| UNITED STATES |
| SECURITIES AND EXCHANGE COMMISSION |
| WASHINGTON, D.C. 20549 |
| FORM |
| (Mark One) |
| QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||
| For the quarterly period ended | |||||||
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||
| For the transition period from ________ to __________ |
| Commission file number: |
| Exact name of registrant as specified in its charter: |
| SUPERIOR GROUP OF COMPANIES, INC. |
| State or other jurisdiction of incorporation or organization: | I.R.S. Employer Identification No.: |
| | |
| Address of principal executive offices: | ||||||||
| | ||||||||
| |
| Registrant’s telephone number, including area code: | ||||||||
| |
| Former name, former address and former fiscal year, if changed since last report: |
| 10055 Seminole Blvd., Seminole, Florida 33772 |
| Securities registered pursuant to Section 12(b) of the Act: |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | |
| |
| Non-accelerated filer ☐ |
| Smaller Reporting Company | |
|
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| Emerging Growth Company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares of common stock of the registrant outstanding as of May 1, 2023 was
TABLE OF CONTENTS
| SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES |
| CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
| (Unaudited) |
| (In thousands, except shares and per share data) |
| Three Months Ended March 31, | ||||||||
| 2023 |
2022 |
|||||||
| Net sales |
$ | $ | ||||||
| Costs and expenses: |
||||||||
| Cost of goods sold |
||||||||
| Selling and administrative expenses |
||||||||
| Other periodic pension costs |
||||||||
| Interest expense |
||||||||
| Income before taxes on income |
||||||||
| Income tax expense |
||||||||
| Net income |
$ | $ | ||||||
| Net income per share: |
||||||||
| Basic |
$ | $ | ||||||
| Diluted |
$ | $ | ||||||
| Weighted average shares outstanding during the period: |
||||||||
| Basic |
||||||||
| Diluted |
||||||||
| Other comprehensive (loss) income, net of tax: |
||||||||
| Recognition of net losses included in net periodic pension costs |
$ | $ | ||||||
| Loss on cash flow hedging activities |
( |
) | ||||||
| Foreign currency translation adjustment |
||||||||
| Other comprehensive income |
||||||||
| Comprehensive income |
$ | $ | ||||||
| Cash dividends per common share |
$ | $ | ||||||
| See accompanying Notes to the Condensed Consolidated Financial Statements. |
| CONDENSED CONSOLIDATED BALANCE SHEETS |
|||||||||
| (In thousands, except share and par value data) |
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, less allowance for doubtful accounts of $ and $, respectively | ||||||||
| Accounts receivable - other | ||||||||
| Inventories | ||||||||
| Contract assets | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Deferred tax asset | ||||||||
| Intangible assets, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Other current liabilities | ||||||||
| Current portion of long-term debt | ||||||||
| Current portion of acquisition-related contingent liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term debt | ||||||||
| Long-term pension liability | ||||||||
| Long-term acquisition-related contingent liabilities | ||||||||
| Long-term operating lease liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 6) | ||||||||
| Shareholders’ equity: | ||||||||
| Preferred stock, $ par value - authorized shares ( issued) | ||||||||
| Common stock, $ par value - authorized shares, issued and outstanding and shares, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss, net of tax: | ||||||||
| Pensions | ( | ) | ( | ) | ||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
| See accompanying Notes to the Condensed Consolidated Financial Statements. |
| CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY |
| THREE MONTHS ENDED March 31, 2023 AND 2022 |
| (Unaudited) |
| (In thousands, except shares and per share data) |
| Accumulated | ||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||
| Additional | Comprehensive | Total | ||||||||||||||||||||||
| Common | Common | Paid-In | Retained | (Loss) Income, | Shareholders’ | |||||||||||||||||||
| Shares | Stock | Capital | Earnings | net of tax | Equity | |||||||||||||||||||
| Balance, January 1, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Cumulative-effect adjustment from adoption of ASU 2016-13 | ( | ) | ( | ) | ||||||||||||||||||||
| Common shares issued upon exercise of options and SARs, net | ( | ) | ||||||||||||||||||||||
| Performance based shares issued | ||||||||||||||||||||||||
| Restricted shares issued, net of forfeitures | ||||||||||||||||||||||||
| Share-based compensation expense | ||||||||||||||||||||||||
| Tax withheld on vesting of restricted shares and performance based shares | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Cash dividends declared ($ per share) | ( | ) | ( | ) | ||||||||||||||||||||
| Comprehensive income (loss): | ||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||
| Cash flow hedges, net of taxes of $ | ( | ) | ( | ) | ||||||||||||||||||||
| Pensions, net of taxes of $ | ||||||||||||||||||||||||
| Change in currency translation adjustment, net of taxes of $ | ||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Balance, January 1, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Common shares issued upon exercise of options and SARs, net | ||||||||||||||||||||||||
| Restricted shares issued, net of forfeitures | ||||||||||||||||||||||||
| Share-based compensation expense | ||||||||||||||||||||||||
| Cash dividends declared ($ per share) | ( | ) | ( | ) | ||||||||||||||||||||
| Comprehensive income (loss): | ||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||
| Pensions, net of taxes of $ | ||||||||||||||||||||||||
| Change in currency translation adjustment, net of taxes of $ | ||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| See accompanying Notes to the Condensed Consolidated Financial Statements. |
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
| (Unaudited) |
| (In thousands) |
| Three Months Ended March 31, | ||||||||
| 2023 |
2022 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||
| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by (used) in operating activities: |
||||||||
| Depreciation and amortization |
||||||||
| Provision for bad debts - accounts receivable |
( |
) | ||||||
| Share-based compensation expense |
||||||||
| Deferred income tax provision |
||||||||
| Change in fair value of acquisition-related contingent liabilities |
( |
) | ||||||
| Change in fair value of written put options |
( |
) | ||||||
| Changes in assets and liabilities, net of acquisition of businesses: |
||||||||
| Accounts receivable |
||||||||
| Accounts receivable - other |
( |
) | ||||||
| Contract assets |
( |
) | ||||||
| Inventories |
( |
) | ||||||
| Prepaid expenses and other current assets |
( |
) | ||||||
| Other assets |
( |
) | ( |
) | ||||
| Accounts payable and other current liabilities |
( |
) | ||||||
| Long-term pension liability |
||||||||
| Other long-term liabilities |
( |
) | ||||||
| Net cash provided by (used in) operating activities |
( |
) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||
| Additions to property, plant and equipment |
( |
) | ( |
) | ||||
| Acquisition of businesses |
( |
) | ||||||
| Net cash used in investing activities |
( |
) | ( |
) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||
| Proceeds from borrowings of debt |
||||||||
| Repayment of debt |
( |
) | ( |
) | ||||
| Payment of cash dividends |
( |
) | ( |
) | ||||
| Proceeds received on exercise of stock options |
||||||||
| Tax withholdings on vesting of restricted shares and performance based shares |
( |
) | ||||||
| Net cash provided by (used in) financing activities |
( |
) | ||||||
| Effect of currency exchange rates on cash |
||||||||
| Net increase (decrease) in cash and cash equivalents |
( |
) | ||||||
| Cash and cash equivalents balance, beginning of period |
||||||||
| Cash and cash equivalents balance, end of period |
$ | $ | ||||||
| See accompanying Notes to the Condensed Consolidated Financial Statements. |
Superior Group of Companies, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements (Unaudited)
NOTE 1 – Description of Business and Basis of Presentation:
Description of business
Superior Group of Companies, Inc. (together with its subsidiaries, “the Company,” “Superior,” “we,” “our,” or “us”) was organized in 1920 and was incorporated in 1922 as a New York company under the name Superior Surgical Mfg. Co., Inc. In 1998, the Company changed its name to Superior Uniform Group, Inc. and its state of incorporation to Florida. Effective on May 3, 2018, Superior Uniform Group, Inc. changed its name to Superior Group of Companies, Inc.
Superior’s Branded Products segment, primarily through its signature marketing brands BAMKO® and HPI®, produces and sells customized merchandising solutions, promotional products and branded uniform programs. Branded products are manufactured through third parties or in Superior’s own facilities, and are sold to customers in a wide range of industries, including retail, hotel, food service, entertainment, technology, transportation and other industries. The segment currently has sales offices in the United States, Canada, Brazil, the United Kingdom and Colombia, with support services in China and India.
Superior’s Healthcare Apparel segment, primarily through its signature marketing brands Fashion Seal Healthcare® and WonderWink® (also referred to as “Wink”), manufactures (through third parties or in its own facilities) and sells a wide range of healthcare apparel, such as scrubs, lab coats, protective apparel and patient gowns. This segment sells healthcare service apparel to healthcare laundries, dealers, distributors and retailers primarily in the United States.
Superior’s Contact Centers segment, through multiple The Office Gurus® entities, including subsidiaries in El Salvador, Belize, Jamaica, Dominican Republic and the United States (collectively, “TOG”), provides outsourced, nearshore business process outsourcing, contact and call-center support services to North American customers.
Change in Reportable Segments
Beginning in the second quarter of 2022, the Company realigned its reportable segments to correspond with changes to its organizational responsibilities, management structure and operating model. Prior to implementing the current segment reporting, the Company’s Uniforms and Related Products segment included healthcare apparel, uniforms and corporate overhead. As part of the change in reportable segments, the branded portion of the uniforms business was combined with the previous Promotional Products segment to form the Branded Products segment, the healthcare apparel business became its own segment named Healthcare Apparel and income and expenses related to corporate functions that are not specifically attributable to an individual reportable segment are no longer presented in segment results. The previous Remote Staffing Solutions segment was renamed Contact Centers segment. All prior period segment information has been recast to reflect this change in reportable segments. Refer to Note 10 for additional information.
Basis of presentation
The accompanying unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. Intercompany items have been eliminated in consolidation. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, and filed with the Securities and Exchange Commission. Management believes that the information furnished includes all adjustments of a normal recurring nature that are necessary to fairly present our consolidated financial position, results of operations and cash flows for the periods indicated. The results of operations for any interim period are not necessarily indicative of results to be expected for the full year.
The Company refers to the condensed consolidated financial statements collectively as “financial statements,” and individually as “statements of comprehensive income,” “balance sheets,” “statements of shareholders’ equity,” and “statements of cash flows” herein.
Recent Accounting Pronouncements
We consider the applicability and impact of all Accounting Standard Updates (“ASUs”). There have been no new accounting pronouncements recently issued or newly effective that had, or are expected to have, a material impact on the Company’s financial statements.
NOTE 2 – Inventories:
Inventories consisted of the following amounts (in thousands):
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Finished goods | $ | $ | ||||||
| Work in process | ||||||||
| Raw materials | ||||||||
| Inventories | $ | $ | ||||||
Debt consisted of the following (in thousands):
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Credit Facilities: | ||||||||
| Revolving credit facility due August 2027 | $ | $ | ||||||
| Term loan due August 2027 | ||||||||
| Less: | ||||||||
| Payments due within one year included in current liabilities | ||||||||
| Debt issuance costs | ||||||||
| Long-term debt less current maturities | $ | $ | ||||||
On August 23, 2022, the Company entered into a Credit Agreement (the “Credit Agreement”) among the Company, the domestic subsidiaries of the Company, as guarantors, the lenders party thereto (the “Lenders”), and PNC Bank, National Association, as administrative agent for the Lenders (the “Administrative Agent”), pursuant to which the Lenders are providing the Company senior secured credit facilities maturing in August 2027 consisting of a revolving credit facility in the aggregate maximum principal amount of $
Obligations outstanding under the Credit Facilities accrue interest at a variable rate equal to the secured overnight financing rate (“SOFR”) plus an adjustment of between
Contractual principal payments for the term loan are as follows: remainder of 2023 - $
The Credit Facilities are secured by substantially all of the operating assets of the Company, and the Company’s obligations under the Credit Facilities are guaranteed by all of its domestic subsidiaries. The Company’s obligations under the Credit Facilities are subject to acceleration upon the occurrence of an event of default as defined in the Credit Agreement. The Credit Agreement contains customary events of default and negative covenants, including but not limited to those governing indebtedness, liens, fundamental changes, investments, restricted payments (including dividends and related distributions), liquidations, mergers, consolidations or acquisitions, affiliate transactions and sales of assets or subsidiaries. The Credit Agreement also requires the Company to comply with a fixed charge coverage ratio of at least
NOTE 4 – Periodic Pension Cost:
The Company is the sponsor of an unfunded supplemental executive retirement plan ("SERP") which includes one active participant.
The following table details the net periodic pension cost under the Company’s SERP for the periods presented (in thousands):
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Service cost on benefits earned during the period | $ | $ | ||||||
| Interest cost on projected benefit obligation | ||||||||
| Recognized actuarial loss | ||||||||
| Net periodic pension cost | $ | $ | ||||||
The service cost component is included in selling and administrative expenses in our statements of comprehensive income and the other components of net periodic pension cost are included in other periodic pension costs in our statements of comprehensive income.
NOTE 5 – Net Sales:
For our Branded Products and Healthcare Apparel segments, revenue is primarily generated from the sale of finished products to customers. Revenues for our Branded Products and Healthcare Apparel segments are recognized when the performance obligations under the contract terms are satisfied. For certain contracts with customers in which the Company has an enforceable right to payment for goods with no alternative use, revenue is recognized over time upon receipt of finished goods into inventory. Revenue for goods that do have an alternative use or that the customer is not obligated to purchase under the terms of a contract is generally recognized when the goods are transferred to the customer. Revenue from the sale of personal protective equipment, including facemasks, isolation gowns, sanitizers and gloves, is generally recognized at a point in time when the goods are transferred to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contract. The Company includes shipping and handling fees billable to customers in net sales. Shipping and handling activities that occur after the transfer of promised goods are accrued as control is transferred to the customer rather than being treated as a separate performance obligation.
For our Contact Centers segment, revenue is generated from providing our customers with contact center services. Revenue for our Contact Centers segment is recognized as services are delivered.
Revenue is measured at the amount of consideration we expect to receive in exchange for the goods or services. Variable consideration for estimated returns, allowances and other price variances is recorded based upon historical experience and current allowance programs. Contract terms may involve variable consideration clauses such as sales discounts and customer rebates, and revenue is adjusted accordingly for these provisions. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The promised amount of consideration in a contract is not adjusted for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised good or service to a customer and when the customer pays for that product or service will be one year or less. Sales taxes are excluded from the measurement of a performance obligation’s transaction price. Sales commissions are expensed as incurred when we expect that the amortization period of such costs will be one year or less.
Consistent with the Company’s change in reportable segments described in Note 10, the Company has changed its presentation of disaggregated revenue to align with the new segment structure. The following table presents disaggregated revenue by operating segment for the periods presented (in thousands):
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Branded Products Segment: | ||||||||
| Branded products | $ | $ | ||||||
| Personal protective equipment | ||||||||
| Total Branded Products Segment | $ | $ | ||||||
| Healthcare Apparel Segment: | ||||||||
| Healthcare apparel | $ | $ | ||||||
| Personal protective equipment | ||||||||
| Total Healthcare Apparel Segment | $ | $ | ||||||
| Contact Centers Segment: | ||||||||
| Contact centers services | $ | $ | ||||||
| Net intersegment eliminations | ( | ) | ( | ) | ||||
| Total Contact Centers Segment | $ | $ | ||||||
| Consolidated Net Sales | $ | $ | ||||||
Contract Assets and Contract Liabilities
The following table provides information about accounts receivable, contract assets and contract liabilities from contracts with customers (in thousands):
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Accounts receivable | $ | $ | ||||||
| Current contract assets | ||||||||
| Current contract liabilities | ||||||||
Contract assets relate to goods produced without an alternative use for which the Company has an enforceable right to payment but which has not yet been invoiced to the customer. A portion of the amounts included in contract assets on December 31, 2022 were transferred to accounts receivable during the three months ended March 31, 2023. Contract liabilities relate to payments received in advance of the Company completing its performance under a contract. Contract liabilities are included in other current liabilities in our balance sheets. During the three months ended March 31, 2023, $
NOTE 6 – Contingencies:
The purchase price to acquire substantially all of the assets of Sutter’s Mill Specialties, Inc. (“Sutter’s Mill”) in December 2021 included contingent consideration based on varying levels of Sutter’s Mill’s EBITDA in each measurement period from 2022 to 2024. The estimated fair value of Sutter’s Mill acquisition-related contingent consideration payable as of March 31, 2023 was $
The Company is involved in various legal actions and claims arising from the normal course of business. In the opinion of management, the ultimate outcome of these matters is not expected to have a material impact on the Company’s results of operations, cash flows, or financial position.
NOTE 7 – Share-Based Compensation:
Share-based compensation expense is recorded in selling and administrative expense in the statements of comprehensive income. The following table details the share-based compensation expense by type of award for the periods presented (in thousands):
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Stock options and SARs | $ | $ | ||||||
| Restricted stock | ||||||||
| Performance shares | ||||||||
| Total share-based compensation expense | $ | $ | ||||||
Stock Options and Stock Appreciation Rights (“SARs”)
The Company grants stock options and stock-settled SARs to employees that allow them to purchase shares of the Company’s common stock. Stock options are also granted to outside members of the Board of Directors of the Company. The Company determines the fair value of stock options and SARs at the date of grant using the Black-Scholes valuation model.
All stock options and SARs granted prior to August 3, 2018 vested immediately when granted. Awards issued thereafter vest between and years after the grant date. Employee awards expire years after the grant date, and those issued to directors expire years after the grant date. The Company issues new shares upon the exercise of stock options and SARs. Stock options, as well as SARs granted in tandem with stock options, are subject to accelerated vesting under certain circumstances as outlined in the 2013 Incentive Stock and Awards Plan (the “2013 Plan”) or 2022 Equity Incentive and Awards Plan (the “2022 Plan”), as applicable.
A summary of stock option transactions during the three months ended March 31, 2023 follows:
| Weighted Average | Aggregate | |||||||||||||||
| No. of | Weighted Average | Remaining Life | Intrinsic Value | |||||||||||||
| Shares | Exercise Price | (in years) | (in thousands) | |||||||||||||
| Outstanding, January 1, 2023 | $ | $ | ||||||||||||||
| Granted(1) | ||||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Lapsed or cancelled | ( | ) | ||||||||||||||
| Outstanding, March 31, 2023 | ||||||||||||||||
| Exercisable, March 31, 2023 | ||||||||||||||||
| (1) | The weighted average grant date fair value of stock options granted was $ |
As of March 31, 2023, the Company had $
A summary of stock-settled SARs transactions during the three months ended March 31, 2023 follows:
| Weighted Average | Aggregate | |||||||||||||||
| No. of | Weighted Average | Remaining Life | Intrinsic Value | |||||||||||||
| Shares | Exercise Price | (in years) | (in thousands) | |||||||||||||
| Outstanding, January 1, 2023 | $ | $ | ||||||||||||||
| Granted(1) | ||||||||||||||||
| Exercised | ||||||||||||||||
| Lapsed or cancelled | ( | ) | ||||||||||||||
| Outstanding, March 31, 2023 | ||||||||||||||||
| Exercisable, March 31, 2023 | ||||||||||||||||
| (1) | The weighted average grant date fair value of SARs granted was $ |
As of March 31, 2023, the Company had $
Restricted Stock
The Company has granted shares of restricted stock to directors and certain employees, which vest at a specified future date, generally after years, over years or when certain conditions are met. The shares are subject to accelerated vesting under certain circumstances as outlined in the 2013 Plan or 2022 Plan, as applicable. Expense for each of these grants is based on the fair value at the date of the grant and is being recognized on a straight-line basis over the respective service period.
A summary of restricted stock transactions during the three months ended March 31, 2023 follows:
| Weighted Average | ||||||||
| No. of | Grant Date | |||||||
| Shares | Fair Value | |||||||
| Outstanding, January 1, 2023 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ||||||||
| Outstanding, March 31, 2023 | ||||||||
As of March 31, 2023, the Company had $
Performance Shares
The Company has granted performance shares, which either contain only service-based vesting conditions or service-based and performance-based vesting conditions. The service-based awards vest after the service period is met, which is generally to years. Expense for these grants is based on the fair value on the date of the grant and is being recognized on a straight-line basis over the respective service period. The performance-based awards generally vest after years if the performance and service targets are met. The Company evaluates the performance conditions associated with these grants each reporting period to determine the expected number of shares to be issued. Expense for grants of performance shares is recognized on a straight-line basis over the respective service period based on the grant date fair value and expected number of shares to be issued. The awards are subject to accelerated vesting on a pro rata basis under certain circumstances as outlined in the 2013 Plan or 2022 Plan, as applicable, except in those circumstances in which award agreements or change in control agreements specify full vesting.
A summary of performance share transactions during the three months ended March 31, 2023 follows:
| Weighted Average | ||||||||
| No. of | Grant Date | |||||||
| Shares | Fair Value | |||||||
| Outstanding, January 1, 2023 | $ | |||||||
| Granted | ||||||||
| Vested | ||||||||
| Forfeited | ||||||||
| Outstanding, March 31, 2023 | ||||||||
As of March 31, 2023, the Company had $
NOTE 8 – Income Taxes:
The Company calculates its interim income tax provision in accordance with the accounting guidance for income taxes in interim periods. At the end of each interim period, the Company makes its best estimate of the annual expected effective tax rate and applies that rate to its ordinary year-to-date income or loss. The tax expense or benefit related to significant, unusual, or extraordinary items that will be separately reported or reported net of their related tax effect are individually computed and recognized in the interim period in which those items occur.
The computation of the annual expected effective tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected operating income for the year and permanent and temporary differences. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or the tax environment changes.
For the three months ended March 31, 2023, the Company recorded a provision for income taxes of $
NOTE 9 – Net Income Per Share:
The Company’s basic net income per share is computed based on the weighted average number of shares of common stock outstanding for the period. Diluted net income per share includes the effect of the Company’s outstanding stock options, stock appreciation rights, nonvested shares of restricted stock and nonvested performance shares, if the inclusion of these items is dilutive.
The following table presents a reconciliation of basic and diluted net income per share for the periods presented:
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Net income used in the computation of basic and diluted net income per share (in thousands) | $ | $ | ||||||
| Weighted average shares outstanding - basic | ||||||||
| Dilutive common stock equivalents | ||||||||
| Weighted average shares outstanding - diluted | ||||||||
| Net income per share: | ||||||||
| Basic | $ | $ | ||||||
| Diluted | $ | $ | ||||||
Awards to purchase
NOTE 10 – Operating Segment Information:
As described in Note 1, effective in the second quarter of 2022, the Company realigned its reportable segments to correspond with changes to its organizational responsibilities, management structure and operating model. We have reclassified prior period segment disclosures to conform to the current period presentation. As a result of the change, the Company manages and reports the following segments:
Branded Products segment: Primarily through our signature marketing brands BAMKO® and HPI®, we produce and sell customized merchandising solutions, promotional products and branded uniform programs. Branded products are sold to customers in a wide range of industries, including retail, hotel, food service, entertainment, technology, transportation and other industries. The segment currently has sales offices in the United States, Canada, Brazil, the United Kingdom and Colombia, with support services in China and India.
Healthcare Apparel segment: Primarily through our signature marketing brands Fashion Seal Healthcare® and Wink™, we manufacture (through third parties or in our own facilities) and sell a wide range of healthcare apparel, such as scrubs, lab coats, protective apparel and patient gowns. This segment sells healthcare service apparel to healthcare laundries, dealers, distributors and retailers primarily in the United States.
Contact Centers: Through multiple The Office Gurus® entities, including our subsidiaries in El Salvador, Belize, Jamaica, Dominican Republic and the United States (collectively, “TOG”), we provide outsourced, nearshore business process outsourcing, contact and call-center support services to North American customers.
Intersegment eliminations include the elimination of revenues and costs from services provided by the Contact Centers segment to the Company’s two other segments. Such costs are recognized as selling and administrative expenses in the Branded Products and Healthcare Apparel segments. Income and expenses related to corporate functions that are not specifically attributable to an individual reportable segment are presented within Other in the tables below.
The Company evaluates the performance of each operating segment based on several factors of which the primary financial measures are net sales and income before taxes on income.
The following tables set forth financial information related to the Company’s operating segments (in thousands):
| Branded Products | Healthcare Apparel | Contact Centers | Intersegment Eliminations | Other | Total | |||||||||||||||||||
| As of and For the Three Months Ended March 31, 2023: | ||||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
| Cost of goods sold | ( | ) | ||||||||||||||||||||||
| Gross margin | ( | ) | ||||||||||||||||||||||
| Selling and administrative expenses | ( | ) | ||||||||||||||||||||||
| Other periodic pension cost | ||||||||||||||||||||||||
| Interest expense | ||||||||||||||||||||||||
| Income (loss) before taxes on income | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| Depreciation and amortization | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Capital expenditures | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Branded Products | Healthcare Apparel | Contact Centers | Intersegment Eliminations | Other | Total | |||||||||||||||||||
| As of and For the Three Months Ended March 31, 2022: | ||||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
| Cost of goods sold | ( | ) | ||||||||||||||||||||||
| Gross margin | ( | ) | ||||||||||||||||||||||
| Selling and administrative expenses | ( | ) | ||||||||||||||||||||||
| Other periodic pension cost | ||||||||||||||||||||||||
| Interest expense | ||||||||||||||||||||||||
| Income (loss) before taxes on income | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| Depreciation and amortization | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Capital expenditures | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
NOTE 11 – Acquisition of Businesses:
Guardian Products, Inc.
On May 1, 2022, the Company, through BAMKO, acquired substantially all of the assets of Guardian Products, Inc. (“Guardian”) of Norcross, Georgia. Guardian is a branded merchandise company that is one of the leading providers of promotional products to automotive dealers nationwide. The purchase price for the acquisition consisted of the following: (a) $
Fair Value of Consideration Transferred
A summary of the purchase price is as follows (in thousands):
| Cash consideration | $ | |||
| Restricted shares of Superior common stock issued | ||||
| Contingent consideration | ||||
| Total Consideration | $ |
Assets Acquired and Liabilities Assumed
The following table presents the allocation of the total fair value of consideration transferred, as shown above, to the acquired tangible and intangible assets and liabilities of Guardian based on their estimated fair values as of the effective date of the transaction (in thousands):
| Accounts receivable | $ | |||
| Inventories | ||||
| Prepaid expenses and other current assets | ||||
| Property, plant and equipment | ||||
| Intangible assets | ||||
| Goodwill | ||||
| Total assets | $ | |||
| Accounts payable | ||||
| Other current liabilities | ||||
| Total liabilities | $ |
The Company recorded $
The difference between the fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed was recorded as goodwill, which is primarily attributed to the assembled workforce and expanded market opportunities. The acquisition of Guardian was treated as an asset purchase for income tax purpose, and therefore, the resulting goodwill from this acquisition is deductible for U.S. income tax purposes. The goodwill associated with the Guardian acquisition was fully impaired during the year ended December 31, 2022 as a result of the Company’s goodwill impairment test performed during the third quarter of 2022, which was triggered by the depressed market price of the Company's common stock and corresponding significant decline in the Company’s market capitalization.
On May 4, 2023, the Company and its domestic subsidiaries entered into the First Amendment to its Credit Agreement with the Administrative Agent and the lenders, which (i) provides a covenant relief period through December 31, 2023, which the Company may opt to terminate during the fourth quarter of 2023 if it has a consolidated total net leverage ratio at or below
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and the notes thereto included in the Condensed Consolidated Financial Statements in Part I, Item 1 (“Financial Statements”) of this report and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2022.
Cautionary Note Regarding Forward Looking Statements
Certain matters discussed in this Form 10-Q are “forward-looking statements” intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified by use of the words “may,” “will,” “should,” “could,” “expect,” "anticipate,” “estimate,” “believe,” “intend,” “project,” “potential,” or “plan” or the negative of these words or other variations on these words or comparable terminology. Forward-looking statements in this Quarterly Report on Form 10-Q may include, without limitation: (1) projections of revenue, income, and other items relating to our financial position and results of operations, including short term and long term plans for cash (2) statements of our plans, objectives, strategies, goals and intentions, (3) statements regarding the capabilities, capacities, market position and expected development of our business operations, (4) statements of expected industry and general economic trends and (5) the projected impact of the COVID-19 pandemic on our, our customers’, and our suppliers’ businesses.
Such forward-looking statements are subject to certain risks and uncertainties that may materially adversely affect the anticipated results. Such risks and uncertainties include, but are not limited to, the following: the impact of competition; uncertainties related to supply disruptions, inflationary environment (including with respect to the cost of finished goods and raw materials and shipping costs), employment levels (including labor shortages) and general economic and political conditions in the areas of the world in which the Company operates or from which it sources its supplies or the areas of the United States of America (“U.S.” or “United States”) in which the Company’s customers are located; lingering effects of the COVID-19 pandemic, including existing and possible future variants, on the United States and global markets, our business, operations, customers, suppliers and employees, including the length and scope of restrictions imposed by various governments and organizations and the continuing success of efforts to deliver effective vaccines and boosters, among other factors; changes in the healthcare, retail, hotel, food service, transportation and other industries where uniforms and service apparel are worn; our ability to identify suitable acquisition targets, discover liabilities associated with such businesses during the diligence process, successfully integrate any acquired businesses, or successfully manage our expanding operations; the price and availability of cotton and other manufacturing materials; attracting and retaining senior management and key personnel; the effect of the Company’s material weakness in internal control over financial reporting; the Company’s ability to successfully remediate its material weakness in internal control over financial reporting and to maintain effective internal control over financial reporting; and other factors described in the Company’s filings with the Securities and Exchange Commission, including those described in the “Risk Factors” section herein and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements made herein and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date of this Form 10-Q and we disclaim any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances, except as may be required by law.
Recent Acquisitions
On May 1, 2022, the Company, through BAMKO, acquired substantially all of the assets of Guardian Products, Inc. (“Guardian”) of Norcross, Georgia. Guardian is a branded merchandise company that is one of the leading providers of promotional products to automotive dealers nationwide. The purchase price for the acquisition consisted of the following: (a) $11.1 million in cash, (b) the issuance of 116,550 restricted shares of Superior’s common stock (the “Guardian Stock”) that vest ratably over a three-year period, and (c) estimated potential future payments of approximately $2.3 million in additional contingent consideration based on the results of the acquired business through April 2025. The Guardian Stock is subject to transfer restrictions over the three-year period following the closing of the acquisition.
Business Outlook
Superior Group of Companies, Inc. (together with its subsidiaries, the “Company,” “Superior,” “we,” “our,” or “us”) is comprised of three reportable business segments: (1) Branded Products, (2) Healthcare Apparel and (3) Contact Centers. Beginning in the second quarter of 2022, the Company realigned its reportable segments to correspond with changes to its organizational responsibilities, management structure and operating model. Prior to implementing the current segment reporting, the Company’s Uniforms and Related Products segment included both healthcare apparel and uniforms. As part of the change in reportable segments, the branded portion of the uniforms business was combined with the previous Promotional Products segment to form the Branded Products segment, the healthcare apparel business became its own segment named Healthcare Apparel and income and expenses related to corporate functions that are not specifically attributable to an individual reportable segment are no longer presented in segment results. The previous Remote Staffing Solutions segment was renamed Contact Centers segment. All prior period segment information has been recast to reflect this change in reportable segments.
Branded Products
In our Branded Products segment, we produce and sell customized merchandising solutions, promotional products and branded uniform programs to our customers. As a strategic branding partner, we offer our customers customized branding solutions and strategies that generate favorable brand impressions, bolster customer retention and enhance employee engagement. Our products are sold to customers in a wide range of industries, including retail, hotel, food service, entertainment, technology, transportation and other industries. Sales volumes in this segment are impacted by a number of factors, including marketing programs of our customers and turnover of our customers’ employees, often times driven by the opening and closing of locations. From a long-term perspective, we believe that synergies within this segment will create opportunities to cross-sell products to new and existing customers.
Healthcare Apparel
In our Healthcare Apparel segment, we manufacture (through third parties or in our own facilities) and sell a wide range of healthcare apparel, such as scrubs, lab coats, protective apparel and patient gowns. We sell our brands of healthcare service apparel to healthcare laundries, dealers, distributors and retailers primarily in the United States. In 2021, the Company saw increased demand for healthcare service apparel from laundries, dealers, distributors, service hospitals and other medical facilities. However, as a result of the effects from the COVID-19 pandemic, the healthcare apparel market in 2022 was oversupplied creating a slowdown in demand. This softening of demand has continued thus far in 2023. In an effort to capture additional market share, in the first quarter of 2023 the Company launched a direct-to-consumer website and began rebranding its signature marketing brand WonderWink® to Wink™. From a long-term perspective, we expect that demand for our signature marketing brands, including Fashion Seal Healthcare® and Wink™, will continue to provide opportunities for growth and increased market share.
Contact Centers
This business segment (also known as “The Office Gurus”), which operates in El Salvador, Belize, Jamaica, Dominican Republic, and the United States, provides outsourced, nearshore business process outsourcing, contact and call-center support services to North American customers. These services are also provided internally to the Company’s other two operating segments. The Office Gurus has become an award-winning business process outsourcer offering inbound and outbound voice, email, text, chat and social media support. The nearshore call-center market has experienced a period of growth as businesses look to reduce operating costs while maintaining high-quality customer support. Nearshore operators are able to provide comparable service to their U.S. counterparts at a fraction of the price. With an environment and career path designed to attract and maintain top talent across all sites, we believe The Office Gurus is positioned well to continue growing this business.
Global Economic and Political Conditions
Economic and political events this year have altered the landscape in which we and other U.S. companies operate in a variety of ways. In response to inflationary pressures, the U.S. Federal Reserve has repeatedly raised interest rates, resulting in an increase in the cost of borrowing for us, our customers, our suppliers, and other companies relying on debt financing. It has indicated that it may raise rates further. World events, including the Russian invasion of Ukraine and the resulting economic sanctions, have impacted the global economy, including by exacerbating inflationary and other pressures. Prolonged inflationary conditions, high and/or increased interest rates, and additional sanctions or retaliatory measures related to the Russia-Ukraine crisis, or other situations, including deteriorating or prolonged diplomatic tension between the United States and China, could further negatively affect U.S. and international commerce and exacerbate or prolong the period of high energy prices. At this time, the extent and duration of these economic and political events and their effects on the economy and the Company are too difficult to predict.
Prolonged or recurring disruptions or instability in the United States and global economies, and how the world reacts to those disruptions or instability, could have long-term impacts on our business. These business impacts could negatively affect us in a number of ways, including, but not limited to, reduced demand for our core products and services, reductions to our revenue and profitability, costs associated with complying with new or amended laws and regulations affecting our business, declines in our stock price, reduced availability and less favorable terms of future borrowings, valuation of our pension obligations, reduced credit-worthiness of our customers, and potential impairment of the carrying value of indefinite-lived intangible assets.
Summary of Results
Net Income
The Company generated net income of $0.9 million during the three months ended March 31, 2023 and net income of $5.2 million during the three months ended March 31, 2022. The decrease in net income during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily due to decreases in Branded Products net sales and Healthcare Apparel net sales, an increase in Contact Centers selling and administrative expenses, and an increase in interest expense, partially offset by an decrease in income tax expense.
EBITDA
EBITDA (a non-GAAP financial measure) was $6.9 million and $10.0 million during the three months ended March 31, 2023 and 2022, respectively. EBITDA during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 decreased primarily due to decreases in Branded Products net sales and Healthcare Apparel net sales and an increase in selling and administrative expenses, partially offset by an increase in Contact Centers net sales. For a reconciliation of EBITDA to net income, its most directly comparable financial measure calculated and presented in accordance with GAAP, please read “Non-GAAP Financial Measure” below.
| Operations |
| Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022 |
| Net Sales (in thousands): |
| Three Months Ended March 31, |
||||||||||||
| 2023 |
2022 |
% Change |
||||||||||
| Branded Products |
$ | 81,851 | $ | 97,083 | (15.7 | %) | ||||||
| Healthcare Apparel |
28,154 | 30,568 | (7.9 | %) | ||||||||
| Contact Centers |
22,056 | 17,974 | 22.7 | % | ||||||||
| Net intersegment eliminations |
(1,288 | ) | (2,043 | ) | (37.0 | %) | ||||||
| Consolidated Net Sales |
$ | 130,773 | $ | 143,582 | (8.9 | %) | ||||||
Net sales for the Company decreased 8.9%, or $12.8 million, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The decrease was driven by declines in Branded Products and Healthcare Apparel, partially offset by an increase in Contact Centers.
Branded Products net sales decreased 15.7%, or $15.2 million, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The decrease was primarily due to decreased demand as a result of current market conditions that have tightened our customers’ advertising spending, the timing of new branded uniform rollout programs for certain customers and a decrease of $3.9 million in net sales of personal protective equipment driven by the easing of the COVID-19 pandemic. These decreases were partially offset by net sales of $6.5 million attributable to the acquisition of Guardian in May 2022.
Healthcare Apparel net sales decreased 7.9%, or $2.4 million, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The decrease was primarily due to a decrease in demand for healthcare apparel resulting from a continuation of challenging market conditions with saturated inventory levels post-COVID-19 pandemic.
Contact Centers net sales increased 22.7% before intersegment eliminations and 30.4% after intersegment eliminations for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. These increases were primarily attributed to onboarding of new customers during the last twelve months and providing expanded services to our existing customers.
Gross Margin
Gross margin rate for the Company was 36.0% for the three months ended March 31, 2023 and 34.7% for the three months ended March 31, 2022. The rate increase was primarily due to an improvement in gross margin rate for our Branded Products segment, the Company's largest segment, and the Contact Centers segment, our highest gross margin segment, representing a larger portion of total gross margin.
Gross margin rate for our Branded Products segment was 31.6% for the three months ended March 31, 2023 and 29.1% for the three months ended March 31, 2022. The rate increase was primarily driven by a favorable shift in the mix of pricing and customers.
Gross margin rate for our Healthcare Apparel segment was 35.9% for the three months ended March 31, 2023 and 39.3% for the three months ended March 31, 2022. The rate decrease was primarily driven by challenging market conditions and strategic efforts to right size inventory levels resulting in lower selling prices.
Gross margin rate for our Contact Centers segment was 53.5% for the three months ended March 31, 2023 and 59.4% for the three months ended March 31, 2022. The rate decrease was primarily due to increased employee related costs of our agents, partially offset by price increases.
Selling and Administrative Expenses
As a percentage of net sales, total selling and administrative expenses was 33.2% for the three months ended March 31, 2023 and 29.4% for the three months ended March 31, 2022. The selling and administrative expense rate increased across all segments.
As a percentage of net sales, selling and administrative expenses for our Branded Products segment was 24.5% for the three months ended March 31, 2023 and 22.2% for the three months ended March 31, 2022. The rate increase was primarily due to expense deleverage on the 15.7% decrease in sales, partially offset by lower selling and administrative expenses resulting from a decrease in expense of $0.8 million which resulted from the remeasurement of acquisition contingent liabilities and a decrease in sales commission expense.
As a percentage of net sales, selling and administrative expenses for our Healthcare Apparel segment was 33.8% for the three months ended March 31, 2023 and 33.0% for the three months ended March 31, 2022. The rate increase was primarily due to expense deleverage on the 7.9% decrease in sales, partially offset by lower selling and administrative expenses resulting from a decrease in employee related expenses, including sales commissions.
As a percentage of net sales, selling and administrative expenses for our Contact Centers segment was 43.8% for the three months ended March 31, 2023 and 35.5% for the three months ended March 31, 2022. The percentage increase was primarily attributed to increased investment in organizational infrastructure, including personnel, to support future growth of this segment.
Interest Expense
Interest expense increased to $2.6 million for the three months ended March 31, 2023 from $0.3 million for three months ended March 31, 2022. This increase was primarily due to an increase in interest rates on our outstanding borrowings. The weighted average interest rate on our outstanding borrowings for the three months ended March 31, 2023 was 6.6% compared to 0.9% for the three months ended March 31, 2022.
Income Taxes
Income tax expense for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 decreased by $1.5 million. The decrease in income tax expense was driven by a decrease in pre-tax income. The effective income tax rate was 6.0% and 22.4% for the three months ended March 31, 2023 and 2022, respectively. The effective tax rate for the three months ended March 31, 2023 was favorably impacted by discrete non-taxable gains on the Company’s written put option and income generated on the Company’s SERP totaling $0.4 million and $0.2 million, respectively. The effective tax rate may vary from quarter to quarter due to discrete, unusual or non-recurring items, the resolution of income tax audits, changes in tax laws, the tax impact from employee share-based payments, or other items.
Liquidity and Capital Resources
Overview
Management uses a number of standards in measuring the Company’s liquidity, such as: working capital, profitability ratios, cash flows from operating activities, and activity ratios. The Company’s balance sheet generally provides the ability to pursue acquisitions, invest in new product lines and technologies and invest in additional working capital as necessary.
The Company’s primary source of liquidity has been its net income and the use of credit facilities and term loans as described further below. In the future, the Company may continue to use credit facilities and other secured and unsecured borrowings as a source of liquidity. The Company may also begin relying on the issuance of equity or debt securities, including under its universal shelf registration statement (File No. 333-249760), to the extent available. There can be no assurance that any such financings would be available to us on reasonable terms. Any future issuances of equity securities or securities convertible into or exercisable for equity securities may be dilutive to our shareholders. Additionally, the cost of the Company’s future sources of liquidity may differ from the costs of the Company’s sources of liquidity to date.
Working Capital
Superior carries inventories of both raw materials and finished products, the practice of which requires substantial working capital, which we believe to be common in the industry.
Cash and cash equivalents increased by $8.9 million to $26.6 million as of March 31, 2023 from $17.7 million on December 31, 2022. Working capital decreased to $220.6 million at March 31, 2023 from $232.8 million at December 31, 2022. The decrease in working capital was primarily due to a decrease in accounts receivable, an increase in accounts payable, a decrease in other accounts receivable and a decrease in inventory, partially offset by an increase in cash and cash equivalents and a decrease in other current liabilities. The decreases in accounts receivable and other accounts receivables were primarily driven by decreased sales for the quarter within our Branded Products segment and the collection of customer payments, including credit card payments.
Material Short-Term Plans for Cash
For the remainder of the year 2023, our primary capital requirements are to maintain our operations, meet contractual obligations, fund capital expenditures, pay dividends and for other general corporate purposes. We currently anticipate that we will spend less in capital expenditures in 2023 than we spent in 2022. Management currently believes that the combination of our current cash level, cash flows provided by operating activities and availability under the revolving credit facility will be sufficient to satisfy the above requirements for the next twelve months.
Material Long-Term Plans for Cash
Beyond the next twelve months, our principal demand for funds will be for maintenance of our core business, to satisfy long term contractual obligations and the continuation of the Company’s ongoing capital expenditure program designed to improve the effectiveness and capabilities of its facilities and technology. The Company at all times evaluates its capital expenditure program in light of prevailing economic conditions. The Company’s material contractual obligations include outstanding debt, operating leases, acquisition-related contingent liabilities, unfunded supplemental executive retirement plan liabilities and non-qualified deferred compensation plan liabilities. In the first quarter of 2023, the Company’s Branded Products segment entered into a new long-term lease for a warehouse in Phoenix, Arizona with total estimated rental payments of $7.4 million. This new lease is part of management’s plan to consolidate warehousing facilities related to promotional products inventory. Management currently believes that the combination of our current cash level, cash flows provided by operating activities and availability under the revolving credit facility will be sufficient to satisfy the above requirements.
Cash Flows
Our cash flows from operating, investing and financing activities, as reflected in the statements of cash flows, are summarized in the following table (in thousands):
| Three Months Ended March 31, |
||||||||
| 2023 |
2022 |
|||||||
| Net cash provided by (used in): |
||||||||
| Operating activities |
$ | 25,050 | $ | (8,727 | ) | |||
| Investing activities |
(2,114 | ) | (4,313 | ) | ||||
| Financing activities |
(14,198 | ) | 11,906 | |||||
| Effect of exchange rates on cash |
140 | 514 | ||||||
| Net increase (decrease) in cash and cash equivalents |
$ | 8,878 | $ | (620 | ) | |||
Operating Activities. The increase in net cash provided by operating activities during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily attributable to decreases in cash outflows for inventory and accounts payable and an increase in cash inflows from accounts receivable, partially offset by an increase in cash outflows for selling and administrative expenses, a decrease in net sales and an increase in interest paid. Working capital cash changes during the three months ended March 31, 2023 included a decrease of $10.2 million in accounts receivable. Working capital cash changes during the three months ended March 31, 2022 included an increase of $8.7 million in inventory and a decrease of $5.7 million in accounts payable and other current liabilities.
Investing Activities. The decrease in net cash used in investing activities during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was attributable to a decrease in capital expenditures in the current period as compared to the prior year period.
Financing Activities. The increase in net cash used in financing activities during the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily attributable to $11.9 million in net repayments of debt in the current period compared to $13.9 million of net borrowings of debt in the prior year period. Excess cash generated from operating activities during the three months ended March 31, 2023 was used to repay outstanding borrowings under the revolving credit facility.
Credit Facilities (See Note 3 to the Financial Statements)
On August 23, 2022, the Company entered into a Credit Agreement (the “Credit Agreement”) among the Company, the domestic subsidiaries of the Company, as guarantors, the lenders party thereto (the “Lenders”), and PNC Bank, National Association, as administrative agent for the Lenders (the “Administrative Agent”), pursuant to which the Lenders are providing the Company senior secured credit facilities maturing in August 2027 consisting of a revolving credit facility in the aggregate maximum principal amount of $125.0 million and a term loan in the original aggregate principal amount of $75.0 million (collectively, the “Credit Facilities”), and the ability to request incremental revolving credit or term loan facilities in an aggregate amount of up to an additional $75.0 million, subject to obtaining additional lender commitments and satisfying certain other conditions.
As of March 31, 2023, the Company had $144.2 million in outstanding borrowings under its Credit Facilities, consisting of $72.0 million outstanding under the revolving credit facility and $72.2 million outstanding under a term loan. As of March 31, 2023, the Company had undrawn capacity of $53.0 million under the revolving credit facility.
Obligations outstanding under the Credit Facilities accrue interest at a variable rate equal to the secured overnight financing rate (“SOFR”) plus an adjustment of between 0.10% and 0.25% (depending on the applicable interest period) plus a margin of between 1.0% and 2.0% (depending on the Company’s net leverage ratio). During the covenant relief period described in Note 12 to the Financial Statements, the applicable margin may reach 2.5% for SOFR rate loans. The weighted average interest rate on our outstanding borrowings under the Credit Facilities was 6.6% at March 31, 2023. During the term of the revolving credit facility, the Company will pay a commitment fee on the unused portion of the revolving credit facility equal to between 0.125% and 0.250% (depending on the Company’s net leverage ratio). During the covenant relief period, the commitment fee may reach 0.300%. The available balance under the revolving credit facility is reduced by outstanding letters of credit. As of March 31, 2023, there were no outstanding letters of credit under the revolving credit facility.
Contractual principal payments for the term loan are as follows: remainder of 2023 - $2.8 million; 2024 - $4.7 million; 2025 - $5.6 million; 2026 - $6.6 million and 2027 - $52.5 million. The term loan does not contain pre-payment penalties.
The Credit Facilities are secured by substantially all of the operating assets of the Company, and the Company’s obligations under the Credit Facilities are guaranteed by all of its domestic subsidiaries. The Company’s obligations under the Credit Facilities are subject to acceleration upon the occurrence of an event of default as defined in the Credit Agreement. The Credit Agreement contains customary events of default and negative covenants, including but not limited to those governing indebtedness, liens, fundamental changes, investments, restricted payments (including dividends and related distributions), liquidations, mergers, consolidations or acquisitions, affiliate transactions and sales of assets or subsidiaries. The Credit Agreement also requires the Company to comply with a fixed charge coverage ratio of at least 1.25 to 1.0 and a net leverage ratio not to exceed 4.0 to 1.0, except during the covenant relief period. The Company’s net leverage ratio (as defined in the Credit Agreement) is generally calculated as the ratio of (a) indebtedness minus unrestricted cash to (b) consolidated EBITDA for the four most recently ended fiscal quarters. As of March 31, 2023, the Company was in compliance with these ratios as the Company’s fixed charge coverage and net leverage ratios were 1.5 to 1.0 and 3.8 to 1.0, respectively.
On May 4, 2023, the Company and its domestic subsidiaries entered into a First Amendment to Credit Agreement with the Administrative Agent and the lenders, which (i) provides a covenant relief period through December 31, 2023, which the Company may opt to terminate during the fourth quarter of 2023 if it has a consolidated total net leverage ratio at or below 4.00 to 1.0 for the two preceding consecutive fiscal quarters; (ii) permits a maximum consolidated total net leverage ratio of 4.5 to 1, 4.8 to 1, 4.5 to 1 and 4.0 to 1 for the first, second, third and fourth quarters 2023, respectively; (iii) amends the applicable margin pricing grid to add a tier of applicable margins (2.5% for SOFR rate loans) if the consolidated total net leverage ratio is greater than 4.0 to 1, which tier would only apply during the covenant relief period; (iv) prohibits capital expenditures during the covenant relief period that exceed $10 million, with additional limitations imposed on a quarterly basis; (v) prohibits acquisitions and incremental loans during the covenant relief period; (vi) adds sale and leaseback transactions to the list of transactions that require the Company to use the net proceeds thereof to make a mandatory prepayment under the Credit Agreement; (vii) limits restricted payments to $20 million in any fiscal year, and no more than $10 million during the covenant relief period, with additional limitations imposed on a quarterly basis during the covenant relief period; and (viii) lowers the amount of permissible investments in non-loan party subsidiaries to $5 million during the covenant relief period.
Dividends and Share Repurchase Program
During the three months ended March 31, 2023 and 2022, the Company paid cash dividends of $2.3 million and $1.9 million, respectively. The Company anticipates that it will continue to pay dividends in the future as financial conditions permit.
On May 2, 2019, the Company’s Board of Directors approved a stock repurchase program of up to 750,000 shares of the Company’s outstanding common stock. There is no expiration date or other restriction governing the period over which the Company can make share repurchases under the program. All purchases under this program will be open market transactions. At March 31, 2023, the Company’s remaining repurchase capacity under its common stock repurchase program was 657,451 shares. Shares purchased under the common stock repurchase program are constructively retired and returned to unissued status. The Company considers several factors in determining when to make share repurchases, including among other things, the cost of equity, the after-tax cost of borrowing, the debt to total capitalization targets and its expected future cash needs.
Non-GAAP Financial Measure
EBITDA, which is a non-GAAP financial measure, is defined as net income excluding interest expense, income tax expense and depreciation and amortization expense. The Company believes EBITDA is an important measure of operating performance because it allows management, investors and others to evaluate and compare the Company’s core operating results from period to period by removing (i) the impact of the Company’s capital structure (interest expense from outstanding debt), (ii) tax consequences and (iii) asset base (depreciation and amortization). The Company uses EBITDA internally to monitor operating results and to evaluate the performance of its business. In addition, the compensation committee has used EBITDA in evaluating certain components of executive compensation, including performance-based annual incentive programs.
EBITDA is not a measure of financial performance under GAAP and should not be considered in isolation or as an alternative to net income, cash flows from operating activities or any other measure determined in accordance with GAAP. The items excluded to calculate EBITDA are significant components in understanding and assessing the Company’s results of operations. The presentation of the Company’s EBITDA may change from time to time, including as a result of changed business conditions, new accounting pronouncements or otherwise. If the presentation changes, the Company undertakes to disclose any change between periods and the reasons underlying that change. The Company’s EBITDA may not be comparable to a similarly titled measure of another company because other entities may not calculate EBITDA in the same manner.
The following table reconciles net income to EBITDA (in thousands):
| Three Months Ended March 31, |
||||||||
| 2023 |
2022 |
|||||||
| Net income |
$ | 888 | $ | 5,230 | ||||
| Interest expense |
2,570 | 299 | ||||||
| Income tax expense |
57 | 1,510 | ||||||
| Depreciation and amortization |
3,388 | 2,923 | ||||||
| EBITDA |
$ | 6,903 | $ | 9,962 | ||||
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
We are subject to market risk exposure related to changes in interest rates on our debt. Interest on our Credit Facilities is based upon the secured overnight financing rate (“SOFR”). As SOFR is a relatively new reference rate with a limited history, there may or may not be more volatility than with other reference rates such as LIBOR, which may result in increased borrowing costs for the Company. A hypothetical increase in the SOFR of 100 basis points as of January 1, 2023 would have resulted in approximately $0.4 million in additional pre-tax interest expense for the three months ended March 31, 2023. For further information regarding our debt instruments, see Note 3 to the Financial Statements.
Foreign Currency Exchange Risk
Sales to customers outside of the United States are subject to fluctuations in foreign currency exchange rates, which may negatively impact gross margin realized on our sales. Less than 5% of our sales contracts are denominated in foreign currencies. We cannot predict the effect of exchange rate fluctuations on our operating results. In certain cases, we may enter into foreign currency cash flow hedges to reduce the variability of cash flows associated with our sales and expenses denominated in foreign currency. As of March 31, 2023, we had no foreign currency exchange hedging contracts. There can be no assurance that our strategies will adequately protect our operating results from the effect of exchange rate fluctuations.
Financial results of our foreign subsidiaries in the Branded Products segment are denominated in their local currencies, which include the Hong Kong dollar, the Chinese renminbi, the British pound, the Indian rupee, the Brazilian real and the Canadian dollar. These operations may also have net assets and liabilities not denominated in their functional currency, which exposes us to changes in foreign currency exchange rates that impact income. Excluding intercompany payables and receivables considered to be long-term investments, changes in exchange rates for assets and liabilities not denominated in their functional currency are reported as foreign currency transaction gains (losses) within selling and administrative expenses in our statements of comprehensive income. During the three months ended March 31, 2023 and 2022, foreign currency losses were not significant. We also have exposure to foreign currency exchange risk from the translation of foreign subsidiaries from the local currency into the U.S. dollar. Comprehensive income during the three months ended March 31, 2023 and 2022 included a foreign currency translation adjustment gain of $0.3 million and $0.9 million, respectively.
ITEM 4. Controls and Procedures
Disclosure Controls and Procedures
The Company conducted an evaluation, under supervision and with the participation of the Company’s principal executive officer, Michael Benstock, and the Company’s principal financial officer, Michael Koempel, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report (the “Evaluation Date”). Based on such evaluation, the Company’s principal executive officer and principal financial officer concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were not effective because of the material weakness in the Company’s internal control over financial reporting described below and as previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
As of December 31, 2022, management identified a material weakness relating to segregation of duties, change management and user access and within certain proprietary information technology systems of the Contact Centers segment. The Company determined that management’s review controls over these areas are not designed effectively to detect a material misstatement related to the completeness, accuracy, and presentation of the financial statements.
Notwithstanding the identified material weakness, management, including the Company’s principal executive officer and principal financial officer, have determined, based on the procedures they have performed, that the consolidated financial statements included in this Form 10-Q present fairly, in all material respects, the Company’s financial condition, results of operations and cash flows at the Evaluation Date, and for the periods presented, in accordance with U.S. GAAP.
Remediation Efforts with Respect to the Material Weakness
The Company’s management, under the oversight of the Audit Committee, has developed a plan to remediate the material weakness relating to certain proprietary information technology systems of the Contact Centers segment identified as of December 31, 2022 which includes the following measures: (i) develop information technology general controls to manage access and program changes within our proprietary system; (ii) implement processes and controls to better identify and manage segregation of duties; and (iii) design and implement additional enhanced review and monitoring controls.
The material weakness will not be considered remediated until management completes the remediation plan above, the enhanced controls operate for a sufficient period of time, and management has concluded, through testing, that the related controls are effective. The Company will monitor the effectiveness of its remediation plan and will refine its remediation plan as appropriate.
Changes in Internal Control over Financial Reporting
Except as discussed above under “Ongoing Remediation Efforts with Respect to the Material Weakness," there were no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
We are a party to certain lawsuits in the ordinary course of business. We do not believe that these proceedings, individually or in the aggregate, will have a material adverse effect on our financial position, results of operations or cash flows.
We are exposed to certain risks and uncertainties that could have a material adverse impact on our business, financial condition and operating results. Except as set forth below, there have been no material changes to the Risk Factors described in Part I, Item 1A-Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022.
Adverse developments affecting the financial services industry, including events or concerns involving liquidity, defaults or non-performance by financial institutions or transactional counterparties, could adversely affect our business, results of operations or financial condition.
Events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. For example, on March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver; on March 12, 2023, Signature Bank and Silvergate Capital Corp. were each swept into receivership; and on May 1, 2023, First Republic Bank failed and regulators sold substantially all of its assets to JPMorgan Chase & Co. The failure of First Republic Bank occurred despite a previous attempt by some of the nation’s largest banks to shore up First Republic’s capital. Although we assess our banking and customer relationships as we believe necessary or appropriate, our access to funding sources and other credit arrangements in amounts adequate to finance or capitalize our current and projected future business operations could be significantly impacted.
In addition, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all. Any decline in available funding or access to our cash and liquidity resources could, among other risks, adversely impact our ability to meet our operating expenses, financial obligations or other obligations, result in breaches of our contractual obligations or result in violations of federal or state wage and hour laws. Any of these impacts, or any other impacts resulting from the factors described above or other related or similar factors not described above, could have material adverse impacts on our liquidity and our business, results of operations or financial condition.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no unregistered sales of equity securities during the quarter ended March 31, 2023, that were not previously reported in a current report on Form 8-K.
The table below sets forth information with respect to purchases made by or on behalf of Superior Group of Companies, Inc. or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of our common stock during the three months ended March 31, 2023.
| Period |
Total Number of Shares Purchased |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) |
||||||||||||
| January 1, 2023 to January 31, 2023 |
- | $ | - | - | ||||||||||||
| February 1, 2023 to February 28, 2023 |
- | - | - | |||||||||||||
| March 31, 2023 to March 31, 2023 |
- | - | - | |||||||||||||
| Total |
- | - | - | 657,451 | ||||||||||||
| (1) |
On May 2, 2019, the Company’s Board of Directors approved a stock repurchase program of up to 750,000 shares of the Company’s outstanding common stock. There is no expiration date or other restriction governing the period over which the Company can make share repurchases under the program. All purchases under this program will be open market transactions. |
Under our Credit Agreement, if an event of default exists, we may not make distributions to our shareholders. The Company is in full compliance with all terms, conditions and covenants of such agreement.
ITEM 3. Defaults upon Senior Securities
Not applicable.
ITEM 4. Mine Safety Disclosures
Not applicable.
On May 4, 2023, the Company and its domestic subsidiaries entered into the First Amendment to its Credit Agreement with the Administrative Agent and the lenders, which (i) provides a covenant relief period through December 31, 2023, which the Company may opt to terminate during the fourth quarter of 2023 if it has a consolidated total net leverage ratio at or below 4.00 to 1.0 for the two preceding consecutive fiscal quarters; (ii) permits a maximum consolidated total net leverage ratio of 4.5 to 1, 4.8 to 1, 4.5 to 1 and 4.0 to 1 for the first, second, third and fourth quarters 2023, respectively; (iii) amends the applicable margin pricing grid to add a tier of applicable margins if the consolidated total net leverage ratio is greater than or equal to 4.0 to 1, which tier would only apply during the covenant relief period; (iv) prohibits capital expenditures during the covenant relief period that exceed $10 million, with additional limitations imposed on a quarterly basis; (v) prohibits acquisitions and incremental loans during the covenant relief period; (vi) adds sale and leaseback transactions to the list of transactions that require the Company to use the net proceeds thereof to make a mandatory prepayment under the Credit Agreement; (vii) limits restricted payments to $20 million in any fiscal year, and no more than $10 million during the covenant relief period, with additional limitations imposed on a quarterly basis during the covenant relief period; and (viii) lowers the amount of permissible investments in non-loan party subsidiaries to $5 million during the covenant relief period.
| Exhibit No. | Description | |
| 10.1* |
First Amendment to Credit Agreement, dated May 4, 2023 | |
| 31.1* | Certification by the Chief Executive Officer (Principal Executive Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2* | Certification by the Chief Financial Officer (Principal Financial Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32** | Certification by the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS+ |
Inline XBRL Instance Document. |
|
| 101.SCH+ |
Inline XBRL Taxonomy Extension Schema. |
|
| 101.CAL+ |
Inline XBRL Taxonomy Extension Calculation Linkbase. |
|
| 101.DEF+ |
Inline XBRL Taxonomy Extension Definition Linkbase. |
|
| 101.LAB+ |
Inline XBRL Taxonomy Extension Label Linkbase. |
|
| 101.PRE+ |
Inline XBRL Taxonomy Extension Presentation Linkbase. |
|
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
* Filed herewith.
**Furnished herewith.
+ Submitted electronically herewith.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: May 8, 2023 | SUPERIOR GROUP OF COMPANIES, INC. | |
| By | /s/ Michael Benstock | |
| Michael Benstock | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: May 8, 2023 | ||
| By | /s/ Michael Koempel | |
| Michael Koempel | ||
| Chief Financial Officer (Principal Financial Officer) |
||
Exhibit 10.1
FIRST AMENDMENT TO CREDIT AGREEMENT
This FIRST AMENDMENT TO CREDIT AGREEMENT, dated as of May 4, 2023 (this “Agreement”), is entered into by and among SUPERIOR GROUP OF COMPANIES, INC., a Florida corporation (the “Borrower”), the Guarantors party hereto, the Lenders party hereto, and PNC BANK, NATIONAL ASSOCIATION in its capacities as Administrative Agent, Swingline Loan Lender and Issuing Lender.
RECITALS
A. The Borrower, the Guarantors from time to time party thereto, the Lenders from time to time party thereto, and the Administrative Agent are parties to that certain Credit Agreement, dated as of August 23, 2022 (as amended, restated, amended and restated, modified, supplemented, increased and extended from time to time, the “Credit Agreement”).
B. The Borrower has requested certain amendments to the Credit Agreement.
C. The Required Lenders have agreed to such requested amendments to the Credit Agreement, subject to the terms and conditions hereof.
AGREEMENT
NOW, THEREFORE, in consideration of the agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Defined Terms. Capitalized terms used herein and not otherwise defined herein (including in the introductory paragraph and recitals) shall have the meanings given to such terms in the Credit Agreement.
2. Amendments to Credit Agreement.
(a) The definition of “Applicable Margin” in Section 1.1 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:
“Applicable Margin” means the corresponding percentages per annum as specified under and in accordance with the terms set forth below based on the Consolidated Total Net Leverage Ratio; provided, that, the rates set forth in Pricing Level VI below shall only be available during the Covenant Relief Period (it being understood that following the Covenant Relief Period, Pricing Level V below shall apply to the extent the Consolidated Total Net Leverage Ratio is greater than or equal to 3.50:1.0):
|
Pricing Level |
Consolidated Total Net Leverage Ratio |
Applicable Margin for Term SOFR Rate Loans / Letter of Credit Fee |
Applicable Margin for Base Rate Loans |
Commitment Fee |
|
I |
< 2.00:1.0 |
1.00% |
0.000% |
0.125% |
|
II |
< 2.50:1.0 but > 2.00:1.0 |
1.125% |
0.125% |
0.150% |
|
III |
< 3.00:1.0 but > 2.50:1.0 |
1.250% |
0.250% |
0.200% |
|
IV |
< 3.50:1.0 but > 3.00:1.0 |
1.750% |
0.750% |
0.250% |
|
V |
< 4.00:1.0 but > 3.50:1.0 |
2.000% |
1.000% |
0.250% |
|
VI |
> 4.00:1.0 |
2.500% |
1.500% |
0.300% |
For purposes of determining the Applicable Margin, the Commitment Fee and the Letter of Credit Fee:
(a) The Applicable Margin, the Commitment Fee and the Letter of Credit Fee shall be determined on the Closing Date based on the Consolidated Total Net Leverage Ratio computed on such date pursuant to a Compliance Certificate to be delivered on the Closing Date pursuant to Section 7.1(a)(vii).
(b) The Applicable Margin, the Commitment Fee and the Letter of Credit Fee shall be recomputed as of the end of each fiscal quarter ending after the Closing Date based on the Consolidated Total Net Leverage Ratio as of such quarter end. Any increase or decrease in the Applicable Margin, the Commitment Fee or the Letter of Credit Fee computed as of a quarter end shall be effective on the date on which the Compliance Certificate evidencing such computation is due to be delivered under Section 8.13(a) [Certificate of Borrower]. If a Compliance Certificate is not delivered when due in accordance with such Section 8.13(a), then the rates in Pricing Level V set forth above shall apply as of the first Business Day after the date on which such Compliance Certificate was required to have been delivered and shall remain in effect until the date on which such Compliance Certificate is delivered.
(c) If, as a result of any restatement of or other adjustment to the financial statements of the Borrower or for any other reason, the Borrower or the Lenders determine that (i) the Consolidated Total Net Leverage Ratio as calculated by the Borrower as of any applicable date was inaccurate and (ii) a proper calculation of the Consolidated Total Net Leverage Ratio would have resulted in higher pricing for such period, the Borrower shall immediately and retroactively be obligated to pay to the Administrative Agent for the account of the applicable Lenders, promptly on demand by the Administrative Agent (or, after the occurrence of an actual or deemed entry of an order for relief with respect to the Borrower under the Bankruptcy Code of the United States, automatically and without further action by the Administrative Agent, any Lender or the Issuing Lender), an amount equal to the excess of the amount of interest and fees that should have been paid for such period over the amount of interest and fees actually paid for such period. This paragraph shall not limit the rights of the Administrative Agent, any Lender or the Issuing Lender, as the case may be, under Section 2.8 [Letter of Credit Subfacility] or Section 4.3 [Interest After Default] or Article 10 [Default]. The Borrower’s obligations under this paragraph shall survive the termination of the Commitments and the repayment of all other Obligations hereunder.
(b) The following definitions are hereby added to Section 1.1 of the Credit Agreement in appropriate alphabetical order to read as follows:
“Covenant Relief Period” means the period beginning on the First Amendment Effective Date and ending on the earlier of (i) December 31, 2023 and (ii) the Early Termination Date.
“Early Termination Date” means the date on which the Administrative Agent shall have received written notice of the election by the Borrower to terminate the Covenant Relief Period, which may be made at any time within 30 days following the delivery of the financial statements and related Compliance Certificate required to be delivered pursuant to Sections 8.12(a) and 8.13(a) for the fiscal quarter ending September 30, 2023 demonstrating that the Consolidated Total Net Leverage Ratio for the two consecutive fiscal quarters ended as of June 30, 2023, and September, 30, 2023 does not exceed 4.00 to 1.0; provided no Potential Default or Event of Default exists on such date.
“First Amendment Effective Date” means May 4, 2023.
(c) In the definition of “Permitted Acquisition” in Section 1.1 of the Credit Agreement:
(i) the word “and” at the end of clause (v) therein is hereby deleted;
(ii) the period (“.”) at the end of clause (vi) therein is hereby deleted and replaced with the text “; and”; and
(iii) the following new clause (vii) is hereby inserted immediately following clause (vi) therein:
(vii) such Acquisition is not consummated during the Covenant Relief Period.
(d) In Section 2.9 of the Credit Agreement, the text immediately preceding clause (a) therein is hereby amended and restated in its entirety to read as follows:
At any time not during the Covenant Relief Period, the Borrower may by written notice to the Administrative Agent elect to request the establishment of:
(e) Section 5.3 of the Credit Agreement is hereby amended to insert the following new clause (e) immediately following clause (d) therein:
(e) Sale and Leaseback Transactions. Immediately upon the receipt by any Loan Party or any Subsidiary of the Net Cash Proceeds of any Sale and Leaseback Transaction authorized by Section 9.12, the Borrower shall make a mandatory prepayment of the Term Loans equal to the Net Cash Proceeds of such Sale and Leaseback Transaction. All prepayments pursuant to this Section 5.3(e) shall be to payment of the principal amount of the Term Loans by application to the unpaid installments of principal in the inverse order of scheduled maturities.
(f) Clause (d)(ii)(C) of Section 9.3 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:
(C) loans, advances and other Investments by any Loan Party made after the Closing Date in any Subsidiary that is not a Loan Party; provided, that, (1) solely during the Covenant Relief Period, the aggregate amount of all such Investments permitted pursuant to this clause (ii)(C) shall not exceed $5,000,000 at any time outstanding; and (2) after the end of the Covenant Relief Period, the aggregate amount of all such Investments permitted pursuant to this clause (ii)(C) shall not exceed $15,000,000 at any time outstanding;
(g) Section 9.4(c) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:
(c) so long as no Potential Default or Event of Default has occurred and is continuing or would result therefrom, the Borrower or any of its Subsidiaries may make Restricted Payments in an amount not to exceed $20,000,000.00 in any fiscal year; provided that, solely during the Covenant Relief Period, Restricted Payments will be limited to (i) $2,500,000 during the fiscal quarter ended March 31, 2023, (ii) $5,000,000 during the period of two fiscal quarters ending June 30, 2023, (iii) $7,500,000 during the period of three fiscal quarters ending September 30, 2023 and (iv) $10,000,000 during the period of four fiscal quarters ending December 31, 2023; provided further that the Borrower and its Subsidiaries shall be in compliance with Sections 9.13 and 9.14 on a Pro Forma Basis immediately after giving effect to any such Restricted Payment.
(h) Section 9.12 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:
9.12 Sale and Leaseback Transactions. Enter into any Sale and Leaseback Transaction other than with respect to real property of the Loan Parties and their Subsidiaries; provided, that, one hundred percent (100%) of the Net Cash Proceeds of any Sale and Leaseback Transaction permitted pursuant to this Section 9.12 shall be required to be used to prepay the principal amount of the Term Loans in accordance with Section 5.3(e).
(i) Section 9.14 of the Credit Agreement is hereby amended in its entirety to read as follows:
9.14 Maximum Consolidated Total Net Leverage Ratio. Permit the Consolidated Total Net Leverage Ratio, calculated as of the end of each fiscal quarter for the four fiscal quarters then ended, to exceed (a) as of any such date of calculation not during the Covenant Relief Period, 4.00:1.00, and (b) as of any such date of calculation during the Covenant Relief Period, the ratio set forth opposite such date below:
|
Fiscal Quarter Ending: |
Maximum Consolidated Total Net Leverage Ratio |
|
March 31, 2023 |
4.50:1.00 |
|
June 30, 2023 |
4.80:1.00 |
|
September 30, 2023 |
4.50:1.00 |
|
December 31, 2023 |
4.00:1.00 |
(j) Article 9 of the Credit Agreement is hereby amended to insert the following new Section 9.20 immediately following Section 9.19 therein:
Section 9.20 Capital Expenditures. Solely during the Covenant Relief Period, permit the capital expenditures of the Loan Parties and their Subsidiaries on a consolidated basis to exceed (i) $2,500,000 during the fiscal quarter ending March 31, 2023, (ii) $5,000,000 during the period of two fiscal quarters ending June 30, 2023, (iii) $7,500,000 during the period of three fiscal quarters ending September 30, 2023 and (iv) $10,000,000 during the period of four fiscal quarters ending December 31, 2023.
3. Conditions Precedent. This Agreement shall be effective upon satisfaction of the following conditions precedent:
(a) Agreement. Receipt by the Administrative Agent of a counterpart of this Agreement signed by the Administrative Agent, the Required Lenders, the Borrower and the Guarantors.
(b) Administrative Agent Fees and Expenses. Receipt by the Administrative Agent of all fees and other amounts due and payable on or prior to the date hereof, including, without limitation, reimbursement or payment of all reasonable and documented out-of-pocket expenses (including reasonable fees, charges and disbursements of counsel to the Administrative Agent) required to be reimbursed or paid by the Borrower pursuant to Section 4 of this Agreement.
4. Expenses. The Borrower agrees to pay all reasonable and documented out-of-pocket expenses (including reasonable fees, charges and disbursements of counsel to the Administrative Agent) with respect to the preparation, execution and delivery of this Agreement to the extent such are required to be reimbursed or paid by the Borrower pursuant to Section 12.3 of the Credit Agreement.
5. Miscellaneous.
(a) This Agreement shall be deemed to be, and is, a Loan Document.
(b) Effective as of the date hereof, all references to the Credit Agreement in each of the Loan Documents shall hereafter mean the Credit Agreement as amended by this Agreement.
(c) Except as expressly modified by this Agreement, the Credit Agreement, the Loan Documents and the obligations of each Loan Party thereunder and under the other Loan Documents are hereby ratified and confirmed and shall continue and remain in full force and effect according to their terms.
(d) Each of the Loan Parties (i) acknowledges and consents to all of the terms and conditions of this Agreement, (ii) agrees that this Agreement and all documents executed in connection herewith do not operate to reduce or discharge its obligations under the Credit Agreement or the other Loan Documents or any certificates, documents, agreements and instruments executed in connection therewith, (iii) affirms all of its obligations under the Loan Documents, (iv) agrees that this Agreement shall in no manner impair or otherwise adversely affect any of the Liens granted in or pursuant to the Loan Documents and (v) affirms that each of the Liens granted in or pursuant to the Loan Documents are valid and subsisting.
(e) Each of the Loan Parties hereby represents and warrants to the Administrative Agent and the Lenders as follows:
(i) the execution, delivery and performance by such Loan Party of this Agreement are within such Loan Party’s organizational powers and have been duly authorized by all necessary organizational, and if required, shareholder, partner or member, action, as applicable;
(ii) this Agreement has been duly executed and delivered by such Loan Party and constitutes a legal, valid and binding obligation of such Loan Party, enforceable against such Loan Party in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity;
(iii) the execution, delivery and performance by such Loan Party of this Agreement do not require any consent or approval of, registration or filing with, notice to, or any action by, any governmental authority, except those as have been obtained or made and are in full force and effect;
(iv) after giving effect to this Agreement, all representations and warranties of each Loan Party set forth in the Loan Documents are true and correct in all material respects (other than those representations and warranties that are expressly qualified by a Material Adverse Change or other materiality, in which case such representations and warranties are true and correct in all respects) except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct in all material respects (other than those representations and warranties that are expressly qualified by a Material Adverse Change or other materiality, in which case such representations and warranties are true and correct in all respects) as of such earlier date; and
(v) after giving effect to this Agreement, no Potential Default or Event of Default exists.
(f) This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by electronic mail), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed counterpart of a signature page of this Agreement by electronic transmission or by any other electronic imaging means (including .pdf), shall be effective as delivery of a manually executed counterpart of this Agreement.
(g) THIS AGREEMENT AND ANY CLAIMS, CONTROVERSY, DISPUTE OR CAUSE OF ACTION (WHETHER IN CONTRACT OR TORT OR OTHERWISE) BASED UPON, ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
(h) For the avoidance of doubt and notwithstanding anything in the Credit Agreement or in any other Loan Document to the contrary, each of the parties hereto acknowledges and agrees that no Event of Default shall be deemed to have occurred with respect to the Consolidated Total Net Leverage Ratio for the period of four fiscal quarters ended March 31, 2023.
(i) In consideration of the agreements of the Lenders and set forth in this Agreement, each Loan Party hereby releases and forever discharges the Lenders and Participants and Lenders’ and Participants’ respective predecessors, successors, assigns, officers, managers, directors, employees, agents, attorneys, representatives, and affiliates (hereinafter all of the above collectively referred to as the “Lender Group”) from any and all claims, counterclaims, demands, damages, debts, suits, liabilities, actions and causes of action of any nature whatsoever, in each case to the extent arising in connection with any of the Loan Documents prior to the First Amendment Effective Date, whether arising at law or in equity, whether known or unknown, whether liability be direct or indirect, liquidated or unliquidated, whether absolute or contingent, foreseen or unforeseen, and whether or not heretofore asserted, which any Loan Party may have or claim to have against any member of the Lender Group.
6. No Other Changes. Except as modified hereby, all of the terms and provisions of the Loan Documents shall remain in full force and effect.
[Signature pages follow.]
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written.
BORROWER: SUPERIOR GROUP OF COMPANIES, INC.,
a Florida corporation
By: /s/ Jake Himelstein
Name: Jake Himelstein
Title: Authorized Representative
GUARANTORS: CID RESOURCES, INC.,
a Delaware corporation
SUPERIOR UNIFORM GROUP, LLC,
a Florida limited liability company
FASHION SEAL CORPORATION,
a Nevada corporation
THE OFFICE GURUS, LLC,
a Florida limited liability company
SUPERIOR UNIFORM ARKANSAS LLC,
an Arkansas limited liability company
SUPERIOR GROUP HOLDINGS, INC.,
a Texas corporation
SUPERIOR GROUP HOLDINGS (IL), LLC,
an Illinois limited liability company
ZING MANUFACTURING, LLC,
a Delaware limited liability company
BAMKO, LLC,
a Delaware limited liability company
LOGO LINEUP, LLC,
a Delaware limited liability company
By: /s/ Jake Himelstein
Name: Jake Himelstein
Title: Authorized Representative
ADMINISTRATIVE
AGENT: PNC BANK, NATIONAL ASSOCIATION,
as Administrative Agent, as Swingline Loan Lender, as Issuing Lender and as a Lender
By: /s/ Carmen Campise Jr.
Name: Carmen Campise Jr.
Title: Senior Vice President
LENDER: BMO HARRIS BANK, N.A.,
as a Lender
By: /s/ Clint C. DeRonda
Name: Clint C. DeRonda
Title: Director
LENDER: VALLEY NATIONAL BANK,
as a Lender
By: /s/ Benjamin Powers
Name: Benjamin Powers
Title: First Vice President
LENDER: SOUTHSTATE BANK, N.A.,
as a Lender
By: /s/ Michael R. Butler
Name: Michael R. Butler
Title: Senior Vice President
Exhibit 31.1
CERTIFICATIONS
I, Michael Benstock, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Superior Group of Companies, Inc.;
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
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5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 8, 2023
/s/ Michael Benstock
Michael Benstock
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATIONS
I, Michael Koempel, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Superior Group of Companies, Inc.;
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
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5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: May 8, 2023 |
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/s/ Michael Koempel |
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Michael Koempel Chief Financial Officer (Principal Financial Officer) |
Exhibit 32
Written Statement of the Chief Executive Officer and the Chief Financial Officer
Pursuant to 18 U.S.C. §1350
Solely for the purposes of complying with 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, we, the undersigned Chief Executive Officer and Chief Financial Officer of Superior Group of Companies, Inc. (the “Company”), hereby certify, based on our knowledge, that the Quarterly Report on Form 10-Q of the Company for the period ended March 31, 2023 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Michael Benstock
Michael Benstock
Chief Executive Officer
(Principal Executive Officer)
Date: May 8, 2023
/s/ Michael Koempel
Michael Koempel
Chief Financial Officer
(Principal Financial Officer)
Date: May 8, 2023
Condensed Consolidated Balance Sheets (Unaudited) (Parentheticals) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Accounts receivable, allowance for doubtful accounts | $ 6,346 | $ 7,622 |
| Preferred stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
| Preferred stock, shares authorized (in shares) | 300,000 | 300,000 |
| Preferred stock, shares issued (in shares) | 0 | 0 |
| Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
| Common stock, shares authorized (in shares) | 50,000,000 | 50,000,000 |
| Common stock, shares issued (in shares) | 16,498,312 | 16,376,683 |
| Common stock, shares outstanding (in shares) | 16,498,312 | 16,376,683 |
Condensed Consolidated Statements of Shareholders' Equity (Unaudited) (Parentheticals) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
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| Cash dividends declared, per share (in dollars per share) | $ 0.14 | $ 0.12 |
| Cash flow hedges, tax | $ 1 | |
| Pensions, tax | $ 14 | 110 |
| Change in currency translation adjustment, tax | $ 0 | $ 0 |
Note 1 - Description of Business and Basis of Presentation |
3 Months Ended |
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Mar. 31, 2023 | |
| Notes to Financial Statements | |
| Significant Accounting Policies [Text Block] |
NOTE 1 – Description of Business and Basis of Presentation:
Description of business
Superior Group of Companies, Inc. (together with its subsidiaries, “the Company,” “Superior,” “we,” “our,” or “us”) was organized in 1920 and was incorporated in 1922 as a New York company under the name Superior Surgical Mfg. Co., Inc. In 1998, the Company changed its name to Superior Uniform Group, Inc. and its state of incorporation to Florida. Effective on May 3, 2018, Superior Uniform Group, Inc. changed its name to Superior Group of Companies, Inc.
Superior’s Branded Products segment, primarily through its signature marketing brands BAMKO® and HPI®, produces and sells customized merchandising solutions, promotional products and branded uniform programs. Branded products are manufactured through third parties or in Superior’s own facilities, and are sold to customers in a wide range of industries, including retail, hotel, food service, entertainment, technology, transportation and other industries. The segment currently has sales offices in the United States, Canada, Brazil, the United Kingdom and Colombia, with support services in China and India.
Superior’s Healthcare Apparel segment, primarily through its signature marketing brands Fashion Seal Healthcare® and WonderWink® (also referred to as “Wink”), manufactures (through third parties or in its own facilities) and sells a wide range of healthcare apparel, such as scrubs, lab coats, protective apparel and patient gowns. This segment sells healthcare service apparel to healthcare laundries, dealers, distributors and retailers primarily in the United States.
Superior’s Contact Centers segment, through multiple The Office Gurus® entities, including subsidiaries in El Salvador, Belize, Jamaica, Dominican Republic and the United States (collectively, “TOG”), provides outsourced, nearshore business process outsourcing, contact and call-center support services to North American customers.
Change in Reportable Segments
Beginning in the second quarter of 2022, the Company realigned its reportable segments to correspond with changes to its organizational responsibilities, management structure and operating model. Prior to implementing the current segment reporting, the Company’s Uniforms and Related Products segment included healthcare apparel, uniforms and corporate overhead. As part of the change in reportable segments, the branded portion of the uniforms business was combined with the previous Promotional Products segment to form the Branded Products segment, the healthcare apparel business became its own segment named Healthcare Apparel and income and expenses related to corporate functions that are not specifically attributable to an individual reportable segment are no longer presented in segment results. The previous Remote Staffing Solutions segment was renamed Contact Centers segment. All prior period segment information has been recast to reflect this change in reportable segments. Refer to Note 10 for additional information.
Basis of presentation
The accompanying unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. Intercompany items have been eliminated in consolidation. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, and filed with the Securities and Exchange Commission. Management believes that the information furnished includes all adjustments of a normal recurring nature that are necessary to fairly present our consolidated financial position, results of operations and cash flows for the periods indicated. The results of operations for any interim period are not necessarily indicative of results to be expected for the full year.
The Company refers to the condensed consolidated financial statements collectively as “financial statements,” and individually as “statements of comprehensive income,” “balance sheets,” “statements of shareholders’ equity,” and “statements of cash flows” herein.
Recent Accounting Pronouncements
We consider the applicability and impact of all Accounting Standard Updates (“ASUs”). There have been no new accounting pronouncements recently issued or newly effective that had, or are expected to have, a material impact on the Company’s financial statements. |
Note 2 - Inventories |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Text Block] |
NOTE 2 – Inventories:
Inventories consisted of the following amounts (in thousands):
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Note 3 - Long-term Debt |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes to Financial Statements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Long-Term Debt [Text Block] |
Debt consisted of the following (in thousands):
On August 23, 2022, the Company entered into a Credit Agreement (the “Credit Agreement”) among the Company, the domestic subsidiaries of the Company, as guarantors, the lenders party thereto (the “Lenders”), and PNC Bank, National Association, as administrative agent for the Lenders (the “Administrative Agent”), pursuant to which the Lenders are providing the Company senior secured credit facilities maturing in August 2027 consisting of a revolving credit facility in the aggregate maximum principal amount of $125.0 million and a term loan in the original aggregate principal amount of $75.0 million (collectively, the “Credit Facilities”), and the ability to request incremental revolving credit or term loan facilities in an aggregate amount of up to an additional $75.0 million, subject to obtaining additional lender commitments and satisfying certain other conditions.
Obligations outstanding under the Credit Facilities accrue interest at a variable rate equal to the secured overnight financing rate (“SOFR”) plus an adjustment of between 0.10% and 0.25% (depending on the applicable interest period) plus a margin of between 1.0% and 2.0% (depending on the Company’s net leverage ratio). During the covenant relief period described in Note 12, the applicable margin may reach 2.5% for SOFR rate loans. The weighted average interest rate on our outstanding borrowings under the Credit Facilities was 6.6% at March 31, 2023. During the term of the revolving credit facility, the Company will pay a commitment fee on the unused portion of the revolving credit facility equal to between 0.125% and 0.250% (depending on the Company’s net leverage ratio). During the covenant relief period, the commitment fee may reach 0.300%. The available balance under the revolving credit facility is reduced by outstanding letters of credit. As of March 31, 2023, there were no outstanding letters of credit under the revolving credit facility.
Contractual principal payments for the term loan are as follows: remainder of 2023 - $2.8 million; 2024 - $4.7 million; 2025 - $5.6 million; 2026 - $6.6 million and 2027 - $52.5 million. The term loan does not contain pre-payment penalties.
The Credit Facilities are secured by substantially all of the operating assets of the Company, and the Company’s obligations under the Credit Facilities are guaranteed by all of its domestic subsidiaries. The Company’s obligations under the Credit Facilities are subject to acceleration upon the occurrence of an event of default as defined in the Credit Agreement. The Credit Agreement contains customary events of default and negative covenants, including but not limited to those governing indebtedness, liens, fundamental changes, investments, restricted payments (including dividends and related distributions), liquidations, mergers, consolidations or acquisitions, affiliate transactions and sales of assets or subsidiaries. The Credit Agreement also requires the Company to comply with a fixed charge coverage ratio of at least 1.25 to 1.0 and a net leverage ratio not to exceed 4.0 to 1.0, except during the covenant relief period. The Company’s net leverage ratio (as defined in the Credit Agreement) is generally calculated as the ratio of (a) indebtedness minus unrestricted cash to (b) consolidated EBITDA for the four most recently ended fiscal quarters. As of March 31, 2023, the Company was in compliance with these ratios as the Company’s fixed charge coverage and net leverage ratios were 1.5 to 1.0 and 3.8 to 1.0, respectively. Refer to Note 12 for additional information.
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Note 4 - Periodic Pension Cost |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Retirement Benefits [Text Block] |
NOTE 4 – Periodic Pension Cost:
The Company is the sponsor of an unfunded supplemental executive retirement plan ("SERP") which includes one active participant.
The following table details the net periodic pension cost under the Company’s SERP for the periods presented (in thousands):
The service cost component is included in selling and administrative expenses in our statements of comprehensive income and the other components of net periodic pension cost are included in other periodic pension costs in our statements of comprehensive income.
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Note 5 - Net Sales |
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| Revenue from Contract with Customer [Text Block] |
NOTE 5 – Net Sales:
For our Branded Products and Healthcare Apparel segments, revenue is primarily generated from the sale of finished products to customers. Revenues for our Branded Products and Healthcare Apparel segments are recognized when the performance obligations under the contract terms are satisfied. For certain contracts with customers in which the Company has an enforceable right to payment for goods with no alternative use, revenue is recognized over time upon receipt of finished goods into inventory. Revenue for goods that do have an alternative use or that the customer is not obligated to purchase under the terms of a contract is generally recognized when the goods are transferred to the customer. Revenue from the sale of personal protective equipment, including facemasks, isolation gowns, sanitizers and gloves, is generally recognized at a point in time when the goods are transferred to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contract. The Company includes shipping and handling fees billable to customers in net sales. Shipping and handling activities that occur after the transfer of promised goods are accrued as control is transferred to the customer rather than being treated as a separate performance obligation.
For our Contact Centers segment, revenue is generated from providing our customers with contact center services. Revenue for our Contact Centers segment is recognized as services are delivered.
Revenue is measured at the amount of consideration we expect to receive in exchange for the goods or services. Variable consideration for estimated returns, allowances and other price variances is recorded based upon historical experience and current allowance programs. Contract terms may involve variable consideration clauses such as sales discounts and customer rebates, and revenue is adjusted accordingly for these provisions. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The promised amount of consideration in a contract is not adjusted for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised good or service to a customer and when the customer pays for that product or service will be one year or less. Sales taxes are excluded from the measurement of a performance obligation’s transaction price. Sales commissions are expensed as incurred when we expect that the amortization period of such costs will be one year or less.
Consistent with the Company’s change in reportable segments described in Note 10, the Company has changed its presentation of disaggregated revenue to align with the new segment structure. The following table presents disaggregated revenue by operating segment for the periods presented (in thousands):
Contract Assets and Contract Liabilities
The following table provides information about accounts receivable, contract assets and contract liabilities from contracts with customers (in thousands):
Contract assets relate to goods produced without an alternative use for which the Company has an enforceable right to payment but which has not yet been invoiced to the customer. A portion of the amounts included in contract assets on December 31, 2022 were transferred to accounts receivable during the three months ended March 31, 2023. Contract liabilities relate to payments received in advance of the Company completing its performance under a contract. Contract liabilities are included in other current liabilities in our balance sheets. During the three months ended March 31, 2023, $2.0 million of revenue was recognized from the contract liabilities balance as of December 31, 2022.
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Note 6 - Contingencies |
3 Months Ended |
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Mar. 31, 2023 | |
| Notes to Financial Statements | |
| Commitments and Contingencies Disclosure [Text Block] |
NOTE 6 – Contingencies:
The purchase price to acquire substantially all of the assets of Sutter’s Mill Specialties, Inc. (“Sutter’s Mill”) in December 2021 included contingent consideration based on varying levels of Sutter’s Mill’s EBITDA in each measurement period from 2022 to 2024. The estimated fair value of Sutter’s Mill acquisition-related contingent consideration payable as of March 31, 2023 was $0.8 million, none of which is expected to be paid within the next twelve months. The total estimated undiscounted remaining payment related to this contingent consideration payable is between $0.5 million and $1.5 million. The estimated fair value of Guardian acquisition-related contingent consideration payable as of March 31, 2023 was $1.6 million, of which $0.8 million is expected to be paid in the third quarter of 2023. The total estimated undiscounted remaining payment related to this contingent consideration payable is between $1.9 million and $2.5 million. The Company will continue to evaluate these liabilities for remeasurement at the end of each reporting period and any changes will be recorded in the Company’s statements of comprehensive income. The carrying amount of the liability may fluctuate significantly and actual amounts paid may be different from the estimated value of the liability.
The Company is involved in various legal actions and claims arising from the normal course of business. In the opinion of management, the ultimate outcome of these matters is not expected to have a material impact on the Company’s results of operations, cash flows, or financial position.
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Note 7 - Share-based Compensation |
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| Share-Based Payment Arrangement [Text Block] |
NOTE 7 – Share-Based Compensation:
Share-based compensation expense is recorded in selling and administrative expense in the statements of comprehensive income. The following table details the share-based compensation expense by type of award for the periods presented (in thousands):
Stock Options and Stock Appreciation Rights (“SARs”)
The Company grants stock options and stock-settled SARs to employees that allow them to purchase shares of the Company’s common stock. Stock options are also granted to outside members of the Board of Directors of the Company. The Company determines the fair value of stock options and SARs at the date of grant using the Black-Scholes valuation model.
All stock options and SARs granted prior to August 3, 2018 vested immediately when granted. Awards issued thereafter vest between and years after the grant date. Employee awards expire years after the grant date, and those issued to directors expire years after the grant date. The Company issues new shares upon the exercise of stock options and SARs. Stock options, as well as SARs granted in tandem with stock options, are subject to accelerated vesting under certain circumstances as outlined in the 2013 Incentive Stock and Awards Plan (the “2013 Plan”) or 2022 Equity Incentive and Awards Plan (the “2022 Plan”), as applicable.
A summary of stock option transactions during the three months ended March 31, 2023 follows:
As of March 31, 2023, the Company had $1.8 million in unrecognized compensation cost related to nonvested stock options to be recognized over the remaining weighted average vesting period of 1.8 years.
A summary of stock-settled SARs transactions during the three months ended March 31, 2023 follows:
As of March 31, 2023, the Company had $0.4 million in unrecognized compensation cost related to nonvested SARs to be recognized over the remaining weighted average vesting period of 1.7 years.
Restricted Stock
The Company has granted shares of restricted stock to directors and certain employees, which vest at a specified future date, generally after years, over years or when certain conditions are met. The shares are subject to accelerated vesting under certain circumstances as outlined in the 2013 Plan or 2022 Plan, as applicable. Expense for each of these grants is based on the fair value at the date of the grant and is being recognized on a straight-line basis over the respective service period.
A summary of restricted stock transactions during the three months ended March 31, 2023 follows:
As of March 31, 2023, the Company had $5.4 million of unrecognized compensation cost related to nonvested restricted stock grants expected to be recognized over the remaining weighted average vesting period of 2.5 years.
Performance Shares
The Company has granted performance shares, which either contain only service-based vesting conditions or service-based and performance-based vesting conditions. The service-based awards vest after the service period is met, which is generally to years. Expense for these grants is based on the fair value on the date of the grant and is being recognized on a straight-line basis over the respective service period. The performance-based awards generally vest after years if the performance and service targets are met. The Company evaluates the performance conditions associated with these grants each reporting period to determine the expected number of shares to be issued. Expense for grants of performance shares is recognized on a straight-line basis over the respective service period based on the grant date fair value and expected number of shares to be issued. The awards are subject to accelerated vesting on a pro rata basis under certain circumstances as outlined in the 2013 Plan or 2022 Plan, as applicable, except in those circumstances in which award agreements or change in control agreements specify full vesting.
A summary of performance share transactions during the three months ended March 31, 2023 follows:
As of March 31, 2023, the Company had $2.3 million of unrecognized compensation cost related to nonvested performance share grants expected to be recognized over the remaining weighted average service period of 3.4 years.
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Note 8 - Income Taxes |
3 Months Ended |
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Mar. 31, 2023 | |
| Notes to Financial Statements | |
| Income Tax Disclosure [Text Block] |
NOTE 8 – Income Taxes:
The Company calculates its interim income tax provision in accordance with the accounting guidance for income taxes in interim periods. At the end of each interim period, the Company makes its best estimate of the annual expected effective tax rate and applies that rate to its ordinary year-to-date income or loss. The tax expense or benefit related to significant, unusual, or extraordinary items that will be separately reported or reported net of their related tax effect are individually computed and recognized in the interim period in which those items occur.
The computation of the annual expected effective tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected operating income for the year and permanent and temporary differences. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or the tax environment changes.
For the three months ended March 31, 2023, the Company recorded a provision for income taxes of $0.1 million, which represents an effective tax rate of 6.0%. The effective tax rate for the three months ended March 31, 2023 was favorably impacted by discrete non-taxable gains on the Company’s written put option and income generated on the Company’s SERP totaling $0.4 million and $0.2 million respectively. For the three months ended March 31, 2022, the Company recorded a provision for income taxes of $1.5 million, which represents an effective tax rate of 22.4%.
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Note 9 - Net Income Per Share |
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| Earnings Per Share [Text Block] |
NOTE 9 – Net Income Per Share:
The Company’s basic net income per share is computed based on the weighted average number of shares of common stock outstanding for the period. Diluted net income per share includes the effect of the Company’s outstanding stock options, stock appreciation rights, nonvested shares of restricted stock and nonvested performance shares, if the inclusion of these items is dilutive.
The following table presents a reconciliation of basic and diluted net income per share for the periods presented:
Awards to purchase 1,008,972 and 415,529 shares of common stock with weighted average exercise prices of $17.03 and $23.29 per share were outstanding during the three months ended March 31, 2023 and 2022, respectively, but were not included in the computation of diluted net income per share because the awards’ exercise prices were greater than the average market price of the common shares.
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Note 10 - Operating Segment Information |
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| Segment Reporting Disclosure [Text Block] |
NOTE 10 – Operating Segment Information:
As described in Note 1, effective in the second quarter of 2022, the Company realigned its reportable segments to correspond with changes to its organizational responsibilities, management structure and operating model. We have reclassified prior period segment disclosures to conform to the current period presentation. As a result of the change, the Company manages and reports the following segments:
Branded Products segment: Primarily through our signature marketing brands BAMKO® and HPI®, we produce and sell customized merchandising solutions, promotional products and branded uniform programs. Branded products are sold to customers in a wide range of industries, including retail, hotel, food service, entertainment, technology, transportation and other industries. The segment currently has sales offices in the United States, Canada, Brazil, the United Kingdom and Colombia, with support services in China and India.
Healthcare Apparel segment: Primarily through our signature marketing brands Fashion Seal Healthcare® and Wink™, we manufacture (through third parties or in our own facilities) and sell a wide range of healthcare apparel, such as scrubs, lab coats, protective apparel and patient gowns. This segment sells healthcare service apparel to healthcare laundries, dealers, distributors and retailers primarily in the United States.
Contact Centers: Through multiple The Office Gurus® entities, including our subsidiaries in El Salvador, Belize, Jamaica, Dominican Republic and the United States (collectively, “TOG”), we provide outsourced, nearshore business process outsourcing, contact and call-center support services to North American customers.
Intersegment eliminations include the elimination of revenues and costs from services provided by the Contact Centers segment to the Company’s two other segments. Such costs are recognized as selling and administrative expenses in the Branded Products and Healthcare Apparel segments. Income and expenses related to corporate functions that are not specifically attributable to an individual reportable segment are presented within Other in the tables below.
The Company evaluates the performance of each operating segment based on several factors of which the primary financial measures are net sales and income before taxes on income.
The following tables set forth financial information related to the Company’s operating segments (in thousands):
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Note 11 - Acquisition of Businesses |
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Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Combination Disclosure [Text Block] |
NOTE 11 – Acquisition of Businesses:
Guardian Products, Inc.
On May 1, 2022, the Company, through BAMKO, acquired substantially all of the assets of Guardian Products, Inc. (“Guardian”) of Norcross, Georgia. Guardian is a branded merchandise company that is one of the leading providers of promotional products to automotive dealers nationwide. The purchase price for the acquisition consisted of the following: (a) $11.1 million in cash, (b) the issuance of 116,550 restricted shares of Superior’s common stock (the “Guardian Stock”) that vest ratably over a -year period, and (c) estimated potential future payments of approximately $2.3 million in additional contingent consideration based on the results of the acquired business through April 2025. The Guardian Stock is subject to transfer restrictions over the three-year period following the closing of the acquisition.
Fair Value of Consideration Transferred
A summary of the purchase price is as follows (in thousands):
Assets Acquired and Liabilities Assumed
The following table presents the allocation of the total fair value of consideration transferred, as shown above, to the acquired tangible and intangible assets and liabilities of Guardian based on their estimated fair values as of the effective date of the transaction (in thousands):
The Company recorded $5.9 million in identifiable intangibles at fair value, consisting of $5.0 million in acquired customer relationships, $0.2 million for a non-compete agreement and $0.7 million for the Guardian Products trade name. The intangible assets associated with the customer relationships are being amortized for years, the non-compete agreement is being amortized for years and the trade name is being amortized for years.
The difference between the fair value of the consideration transferred and the values assigned to the assets acquired and liabilities assumed was recorded as goodwill, which is primarily attributed to the assembled workforce and expanded market opportunities. The acquisition of Guardian was treated as an asset purchase for income tax purpose, and therefore, the resulting goodwill from this acquisition is deductible for U.S. income tax purposes. The goodwill associated with the Guardian acquisition was fully impaired during the year ended December 31, 2022 as a result of the Company’s goodwill impairment test performed during the third quarter of 2022, which was triggered by the depressed market price of the Company's common stock and corresponding significant decline in the Company’s market capitalization. |
Note 12 - Subsequent Events |
3 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Notes to Financial Statements | |
| Subsequent Events [Text Block] |
On May 4, 2023, the Company and its domestic subsidiaries entered into the First Amendment to its Credit Agreement with the Administrative Agent and the lenders, which (i) provides a covenant relief period through December 31, 2023, which the Company may opt to terminate during the fourth quarter of 2023 if it has a consolidated total net leverage ratio at or below 4.00 to 1.0 for the two preceding consecutive fiscal quarters; (ii) permits a maximum consolidated total net leverage ratio of 4.5 to 1, 4.8 to 1, 4.5 to 1 and 4.0 to 1 for the first, second, third and fourth quarters of 2023, respectively; (iii) amends the applicable margin pricing grid to add a tier of applicable margins (2.5% for SOFR rate loans) if the consolidated total net leverage ratio is greater than or equal to 4.0 to 1, which tier would only apply during the covenant relief period; (iv) prohibits capital expenditures during the covenant relief period that exceed $10 million, with additional limitations imposed on a quarterly basis; (v) prohibits acquisitions and incremental loans during the covenant relief period; (vi) adds sale and leaseback transactions to the list of transactions that require the Company to use the net proceeds thereof to make a mandatory prepayment under the Credit Agreement; (vii) limits restricted payments to $20 million in any fiscal year, and no more than $10 million during the covenant relief period, with additional limitations imposed on a quarterly basis during the covenant relief period; and (viii) lowers the amount of permissible investments in non-loan party subsidiaries to $5 million during the covenant relief period.
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Significant Accounting Policies (Policies) |
3 Months Ended |
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Mar. 31, 2023 | |
| Accounting Policies [Abstract] | |
| Segment Reporting, Policy [Policy Text Block] |
Change in Reportable Segments
Beginning in the second quarter of 2022, the Company realigned its reportable segments to correspond with changes to its organizational responsibilities, management structure and operating model. Prior to implementing the current segment reporting, the Company’s Uniforms and Related Products segment included healthcare apparel, uniforms and corporate overhead. As part of the change in reportable segments, the branded portion of the uniforms business was combined with the previous Promotional Products segment to form the Branded Products segment, the healthcare apparel business became its own segment named Healthcare Apparel and income and expenses related to corporate functions that are not specifically attributable to an individual reportable segment are no longer presented in segment results. The previous Remote Staffing Solutions segment was renamed Contact Centers segment. All prior period segment information has been recast to reflect this change in reportable segments. Refer to Note 10 for additional information. |
| Basis of Accounting, Policy [Policy Text Block] |
Basis of presentation
The accompanying unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. Intercompany items have been eliminated in consolidation. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, and filed with the Securities and Exchange Commission. Management believes that the information furnished includes all adjustments of a normal recurring nature that are necessary to fairly present our consolidated financial position, results of operations and cash flows for the periods indicated. The results of operations for any interim period are not necessarily indicative of results to be expected for the full year.
The Company refers to the condensed consolidated financial statements collectively as “financial statements,” and individually as “statements of comprehensive income,” “balance sheets,” “statements of shareholders’ equity,” and “statements of cash flows” herein. |
| New Accounting Pronouncements, Policy [Policy Text Block] | Recent Accounting Pronouncements
We consider the applicability and impact of all Accounting Standard Updates (“ASUs”). There have been no new accounting pronouncements recently issued or newly effective that had, or are expected to have, a material impact on the Company’s financial statements. |
Note 2 - Inventories (Tables) |
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| Schedule of Inventory, Current [Table Text Block] |
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Note 3 - Long-term Debt (Tables) |
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| Schedule of Long-Term Debt Instruments [Table Text Block] |
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Note 4 - Periodic Pension Cost (Tables) |
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| Schedule of Net Benefit Costs [Table Text Block] |
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Note 5 - Net Sales (Tables) |
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Note 7 - Share-based Compensation (Tables) |
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Note 9 - Net Income Per Share (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Schedule of Earnings Per Share, Basic and Diluted [Table Text Block] |
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Note 10 - Operating Segment Information (Tables) |
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| Schedule of Segment Reporting Information, by Segment [Table Text Block] |
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Note 11 - Acquisition of Businesses (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Business Acquisitions, by Acquisition [Table Text Block] |
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| Schedule of Recognized Identified Assets Acquired and Liabilities Assumed [Table Text Block] |
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Note 2 - Inventories - Inventories (Details) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Finished goods | $ 87,880 | $ 94,228 |
| Work in process | 310 | 401 |
| Raw materials | 34,024 | 30,347 |
| Inventories | $ 122,214 | $ 124,976 |
Note 3 - Long-term Debt - Long-term Debt (Details) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Long-term debt, gross | $ 144,187 | $ 156,125 |
| Payments due within one year included in current liabilities | 3,750 | 3,750 |
| Debt issuance costs | 764 | 808 |
| Long-term debt less current maturities | 139,673 | 151,567 |
| PNC Bank [Member] | Revolving Credit Facility [Member] | ||
| Long-term debt, gross | 72,000 | 83,000 |
| BB&T [Member] | Term Loan Maturing May 2020 [Member] | ||
| Long-term debt, gross | $ 72,187 | $ 73,125 |
Note 4 - Periodic Pension Cost - Net Periodic Benefit Cost (Details) - Supplemental Employee Retirement Plan [Member] - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Service cost on benefits earned during the period | $ 21 | $ 51 |
| Interest cost on projected benefit obligation | 159 | 100 |
| Recognized actuarial loss | 55 | 428 |
| Net periodic pension cost | $ 235 | $ 579 |
Note 5 - Net Sales (Details Textual) $ in Millions |
3 Months Ended |
|---|---|
|
Mar. 31, 2023
USD ($)
| |
| Contract with Customer, Liability, Revenue Recognized | $ 2 |
Note 5 - Net Sales - Disaggregated Revenue (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Net sales | $ 130,773 | $ 143,582 |
| Intersegment Eliminations [Member] | ||
| Net sales | (1,288) | (2,043) |
| Branded Products Segment [Member] | ||
| Net sales | 81,851 | 97,083 |
| Branded Products Segment [Member] | Branded Products [Member] | ||
| Net sales | 81,730 | 93,167 |
| Branded Products Segment [Member] | Protective Equipment [Member] | ||
| Net sales | 121 | 3,916 |
| Healthcare Apparel Segment [Member] | ||
| Net sales | 28,154 | 30,568 |
| Healthcare Apparel Segment [Member] | Protective Equipment [Member] | ||
| Net sales | 619 | 710 |
| Healthcare Apparel Segment [Member] | Healthcare Apparel [Member] | ||
| Net sales | 27,535 | 29,858 |
| Contact Centers Segment [Member] | ||
| Net sales | 20,768 | 15,931 |
| Contact Centers Segment [Member] | Intersegment Eliminations [Member] | ||
| Net sales | (1,288) | (2,043) |
| Contact Centers Segment [Member] | Contact Centers [Member] | ||
| Net sales | $ 22,056 | $ 17,974 |
Note 5 - Net Sales - Accounts Receivable and Contract Assets (Details) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Accounts receivable | $ 94,859 | $ 104,813 |
| Current contract assets | 51,390 | 52,980 |
| Current contract liabilities | $ 2,156 | $ 2,213 |
Note 7 - Share-based Compensation - Shared-based Compensation Expense (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Share-based compensation expense | $ 1,080 | $ 1,212 |
| Stock Options and SARs [Member] | ||
| Share-based compensation expense | 309 | 360 |
| Restricted Stock [Member] | ||
| Share-based compensation expense | 590 | 619 |
| Performance Shares [Member] | ||
| Share-based compensation expense | $ 181 | $ 233 |
Note 7 - Share-based Compensation - Stock-settled Stock Appreciation Rights Transactions (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|
Mar. 31, 2023 |
Dec. 31, 2022 |
|||
| Lapsed or cancelled (in shares) | (92,457) | |||
| Lapsed or cancelled, weighted average exercise price (in dollars per share) | $ 20.77 | |||
| Stock Appreciation Rights (SARs) [Member] | ||||
| Outstanding SARS (in shares) | 320,385 | |||
| Outstanding (in dollars per share) | $ 15.23 | |||
| Outstanding SARS, weighted average remaining life (Year) | 2 years 7 months 28 days | 2 years 2 months 23 days | ||
| Outstanding SARS, aggregate intrinsic value | $ 4 | $ 69 | ||
| Granted SARs (in shares) | [1] | 51,209 | ||
| Granted SARS, weighted average exercise price (in dollars per share) | $ 12.04 | |||
| Exercised SARs (in shares) | 0 | |||
| Exercised SARS, weighted average exercise price (in dollars per share) | $ 0 | |||
| Lapsed or cancelled (in shares) | (37,243) | |||
| Lapsed or cancelled, weighted average exercise price (in dollars per share) | $ 23.59 | |||
| Outstanding SARS (in shares) | 334,351 | 320,385 | ||
| Outstanding SARS, weighted average exercise price (in dollars per share) | $ 13.81 | $ 15.23 | ||
| Exercisable (in shares) | 226,088 | |||
| Exercisable, weighted average exercise price (in dollars per share) | $ 13.51 | |||
| Exercisable SARS, weighted average remaining life (Year) | 1 year 9 months 14 days | |||
| Exercisable, aggregate intrinsic value | $ 4 | |||
| ||||
Note 7 - Share-based Compensation - Restricted Stock Transactions (Details) - Restricted Stock [Member] |
3 Months Ended |
|---|---|
|
Mar. 31, 2023
$ / shares
shares
| |
| Outstanding (in shares) | shares | 372,470 |
| Outstanding, weighted average grant date fair value (in dollars per share) | $ / shares | $ 20.45 |
| Granted (in shares) | shares | 117,025 |
| Granted, weighted average grant date fair value (in dollars per share) | $ / shares | $ 12.04 |
| Vested (in shares) | shares | (65,215) |
| Vested, weighted average grant date fair value (in dollars per share) | $ / shares | $ 15.00 |
| Forfeited (in shares) | shares | 0 |
| Forfeited, weighted average grant date fair value (in dollars per share) | $ / shares | $ 0 |
| Outstanding (in shares) | shares | 424,280 |
| Outstanding, weighted average grant date fair value (in dollars per share) | $ / shares | $ 18.97 |
Note 7 - Share-based Compensation - Performance Share Transactions (Details) - Performance Shares [Member] |
3 Months Ended |
|---|---|
|
Mar. 31, 2023
$ / shares
shares
| |
| Outstanding (in shares) | shares | 199,451 |
| Outstanding, weighted average grant date fair value (in dollars per share) | $ / shares | $ 20.57 |
| Granted (in shares) | shares | 94,028 |
| Granted, weighted average grant date fair value (in dollars per share) | $ / shares | $ 12.56 |
| Vested (in shares) | shares | 0 |
| Vested, weighted average grant date fair value (in dollars per share) | $ / shares | $ 0 |
| Forfeited (in shares) | shares | 0 |
| Forfeited, weighted average grant date fair value (in dollars per share) | $ / shares | $ 0 |
| Outstanding (in shares) | shares | 293,479 |
| Outstanding, weighted average grant date fair value (in dollars per share) | $ / shares | $ 18.00 |
Note 8 - Income Taxes (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Income Tax Expense (Benefit) | $ 57 | $ 1,510 |
| Effective Income Tax Rate Reconciliation, Percent | 6.00% | 22.40% |
| Supplemental Executive Retirement Plan (SERP) [Member] | ||
| Effective Income Tax Rate Reconciliation, Tax Exempt Income, Amount | $ 200 | |
| Put Option [Member] | ||
| Effective Income Tax Rate Reconciliation, Tax Exempt Income, Amount | $ 400 | |
Note 9 - Net Income Per Share (Details Textual) - $ / shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) | 1,008,972 | 415,529 |
| Antidilutive Securities Excluded from Computation of Earnings Per Share, Weight Average Exercise Price (in dollars per share) | $ 17.03 | $ 23.29 |
Note 9 - Net Income Per Share - Reconciliation of Basic and Diluted Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Net income | $ 888 | $ 5,230 |
| Weighted average shares outstanding - basic (in shares) | 15,882,994 | 15,679,027 |
| Dilutive common stock equivalents (in shares) | 235,335 | 486,241 |
| Weighted average shares outstanding - diluted (in shares) | 16,118,329 | 16,165,268 |
| Basic (in dollars per share) | $ 0.06 | $ 0.33 |
| Diluted (in dollars per share) | $ 0.06 | $ 0.32 |
Note 10 - Operating Segment Information - Information Related to the Operations of the Company's Operating Segments (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Net sales | $ 130,773 | $ 143,582 |
| Cost of goods sold | 83,665 | 93,801 |
| Gross margin | 47,108 | 49,781 |
| Selling and administrative expenses | 43,379 | 42,214 |
| Other periodic pension cost | 214 | 528 |
| Interest expense | 2,570 | 299 |
| Income (loss) before taxes on income | 945 | 6,740 |
| Depreciation and amortization | 3,388 | 2,923 |
| Capital expenditures | 2,114 | 4,188 |
| Operating Segments [Member] | Branded Products [Member] | ||
| Net sales | 81,851 | 97,083 |
| Cost of goods sold | 55,952 | 68,868 |
| Gross margin | 25,899 | 28,215 |
| Selling and administrative expenses | 20,053 | 21,557 |
| Other periodic pension cost | 0 | 0 |
| Interest expense | 0 | 55 |
| Income (loss) before taxes on income | 5,846 | 6,603 |
| Depreciation and amortization | 1,664 | 1,383 |
| Capital expenditures | 1,271 | 1,543 |
| Operating Segments [Member] | Healthcare Apparel [Member] | ||
| Net sales | 28,154 | 30,568 |
| Cost of goods sold | 18,054 | 18,553 |
| Gross margin | 10,100 | 12,015 |
| Selling and administrative expenses | 9,502 | 10,087 |
| Other periodic pension cost | 0 | 0 |
| Interest expense | 0 | 18 |
| Income (loss) before taxes on income | 598 | 1,910 |
| Depreciation and amortization | 974 | 981 |
| Capital expenditures | 462 | 711 |
| Operating Segments [Member] | Contact Centers [Member] | ||
| Net sales | 22,056 | 17,974 |
| Cost of goods sold | 10,267 | 7,293 |
| Gross margin | 11,789 | 10,681 |
| Selling and administrative expenses | 9,664 | 6,372 |
| Other periodic pension cost | 0 | 0 |
| Interest expense | 0 | 0 |
| Income (loss) before taxes on income | 2,125 | 4,309 |
| Depreciation and amortization | 668 | 495 |
| Capital expenditures | 381 | 1,931 |
| Intersegment Eliminations [Member] | ||
| Net sales | (1,288) | (2,043) |
| Cost of goods sold | (608) | (913) |
| Gross margin | (680) | (1,130) |
| Selling and administrative expenses | (680) | (1,130) |
| Other periodic pension cost | 0 | 0 |
| Interest expense | 0 | 0 |
| Income (loss) before taxes on income | 0 | 0 |
| Depreciation and amortization | 0 | 0 |
| Capital expenditures | 0 | 0 |
| Segment Reconciling Items [Member] | ||
| Net sales | 0 | 0 |
| Cost of goods sold | 0 | 0 |
| Gross margin | 0 | 0 |
| Selling and administrative expenses | 4,840 | 5,328 |
| Other periodic pension cost | 214 | 528 |
| Interest expense | 2,570 | 226 |
| Income (loss) before taxes on income | (7,624) | (6,082) |
| Depreciation and amortization | 82 | 64 |
| Capital expenditures | $ 0 | $ 3 |
Note 11 - Acquisition of Businesses (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
May 01, 2022 |
Mar. 31, 2023 |
|
| Restricted Stock [Member] | ||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Award Vesting Period (Year) | 3 years | |
| Guardian Products, Inc [Member] | ||
| Payments to Acquire Businesses, Gross | $ 11,077 | |
| Business Combination, Contingent Consideration Arrangements, Range of Outcomes, Value, High | 2,300 | |
| Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill, Total | 5,886 | |
| Guardian Products, Inc [Member] | Customer Relationships [Member] | ||
| Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill, Total | $ 5,000 | |
| Finite-Lived Intangible Asset, Useful Life (Year) | 7 years | |
| Guardian Products, Inc [Member] | Noncompete Agreements [Member] | ||
| Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill, Total | $ 200 | |
| Finite-Lived Intangible Asset, Useful Life (Year) | 5 years | |
| Guardian Products, Inc [Member] | Trade Names [Member] | ||
| Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Intangible Assets, Other than Goodwill, Total | $ 700 | |
| Finite-Lived Intangible Asset, Useful Life (Year) | 2 years | |
| Guardian Products, Inc [Member] | Restricted Stock [Member] | ||
| Business Acquisition, Equity Interest Issued or Issuable, Number of Shares (in shares) | 116,550 | |
| Share-Based Compensation Arrangement by Share-Based Payment Award, Award Vesting Period (Year) | 3 years |
Note 11 - Acquisition of Businesses - Purchase Price (Details) - Guardian Products, Inc [Member] $ in Thousands |
May 01, 2022
USD ($)
|
|---|---|
| Cash consideration | $ 11,077 |
| Restricted shares of Superior common stock issued | 2,000 |
| Contingent consideration | 1,119 |
| Total Consideration | $ 14,196 |
Note 11 - Acquisition of Businesses - Aggregate Consideration (Details) - Guardian Products, Inc [Member] $ in Thousands |
May 01, 2022
USD ($)
|
|---|---|
| Accounts receivable | $ 1,656 |
| Inventories | 621 |
| Prepaid expenses and other current assets | 272 |
| Property, plant and equipment | 15 |
| Intangible assets | 5,886 |
| Goodwill | 6,463 |
| Total assets | 14,913 |
| Accounts payable | 533 |
| Other current liabilities | 184 |
| Total liabilities | $ 717 |
Note 12 - Subsequent Events (Details Textual) - Amended Credit Agreement [Member] $ in Millions |
8 Months Ended | ||||
|---|---|---|---|---|---|
|
May 04, 2023
USD ($)
|
Dec. 31, 2023
USD ($)
|
Sep. 30, 2023 |
Jun. 30, 2023 |
Mar. 31, 2023 |
|
| Forecast [Member] | |||||
| Debt Instrument Covenant, Permitted Payments, Amount | $ 10 | ||||
| Debt Instrument Covenant, Permitted Investments | $ 5 | ||||
| Maximum [Member] | |||||
| Debt Instrument Covenant, Net Leverage Ratio | 4.5 | ||||
| Maximum [Member] | Forecast [Member] | |||||
| Debt Instrument Covenant, Net Leverage Ratio | 4.0 | 4.5 | 4.8 | ||
| Subsequent Event [Member] | |||||
| Debt Instrument Covenant, Net Leverage Ratio | 4.00 | ||||
| Debt Instrument Covenant, Maximum Permitted Capital Expenditures | $ 10 | ||||
| Debt Instrument Covenant, Permitted Payments, Amount | $ 20 | ||||
| Subsequent Event [Member] | Secured Overnight Financing Rate (SOFR) [Member] | |||||
| Debt Instrument, Basis Spread on Variable Rate | 2.50% | ||||
| Subsequent Event [Member] | Minimum [Member] | |||||
| Debt Instrument Covenant, Net Leverage Ratio | 4.0 |