. I think more and more we get business from referrals, and the main reason why is because of the fact that we've actually developed fans within our customer base. So that's really our focus is how do we go and make this experience so good that we're not only going and making the customer happy, but also ramp up their involvement and are into various folks and referring business to us in the future.

Unidentified Analyst, Analyst

Can you measure customer retention and sort of fan level among the customer base?

Phil Koosed, Chief Strategy Officer

Yes, that's something that we measure and we’ll continue to measure.

Operator, Operator

Next question comes from Kevin Steinke, Barrington Research.

Kevin Steinke, Analyst

I wanted to start off by asking about, Michael, I think you mentioned in your prepared comments seeing more opportunities to bid on new uniform programs. Can you just expand on that a little bit and what's driving that pickup?

Michael Benstock, CEO

There are many factors at play, but let's begin with the challenge of attracting new employees right now. In low-wage jobs, where uniforms are common, employers are sweetening the deal by providing more uniforms. We've learned that instead of giving employees two sets, they might now offer three, four, or five. Additionally, turnover has risen significantly. When you hire someone, they may leave for another opportunity just weeks later, which means you need to provide a new uniform for the replacement. This creates another sale opportunity for us. Healthcare workers, especially on the retail side, have been working excessive overtime and earning good money, which leads them to purchase more fashionable scrubs. As we've noted before, historically after a recession, the market rebounds strongly. Even though we haven't fully recovered from the pandemic, the trends we see now are reminiscent of previous recoveries. Companies are investing in marketing and rebranding efforts, which often include updates to logos and uniforms that align with this new branding. Our proactive approach during the pandemic kept us from falling behind while others waited for the situation to improve. Our strategy to expand our sales team from five to 75 is a significant shift, offering us opportunities in ways we haven’t been able to before. We are in the process of training these new employees, and we have a strong support team ready to help them connect with customers. All they need to do is secure face-to-face or virtual meetings. Things are trending positively in terms of requests for proposals. Many businesses were disappointed during the pandemic and now seek reliable service, facing considerable logistical challenges. Fortunately, we are in a better position than most of our competitors to navigate these challenges, even though they are quite severe. What used to take us 45 days is now taking 90, and as demand increases, we find ourselves struggling with inventory. This situation is difficult for many of our competitors. I see it as a perfect storm for us, where we have the chance to turn challenges into opportunities, and we are ready to follow that path.

Kevin Steinke, Analyst

I wanted to follow up on your target for sales in 2021 being close to $525 million, an increase from the previous estimate of about $500 million. Is this growth being driven by any specific business area, or is it more of a general improvement across all of your segments?

Andy Demott, CFO

Kevin, it's really across all of them. I mean, we feel very good about where we're at with all the businesses. Michael talked clearly about how well BAMKO is doing. Jake covered on BAMKO. The uniform businesses is bouncing back stronger. We feel very comfortable that really it’s going to be across the board.

Kevin Steinke, Analyst

And then I think something that you didn't mention on the call, unless I missed it, was last quarter, talking about CID and their plans to expand internationally. Can you just provide us an update on that initiative and where you stand with that?

Michael Benstock, CEO

I can provide a little bit to you without giving away any competitive advantage. We are starting to ship and take orders for our Poland warehouse. We have hired a person away from a consulting firm that was working for us where they agreed to let that person work for us directly as an employee. We have already resumed our strategy of going to trade shows in Europe; last year, we did no trade shows before we did. Keep in mind that our business last year for international was about $30 million overall across all of our segments. So we're looking to turn that quite frankly into a $100 million business in the next few years. We think we've got the makings to do that; we have the right people, we brought another sales executive into our international group. We're doing some very serious deep strategic planning right now to make sure that we're focused on the right areas of Europe. We are actually engaging some experts in that area to help move us into the right places so we don't waste a lot of money doing it. And so that's essentially how we're going to get there.

Kevin Steinke, Analyst

And you talked again about the logistics and supply chain issues and how they're rippling through the economy. Have you seen any sort of loosening or improvement on that front? Any updated thoughts on that? And I guess also related to that, also inflation. I know you implemented some price increases around the time of your last call in the uniform business. Do you see the need to do that again going forward, or just kind of any update on those various macro issues?

Michael Benstock, CEO

We are evaluating whether further price increases are necessary, and we would not be the only ones in our industry to consider this. We implemented our price increases relatively early to safeguard our position. As previously mentioned, we have stockpiled inventory to minimize costs for our customers, ensuring that our pipeline maintains the lowest possible prices. However, the reality remains that freight costs, including ocean and air shipping, have more than doubled and, in some cases, tripled. Regarding your first question, we do not anticipate any relief from logistical issues; in fact, conditions seem to be worsening, which ultimately puts us in a favorable position compared to our competitors. We hear that many are struggling significantly. Numerous customers have reached out, and even though we strive to meet their needs through open communication, there may be some dissatisfaction in areas where our service does not meet expectations. As I mentioned before, with HPI holding only 6% or 7% market share, there is still a vast portion of the market they do not cater to. If more customers of our competitors are dissatisfied than ours, we stand to benefit in the end. I don't foresee any alleviation of logistical challenges this year; resolution may not occur until mid-next year. The shortage of ships continues, and the trend of ordering online for home delivery from Asia is occupying significant cargo space. Since orders under $800 come into the country duty-free, many have adapted their businesses to ship directly from Asia, consuming more container space in the process. I do not expect these issues to ease; however, as prices become untenable for some, their customers may seek alternatives, potentially turning into new prospects for us.

Kevin Steinke, Analyst

I wanted to ask about the M&A opportunities in the promotional product space that Jake mentioned. Considering those opportunities and the inbound calls regarding a potential partnership with BAMKO, how many do you think are solid candidates for collaboration? I understand you maintain high standards for evaluating such opportunities. Can you discuss the quality of opportunities that may emerge as a result of this challenging environment for competitors?

Jake Himelstein, President, BAMKO

Look we're looking at acquisitions across all areas of the business. All of our divisions, all of our companies, and the future of the business has opportunities. Certainly, BAMKO has a robust pipeline, but there are opportunities elsewhere as well. You're right; we have a high bar for what we look for in acquisitions; it's got to be accretive to the bottom line, easy to integrate, good for culture, and bring in new lines of business. We saw that with Gifts by Design; we did earlier this year in Q1, hitting all those different targets that we needed in order to do the right acquisition. So we're in discussion with a number of companies, some of which we've been talking to for years. We've always held, Kevin, that we have to be talking to a lot of different targets in order to find the right ones. There could be dozens and dozens that we're talking just to find the right one. We're not going to jump at an opportunity because it presents itself to us and more often than not, people are calling us; it's just not the right opportunity. But we're being opportunistic and you never know when the time's right for some of these. So we're certainly going to keep looking at them as they come in and as we solicit new opportunities.

Operator, Operator

This concludes the question-and-answer session. Now I'd like to turn the conference back over to Mr. Michael Benstock for closing remarks. Please go ahead.

Michael Benstock, CEO

All right. I'll make this real quick. It's been long for all of you. Thank you very much for joining us today. We're very excited about where our business is at. We hope to report to you next quarter continued great results. See you in October.

Operator, Operator

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