Morning everyone, and welcome to the Sidoti & Company September Virtual Investor Conference. The next company to present is the Superior Group of Companies. With us, we have the CEO, Michael Benstock, and the President and CFO, Mike Koempel. As always, this will be a 30-minute presentation. Management will present for about 8- 10 minutes, and then we'll open it up to questions after that. With all that out of the way, it's all yours, Michael.
Thanks, Jim, and good morning, everyone. We appreciate your interest in Superior Group of Companies and the opportunity for us to share highlights about our company. As Jim said, my name's Mike Koempel. I'm the President and CFO of Superior Group of Companies, and joining me is Michael Benstock, our Chairman and CEO. Michael's family started the business over 100 years ago, and Michael's worked in various positions throughout the business for over 45 years, including over 20 years as our CEO. We've got our safe harbor statement, which of course, you can read at your leisure. Moving to the investment highlights of our business. We have compelling reasons to invest in our business. As I mentioned, the business was founded over 100 years ago with three attractive diversified segments.
All of our businesses have demonstrated organic growth and have just a modest share of a very large addressable market. Our segments are highly profitable, including our most profitable segment, which is our Contact Centers segment, again, which we'll touch on later in the presentation. We have a solid balance sheet driven by a history of driving positive cash flow to support strategic investments in return to capital, which includes an uninterrupted dividend since 1977. Before getting into each segment, you can see from a revenue standpoint, last year we had revenues of about $566 million, a significant growth since 2019 of $377 million, with an annual growth rate of 7%. You can see growth across our segments. With that, I'll now turn it over to Michael to start us off with the Healthcare Apparel segment.
Thanks a lot, Mike. As Mike said, we're one of the oldest providers of Healthcare Apparel. That's where we started the company in 1920. Let me cover the channels that we sell into. Anywhere anybody would buy Healthcare Apparel or be wearing Healthcare Apparel, whether they bought it themselves, whether they got theirs through a healthcare laundry system, a hospital provided or their office provided it, specialty stores, distributors. So we're omni-channel, and we're one of the only omni-channel healthcare uniform providers out there. We started a direct-to-consumer channel just a few years ago, and that's growing to be more important as time goes on. Another fun fact, over 2 million people wear our apparel every single day as they go to work in the healthcare marketplace as caregivers. The TAM for this business is over $4 billion. It's huge, and it doesn't change much based on macroeconomics.
It's clear that we're one of the top five players in this business, and of course, as I said, we've been around a long time. Some of the brands you might recognize, Fashion Seal Healthcare is our oldest brand, going back to 1920. Our in-house brand that we curated is called Wink, and that's mostly sold to retail, and Carhartt, an iconic brand, we're a licensee of theirs in the healthcare space. We'll move on now to the next slide. These are some of our customers. Some of them you recognize, most of them you should. You can see how omni-channel we are selling to retailers, selling through Amazon, selling to dialysis centers, and even selling in some department stores as well. As we move off into the second business segment, which is Branded Products. Branded Products is made up of branded merchandise and branded uniforms.
What do they have in common? They all have logos on them. We're one of the largest companies in this space. Depending on what you read, we're either eighth or ninth largest in a space that has over 25,000 competitors. Very meaningful position to be in that top 10. Let's look a little bit at the numbers. This is a $27 billion TAM for this marketplace, and we've climbed from obscurity in the last 10 years, as I said, to be in that top 10. We produce tens of millions of branded products per year. Another fun fact on the uniform side, on the logoed uniform side of the Branded Products business, over 5 million people go to work every day wearing our uniforms. We'll show you a walk down Main Street on the next slide.
These are who we supply uniforms, and to many of them, promotional products as well. Very proud of this customer list, and this is only a very small portion of our customer list. We do employee gifting, we do customer loyalty gifts, we do safety gifts. There's so many different ways that our products get into the hands of the people who are using them or wearing them. Imagine all the ways they might get it. We're there to supply it however they need them. We collaborate with some of the best-known brands in the world, and Mike's going to take you through the final segment, which is our Contact Centers segment.
Thanks, Michael. Contact Centers, as Michael said, is our third business, which we operate under the banner of The Office Gurus. The Office Gurus is a nearshore contact center supporting both inbound and outbound call services on behalf of a number of brands across a variety of industries. As you can see, we operate across three nearshore countries, El Salvador, Belize, Dominican Republic, and a small footprint in Florida. We really focus on the small to medium size opportunities where we provide clients with high touch service as compared to larger engagements, which might have thousands of agents that are largely transactional. We also pride ourselves on bringing consistent processes and leveraging analytics and technology, including a variety of AI solutions, which are all focused on improving our customer's experience for our clients.
Much like the other numbers that Michael had shared, this segment too operates in a significant addressable market, over $120 billion in the U.S. alone. You can see, as I mentioned earlier, this is our highest growth segment. Our sales CAGR is about 17%, and our EBITDA margin 10% with a high net revenue retention. Much like our other segments, the Contact Centers segment serves a variety of businesses, a variety of industries, some of which I'm sure you'll recognize, from supporting legal services to travel and leisure, as well as retail. Our services fit into any industry, and we can provide, again, a variety of services to meet our clients' needs. A quick snapshot, again, from a financial perspective, looking at our revenues over a longer timeframe. Again, we finished last year at $566 million.
We are currently projecting growth this year to our high end of the range of $585 million. But really, when you scan across the page, over time, all of our segments have grown. We've more than doubled the business since 2015 with an annual growth rate of 10%. Really a combination of organic growth across all segments, as well as strategic acquisitions that have taken place from time to time. Lastly, as we focus on our capital allocation priorities, you can see we're focused on continuing to support the dividend, which we know is important to us and our shareholders. We do take advantage of opportunistic share repurchases as another method of returning capital to shareholders. We continue to look for opportunities to invest in organic growth. On an annual basis, we will invest about 1%-1.5% of our sales into the organic growth of our business.
Lastly, mergers and acquisitions. We have had a history of successful acquisitions dating over the last 10 plus years, and we'll continue to evaluate strategic acquisitions as another form of growth in our business. With that, Jim, we'll turn it back to you for any questions.
Great. Thanks for the quick summary there. The latest news you've had is regarding the Contact Centers business. Can you talk about the recent new hires there and why this is the right time to bring those folks on?
Yeah, Mike, go ahead.
Sure. Jim, we're really excited about a couple of these strategic hires that we made, and it's really with the focus on continuing to grow that business. We've talked many quarters about the strong pipeline we have in that business, and we want to maintain focus on continuing to grow that pipeline, but equally important, converting that pipeline. One of the hires was another strategic hire to bolster our sales leadership capability to do just that. We've said multiple times, this business grew over the years really without a sales and marketing footprint. This is a continuation of us thoughtfully building a sales capability that we believe will help to continue to drive growth in this business and support that double-digit revenue growth going forward.
The second strategic hire was a leadership role in our operations group, which also is supportive of our sales growth strategy. It really enables us to do two things. It enables our segment president to shift more of his time in supporting the growth and the sales capability of our business. It also helps to support our desire to expand our geographic footprint of our business. We've talked before about our desire to expand to offshore. Having this leader will help us oversee operations on a broader scale to give us more capacity and give us more of an offering to our customers, which again, will help drive sales and profitability going forward. We're really excited about these strategic hires moving forward.
On the Healthcare Apparel side, you've made some hires there, some personal moves there. Can you tell us what you have going on there?
Sure. It really started, as you know, Jim, back in March. We brought on a new leader of our Healthcare Apparel business, Chris Heyn, who brings a long history of experience in apparel, from merchandising to sales to supply chain. Chris has been a great add to the business, and as he spent more time with the business, we are now looking to further bolster our capabilities in areas such as merchandising planning and the supply chain, again, all of which we think will help us be more productive, more nimble, and support Chris's strategy of really driving a more focused, profitable assortment going forward. I think we will be even stronger from a talent perspective as we move forward.
I know nothing happens overnight, but, with the initiatives that Chris is putting in place, what do you think is a realistic timeframe for you to start to benefit from those initiatives?
As I mentioned in the second quarter, Chris really has spent his initial focus on the product, and that is simply because that is the longest lead time in the business. That is what you have to affect first, because it could be 6- 8 months before assortment changes and streamlining can really take hold. Chris has begun that work in earnest here in the third quarter. We would expect that as we get deeper into next year, we would expect to begin to see the benefits of the changes that Chris is making. We did in the second quarter, we made a strategic decision to right-size inventories to help facilitate some of those changes, which will again drive benefit for us next year.
But I would say, as we get into next year, probably around the second, third quarter, we should begin to see what I would describe as a pivot improvement and change in that business.
All right. One of the other topics that has been in the news quite a bit is AI. You guys were an early adopter of AI, especially for your Contact Centers business, and that has helped you improve the efficiency of your own business. Can you talk a little bit about what you have done with AI already and what your plans are for AI going forward?
Sure. Well, we were early adopters, and we found ourselves almost in a unique position of being a smaller company who had adopted more AI technology than even our larger competitors have. Larger competitors, I guess, their decision tree is a little bit longer than ours, being a much flatter organization. In our Contact Centers, almost every single transaction, conversation, however that conversation happens, whether it happens in chat or it happens by voice or by email, there is AI layered, at least one level of AI layered on top of that conversation. In many cases, it is two or three layers. It does things such as coaching the person on the phone. It is learning sentiment of the customer. It is helping basically develop better scripts as time goes on, and better answers as time goes on for all the people who are answering the phone.
It is doing QA, it is doing accent smoothing, it is doing noise canceling. So we are very excited about what AI has done for us. Our customers are looking at CSAT scores that are better than they have seen before. Ultimately, that is what makes the difference. If our customers are seeing better customer satisfaction scores than they were seeing before, they feel like they are getting more value. Even though, yes, there are cases in which it creates efficiency and we are able to eliminate some agents because the calls are shorter or the interaction is shorter with their customer, that just makes the business with us more sticky, especially when we layer in all these multiple layers.
When you look at the rest of our business, I can tell you, Mike and I have meetings tomorrow across the whole organization, and we are monitoring every AI project that we are currently working on. At the moment, we are working on. We have in our pipeline, at various stages of our pipeline, we have over 140 AI initiatives going on right now. That does not include that a person might be fooling around with Claude at their desk, because we have loaded it on people's desktops and we are encouraging them to use Claude or Perplexity or whatever, or Gemini, that we have given them. We are talking about projects that will affect the overall experience we are giving customers. Just getting information that took hours before is taking seconds.
Doing analytics that would take weeks is taking hours. It is absolutely phenomenal what is happening in our business, and I have taken that on myself as one of my driving initiatives for the next year or two. I am actually leading all our AI teams, and we call it SWAT, but it is Superior Workforce Automation Teams. We are on it. I can't think of how we could be further ahead. We brought in a slew of interns this summer who are native to AI. These are kids in high school and college who are pushing through these 140 projects as we speak. It's really exciting.
Yep. All right. We pivot to the Branded Products business. You've had several pretty good quarters there, and it's pretty clear you've taken some market share, even though the overall market has been under pressure. Looking ahead, if that market starts to normalize, how does that impact your business, the uniform business, the gifting business, the other drivers of the business? Where do you think that goes?
It's really interesting. When you look at. We talked to Jake, who runs that business, and he showed us some stats on the basket size the customers are coming in with is smaller than it was pre all this macro noise. It's been for a couple of years already to that extent. Everybody cut back their marketing spend a little bit, or their employee gifting spend a little bit. They're buying less, or they're buying less expensive items, because there's always a choice. You can go to a more expensive item, less. You're still going to gift all your employees something. You may not be spending $50, you may be spending $40. You may not be spending $100, you might be spending $75. We know that we've taken market share because our sales have grown in spite of the fact that the baskets are smaller.
When we get to a more normalized macro environment, we expect to see a very, very nice bump up in sales. I think we're getting close to that soon, Jim. We've actually gone a couple of months without any noise, and everybody's still working off the budgets that they submitted in early or late 2026, or late 2025 rather. Now over the next month or two, they're going to be formulating their budgets for 2027. We believe, at least what we've heard from many customers, is they believe their budgets are going to go much more back to normal next year. When they do, the spend will increase. When the spend increases, including our increased market share, that should bode very well for us.
Now, do you think you've gained some share because some of your competitors don't have as many sourcing options right now?
I think that's part of it. I think because we have feet on the ground and boots on the ground and we're dealing directly with factories, and we're not feeding a bunch of middlemen in between, in most instances. I think that lends itself to be advantageous to us. I think we can offer better products for less money than a lot of our competition can. I think that's one of the value propositions. But I think also all the IT that we've layered into many of our customers, we don't have many competitors who compete with us from a technology standpoint. What I mean by that is, if a prospect is looking for a product, we can develop a deck literally within minutes for that prospect.
We can pull from 100,000 items that are in our supplier catalogs or that are in our own catalogs, to present to a customer, and we can have AI go out and look at what's the demographic that customer is trying to serve when they tell us how much money they're going to spend, and how much they want to spend per item. We can curate this very, very quickly. If a customer is going to three or four of our competitors as well, we know we're going to be the first to present to them because we don't have people in the back office creating decks anymore. We used to. We used to have 40 of them. Now we don't. Now AI is doing the lion's share of that work. Then the customer orders with us, and basically that whole process is automated.
At most companies, the salesman has to place the order with the vendors. In our company, the salesman just inputs into our system everything that they need, or the customer does, and AI handles the rest. It goes out and orders it from the supplier, it tracks it and everything so that the salesperson doesn't have to. I think part of the reason why we're growing is not so much because of our supply chain. I think it's because our salesmen have more time to sell. Our salesmen spend a lot less time than they did at their prior employer, in many cases, a lot more time selling, and a lot less time sourcing.
And I would imagine that leads to a happier salesperson because they can spend more time-
Well, yeah.
generating-
They grow their business with us.
Right.
You take a salesperson who may have been writing three-quarters of a million dollars worth of business when they work for a competitor, they come with us, and just the additional time we give them to sell, they should be at $1.5 million within 18 months.
Mm-hmm. All right.
It's much more than that.
Now move to Healthcare, that's more of a confusing market, at least for me, because we hear about some companies that are having some weakness, and then we have other companies doing quite well. Where are you in that mix?
We're kind of in the middle of that. I'll let Mike address it in a second. But fortunately, we have all the channels covered. Yes, when you speak of some healthcare companies doing better, we know of one who's publicly traded, and they're doing better because they service the luxury end of the market, and call it the Lululemon of Healthcare Apparel. And they've done quite well. That's their own turnaround, that they should be commended for. That's not the market we serve. They service 10% of the marketplace. We like to say that we service 80% with our good, better, best, and we also have a value product as well. So I think the upside for us is there.
I don't think it's the marketplace as much as it has been the execution, to be perfectly candid, which is why we have new leadership in the business and why we're moving forward with some key hires, and key processes and key systems and key inventory rationalizations and so on that we've spoken about. That business is on the mend. When it does, we expect to see significant growth in that. Mike, do you want to add anything to that?
I think you pretty much nailed it.
Okay.
Right. As we're getting to the close of another quarter, you've said in the past that you think that results will be back-end weighted in 2026. You still feeling that way?
Yes. For those of you who might be new to our business, that's not unusual. Our results have been back-end weighted, and we've delivered on those back-end weighted results. So we would expect that again this year. Specifically, as we talked about in the second quarter, we continue to see and expect to see sequential improvement in our Contact Centers business. That happened in the first quarter, it happened in the second quarter. We expect that pattern to continue. We do expect the Healthcare Apparel business, vis-à-vis higher volumes, in the back half of the year. Again, in our Branded Products segment, historically, that segment has had larger back half results. So still feel comfortable with that perspective, and obviously, we'll share more in November when we release our earnings.
All right. Since our firm has covered Superior, I think one of your greatest strengths has been your ability to navigate through turbulence. Through COVID, through the supply chain issues as a result of COVID, and through tariffs. Is there anything on the horizon that you see that you might have a difficulty navigating through?
Not that we see. Not that we see, but a lot of surprises sometimes come from Washington without us seeing it in advance. But I think at this point, you said it, we are good at navigating through turbulence. We have learned how to operate quite successfully through uncertainty. We have learned to pivot when needed. That has been our history for as long as I can remember, going back to at least 2008, that recession, and how we came out of those turbulent times stronger than ever, how we came out of COVID stronger than ever, when COVID actually could have destroyed our business.
Instead, we took great advantage of the opportunity to sell other products, such as PPE during that period of time, to kind of bridge the fact that nobody was buying promotional products in the early parts of COVID until they realized they had to start gifting their employees at home. I think we are fine. Energy costs are up, food costs are up. That is going to affect some consumer behavior. That is going to affect some companies' budgets. But I think overall, we are doing all the right things to capitalize on what we believe is a very longer-term opportunity for success for ourselves.
Jim, I would just add, we obviously remain focused on maintaining a solid balance sheet and driving cash flow. Obviously, entering periods of uncertainty or challenge, we want to enter those situations in a position of strength. I think that gives us the flexibility to weather those challenges. That gives us the opportunity to take market from weaker competitors, as you referenced in the Branded Products segment. That continues to be an important element of our strategy as well.
One of the other things you've been very good at is when you see these obstacles on the horizon or these headwinds on the horizon, you've been very quick to implement cost-savings initiatives to offset those impacts, and you did it with tariffs. Have you had to do anything similar because of the rising energy costs?
No. That's the simple answer.
Right. We only have about a minute left. Can you just quickly review where you are regarding capital allocations? Are you more geared, at this point, to buybacks or acquisitions or investing in the organic growth?
It's really, Jim, a balanced approach, as I highlighted in the previous slide. Fortunately, we haven't had to make a significant capital investment in the business. We last made a major investment in 2021 to implement automation in our largest distribution center, which obviously has been beneficial to us. I would say, we referenced at different points in time M&A activity. We've talked on our earnings calls that's something that we are looking for strategic acquisitions in two of our segments, the Branded Products segment and the Contact Centers segment. Again, as complements to the organic growth opportunities. We'll continue to look for those opportunities. But no major shifts, I would say, at this point.
All right. Well, we are at time. I just want to say thank you for taking the time. I know you're taking a lot of time today to meet with some of our investors. We appreciate that. We appreciate the time this morning for the presentation. Thank you to the audience for tuning in and getting an update on Superior.
Thanks, Jim, and thanks, everybody, for joining us.
Yep. Thank you.