Superior Group of Companies, Inc. (NASDAQ:SGC) Q4 2022 Earnings Call Transcript

Superior Group of Companies, Inc. (NASDAQ:SGC) Q4 2022 Earnings Call Transcript March 15, 2023

Operator: Good afternoon, everyone, and welcome to Superior Group of Companies Fourth Quarter 2022 Conference Call. With us today are Michael Benstock, the company’s Chief Executive Officer, Mike Koempel, the Chief Financial Officer. As a reminder, this conference call is being recorded. This call may contain forward-looking statements regarding the company’s plans, initiatives and strategies and the anticipated financial performance of the company, including, but not limited to sales and revenue. Such statements are based upon management’s current expectations, projections, estimates and assumptions. Words such as will, expect, believe, anticipate, think, outlook, hope and variations of such words and similar expressions identify such word forward-looking statements.

Forward-looking statements involve known and unknown risks and uncertainties that may cause future results to differ materially from those suggested by the forward-looking statements. Such risks and uncertainties are further disclosed in the company’s periodic filings with the Securities and Exchange Commission, including, but not limited to, the company’s annual report on Form 10-K and the quarterly reports on Form 10-Q. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements made herein, and are cautioned not to place undue reliance on such forward-looking statements. The company does not undertake to update the forward-looking statements contained herein except as required by law.

With that, I will turn the floor over to Mr. Benstock. Please go ahead.

Michael Benstock: Thank you for your introduction and welcome everyone to our 2022 earnings call. I’ll begin today by sharing the highlights of our Q4 results. I’ll then discuss the performance for each of our three business segments, providing an update on the macro environment and our strategy to grow the business moving forward. After that, I’ll turn it over to Mike to walk us through the financial results in greater detail, and to provide our outlook for 2023. Mike and I will then be available for Q&A. We finished 2022 with continued top line growth in the fourth quarter. Consolidated revenues were $149 million, up 5% over the prior-year quarter, driven by growth in both our branded products and contact center segments. As a result, we achieved full year sales of $579 million in 2022 which was near the top end of our annual guidance range.

Our consolidated fourth quarter adjusted EBITDA was $3 million, down from $8 million in the fourth quarter last year, primarily due to an incremental inventory write down of $6 million in our healthcare apparel segment. Let’s take a closer look now at our quarterly results by segments beginning with healthcare apparel. Revenues came in at $26 million relative to $31 million, the prior year quarter reflecting of the ongoing stock conditions of the broader healthcare market, healthcare apparel EBITDA declined by $8 million compared to prior year quarter, primarily due to the aforementioned inventory write-down. Based on our lower purchasing levels implemented in mid ’22, and adjustments store inventory valuation, we expect to see better inventory equilibrium by the end of the year.

Looking ahead, our strategy involves capturing new customers in new markets primarily through an emphasis, an increased emphasis I should say on digital growth, including the launch of our own direct-to-consumer website during the second quarter. While we recognize that will take time and investment to build consumer awareness and demand, the expansion of digital within our omnichannel approach will enable us to grow our healthcare, apparel business overall with leaner inventories and a revitalized customer facing business strategy including an emphasis on digital growth. We’re confident in the strong growth prospects for healthcare apparel and our own ability to capture market share and prove profitability over time. We provide the widest range of products in the market, with more than 2 million essential caregivers wearing our highly recognizable brands every day.

Branded products, our largest segment generated revenues of $102 million during the fourth quarter, which was up 7% year-over-year benefiting from a full quarter’s contribution from the Sutter’s Mill acquisition made during the fourth quarter of 2021. As well as the guardian acquisition that was completed in May of 2022. Organic demand declined mid-single digits, due in part to subdued demand in the current uncertain economic environment. Fourth quarter EBITDA was $11 million, up from $6 million last year, driven by higher sales, improved gross margin rates and laughing a PPE inventory right down last year partially offset by an increase in SG&A from investments in talent and technology to support future growth. Branded products is an attractive market highly fragmented, with a total addressable size of $26 billion domestically.

Our compelling strategy is to continue to grow our very modest market share of less than 2% by offering unique, customized and high-quality products. Our contact center segment had another strong quarter with revenues of $21 million up 22% over the fourth quarter of 2021. Fourth quarter EBITDA of $4 million was flat to last year as investments in SG&A related to talent, technology and infrastructure to support future growth offset, increase in sales and gross margin. On a full year basis, contact centers finished 2022 with strong annual top-line growth of 31%, achieving our highest EBITDA margin with an SGC of 22%. With our investments in infrastructure combined with a strong pipeline of prospective customers, we continue to see Contact Centers as an exciting and profitable growth business going forward.

I’ll now turn the call over to Mike to take us through our financial results and outlook for 2023. Mike?

Photographee.eu/Shutterstock.com

Mike Koempel: Thank you, Michael, and thanks everyone for joining the call. I’ll start by walking through our financial results and then I’ll turn to our initial full-year outlook. During the fourth quarter, SGC generated consolidated revenues of $149 million, up 5% from $142 million the prior year quarter. Our gross margin was 30.2% for the quarter, down 80 basis points year-over-year due to the $6 million incremental inventory write down for Healthcare Apparel. Excluding the incremental charge, our gross margin would have been 34%. SG&A expense was 29.8% of sales which sequentially improved from 32% in the third quarter, but was higher than the fourth quarter of 2021 at 26.7%. The improved expense trend from third quarter benefited from an adjustment to employee expense accruals, as well as improved leverage on higher sales and the benefit of cost reductions.

The year-over-year increase as a percent of sales was due to continued deleverage from the decline in Healthcare Apparel sales as well as our continued investments in talent and infrastructure, especially within Branded Products and Contact Centers capitalize on compelling future growth opportunities. Our fourth quarter interest expense was $2.2 million, as compared to $295,000 in the fourth quarter of last year, driven by a combination of higher interest rates and a higher average debt balance outstanding during the quarter. Net income for the quarter was $2 million or $0.14 per diluted share, as compared to net income of $4 million or $0.27 per diluted share in a year ago quarter. During the fourth quarter, the company sold its corporate office building for $5 million in cash proceeds, resulting in a pretax non-operating gain of $3 million.

Excluding the gain in the prior year fourth quarter’s pension termination charge, the fourth quarter 2022 net loss was $1 million or a $0.06 loss per share, compared to net income of $5 million or $0.31 per diluted share the prior year period. The decrease in adjusted results was primarily driven by the incremental inventory write down and increased interest expense. Turning to the balance sheet. Cash and cash equivalents as of December 31, 2022 increased to $18 million from $9 million last year, due in part to the sale of our corporate office near year end. In terms of our debt position, our net leverage ratio of 3.85 times, our covenant EBITDA remains elevated. Based on the fourth quarter inventory charge and the calendarization of our 2023 forecast, it is more likely than not that we will exceed our net leverage covenant ratio of 4 times covenant EBITDA.

As a result, we have initiated discussions with the lending agent on ways to address a potential amendment should it be needed in order to maintain compliance throughout the year. We will continue to focus on cash flow enhancement by improving our working capital position, particularly by optimizing our inventory levels within our Healthcare Apparel segment as well as scrutinizing our operating expenses and capital expenditures. I’ll conclude my prepared remarks with our initial financial outlook for 2023. Overall, we expect current slow economic conditions to persist and are cautiously optimistic that business conditions will gradually improve throughout the year. With that in mind, we are forecasting full year 2023 sales to be between $585 million and $595 million versus 2022 sales of $579 million.

And earnings per diluted share between $0.92 and $0.97, compared to adjusted earnings per diluted share of $0.62 in 2022, which reflected significant inventory write downs. At the segment level, our 2023 forecast assumes that healthcare apparel sales will be up low single digits versus last year, and will gradually improve throughout the year as inventory levels and customer demand returned to normalize levels. For branded products, we estimate segment sales to be flat to download single digits, as we expect the continuation of the challenging market conditions from the fourth quarter of 2022 into the first half of the year, with meaningful growth in the back half of 2023. Lastly, we expect the contact center segments to continue to grow well into double digits, consistent with a fourth quarter performance reported today.

Given these expectations for our three business segments, we expect our 2023 results to be relatively back end loaded as underlying market conditions gradually returned towards equilibrium. We are confident in our ability to execute on our strategic plan to capitalize on multiple growth opportunities and enhance long-term shareholder value. That concludes our prepared remarks. And operator if you could please open the lines, we’d be happy to take questions.

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Q&A Session

Operator: We will now begin the question-and-answer session. . And your first question will come from Kevin Steinke with Barrington Research. Please go ahead.

Kevin Steinke : Hi, good afternoon. I wanted to start off by asking about the outlook for 2023. You mentioned that you expect lower economic conditions to persist. But at the same time, you express some optimism that business conditions should gradually improve throughout the year for healthcare apparel. And that momentum will build and branded products leading to significant growth in the second half of the year. So, I’m just, if you could discuss more kind of line of sight to that improvement throughout the year or what do you think will drive that improvement? Are you seeing a clearing up of inventory in healthcare or building pipeline and branded products? I guess any color you can offer on that, overall outlook for 2023 would be helpful.

Michael Benstock: Unfortunately, the answer is going to be a little bit longer because of the three segments. So, it’s a little different in each of our businesses. branded products has been affected mostly by people holding back on buying marketing budgets being curtailed or being put on pause. Mostly, we have a lot of clients in the tech space and gig economy that have experienced some mass layoffs and not spending a lot of money. But, as the year goes on, they’ll say this about each of our businesses. As the economy improves, which is expected later on in the year. Certainly, in the second half, we expect to benefit from that improvement as well as there will be pent up demand. You can only hold back so long before you have to buy uniforms for employees, and before you have to start gifting your employees and looking at how you create brand allegiance among your customers.

And people have held back now for some time. We can’t control the macro environment. Obviously, we all read the diverse opinions about what to expect in 2023 and certainly the most, the latest banking crisis, who knows how that might impact things in the future? Now, when you get to our call center business, we certainly feel strongly that we’ll have continued growth throughout the year, the demand is very strong. It’s not weakening, because of the current economic conditions. In fact, it’s strengthening and typically in a recession, and especially a recession, where it’s so hard to hire in the United States right now, which is an entry level positions, which is kind of a unique situation. We’re seeing a demand, like we haven’t seen before.

Healthcare apparel, it’s all a question of timing of when we’re able to completely right size our inventories, move past, what we’re sitting with, still in inventory, turning a lot of that to cash. And being able to present a lot of newness. Keep in mind that third quarter and fourth quarter will be slightly impacted by our favorably by our direct-to-consumer launch that we spoke about, as well as our continued omnichannel approach in those businesses, but we can control only what we can control. Our view of things is it’s going to be a tough year, but it’s going to be better in the second half of the year, then it will be in the first half.

Kevin Steinke : All right. Thanks for the insight there. And also following up just on the outlook for 2023. You can maybe talk about assumptions you’d have baked in for operating margin and interest expense, do you think you’d get some margin expansion based on some of the cost savings actions you’ve taken? How meaningful the bike do you expect interest expense to be I guess?

Mike Koempel: Hi, Kevin, this is Mike. Would be happy to answer your questions. From a margin perspective, as we’ve disclosed for this quarter and in prior quarters, obviously, we have taken significant inventory write downs this year. In the aggregate over $13 million and in 2022, we do not anticipate lapping those types of charges in 2023. So, we certainly do expect the margin rate to improve particularly within our healthcare business. In addition to that, we are seeing some easing of what we refer to as supply chain costs, which would certainly increase significantly through the pandemic. That cost has started to come down, not necessarily to pre-pandemic levels, but it has come down. And as we sell through our inventory with those higher rates, we will begin to see the benefits of some of that lower cost in our inventory again more so in the back half of this year.

So, I think we see again margin rate improving primarily in that business. And from an interest standpoint, you can see already partially in the third quarter and in the fourth quarter a significant increase in interest expense, we anticipate that continuing. So, in our modeling, we are expecting interest expense to still remain up significantly over 2022, again expecting that rates will continue to be high. And while we will focus on bringing our debt down as quickly as possible, based upon our average debt balances outstanding, we would expect that expense to still be fairly significantly to 2022.

Kevin Steinke : Okay. Thank you. And then lastly, Mike, you mentioned potentially having to amend the credit agreement leverage ratio embedded in there. Just what sort of line of sight do you have to potentially having to amend that or confidence in being able to do that if you need to?

Mike Koempel: Sure. As I mentioned in the script, when you look at the combination of our fourth quarter charge. And again, the calendarization of our 2023 forecast, we view this really as creating short-term compression from a covenant perspective. And so that’s why we took obviously the proactive approach of reaching out to our lending agent. With that said, Kevin, obviously, I can’t speak for the lending group, but we are certainly looking forward to working with them on a mutually beneficial outcome over the coming weeks.

Kevin Steinke : Okay. Thanks. I’ll turn it over to get back in the queue.

Operator: The next question will come from Tim Moore with Ef Hutton. Please go ahead. Please go ahead.

Tim Moore: Thanks. And thanks for providing sales and EPS guidance for this year. It’s definitely nice to see the SG&A operating leverage in the December quarter. I have my own sales guidance question scenario similar to what was just asked. If I look at the sales guidance range, it seems to be a 1% to 3% increase, despite having about $7 million possibly of sales from the first four months of this year from the Guardian acquisition before that lapse, it’s anniversary on May 1st. So, when I kind of back into May, if it looks like 0% to about 1.6% organic sales growth for this year, when you factor in the Guardian. Do you think that could be a little bit too conservative in light of maybe some pricing power and probably the likely natural rebound in healthcare in the second half of this year?

And if Michael, doesn’t mind speaking a little bit more towards, what type of scenario could maybe trigger upside beyond that top end $595 million guidance? Because wondering if it’s really the swing factor, would you say the biggest swing factor might be in the branded side in BAMKO?

Mike Koempel: Hi, Tim. It’s Mike. I’ll start and then Michael can add. We certainly hope it’s conservative as you’re calling out. There is, as we said in our prepared remarks, we are cautiously optimistic about the year, but as Michael mentioned before, there’s varying points of view on the economic outlook. And so, we’re obviously we believe that our range is realistic. We are certainly as a management team going to work very hard to exceed that range. But we believe it’s a realistic range as we look ahead for the year. As you call it out, we’ve taken a number of price increases, which started earlier in 2022. And that is factored in. And we are factoring in to our thinking that the healthcare apparel business will have a rebound.

As we mentioned, there’s we expect some softness to continue in the branded product segment here in the first half of the year with that rebounding in the back half. But again, I think overall, we feel that it’s a realistic range based on what we know today. And again, it’s a team be working very diligently to exceed that. Pass it over to Michael.

Michael Benstock: Let me speak about each of the segments. So, what could create more upside to that? I’ll give some color to that portion of the question. BAMKO, as we’ve said, on previous calls, is accelerating their efforts with respect to recruiting sales representatives. So far, I can tell you this year, they’ve been very successful through the first two months, exceeding the number of reps that they’ve been able to create, in any two-month period in the past. So, if they can continue at the rate they are that could possibly help our branded products revenue in the second half of the year, beyond even our projections. TOG, which is our contact centers, we have employed some new sales strategies and some new sales talent.

That’s up to speed now and we believe that those strategies, which should they be more successful than we even have projected conservatively that could help us. And then, of course, on the healthcare apparel side, we’re launching DTC, and we’re being cautiously optimistic with respect to our level of success. But we realized there’s a ton of market share there to be taken. We have put together I think the Dream Team with respect to people who can execute on a DTC strategy, both from a branding side and a digital side, consumer-facing side, from the President on down in that organization. And they can be wildly more successful than we’ve projected. But we wanted to give realistic guidance based on more of the current economic conditions than what we might be wildly successful at in the future.

Tim Moore: That was very helpful car scenarios, and thanks for ending those details on the sales reps at BAMKO and DTC launch healthcare. For the contact centers, the office crews, how’s the call center in the Dominican Republic been ramping up since it opened in October?

Michael Benstock: Good question. That’s a beta site for us as every new call center is, especially when it’s in a new country. It has yet to prove that what it can do for us. It’s too early in the process, really, for us to fully understand whether it’s going to be as successful as we’ve been in Belize and El Salvador and Jamaica. We have plenty of capacity within all of our centers, because a great deal of our people are still working from home. And our customers, most of our customers, don’t mind them continuing to work from home. So, there’s less pressure on us to push the Dominican sooner than it needs to be pushed. Right now, we’re controlling our costs there, we’re doing a very slow ramp up to make sure that it is what we want it to be.

So, I’d say, we are operational in our building. I don’t know the exact number, I believe it’s less than 30 people right now, and doing a multitude of tasks for a multitude of customers. But give me about six more months ago, and I’ll be able to answer that question more definitively.

Tim Moore: Sure, I know that that makes sense. Great prospects there. And it looks really good, probably a year or two out on revenues. My next questions, about, have you seen for BAMKO, as the order size stabilized recently year-to-date, or are you seeing, maybe not stabilized because the technology customers are pulling back, but you’re seeing possibly share wallet at your existing clients of BAMKO?

Michael Benstock: What I can tell you is we’re not losing any customers. But a lot of our customers have pulled back on how much they are ordering, and to correct conclusion that if they have fewer employees, and they’re buying employee gifting, or whatever, they’re buying less. So, our order size has come down. On the other side of that, when you get into these periods of time and uncertainty, you see a lot more RFP activity than you normally would see, because everybody’s doing their price checking out in the marketplace. So, we are responding to a great deal of RFPs right now. We have a big team who was just on RFPs. And the success of a few of them. A few wins, there could make a very big difference in our year.

Tim Moore: And I actually have a question from Mike. How much Mike do you think you estimate the excess or buffer inventory might be I’m trying to wrap my head around or maybe triangulate your free cash flow potential for this year. And it seems like you’d have a good tailwind for working capital. If you get those inventory levels more normalized by June. Have you ever kind of calculated the number on that?

Mike Koempel: I’m sorry, Tim, from an inventory perspective, and we’ve I think mentioned this in the prior call, it’s going to take us the better part of 2023 to really get inventories down to a level, to our targeted levels. And obviously, when you take into account bringing inventories down, because of the elevated levels we’ve had, but at the same time fueling some of the growth of the business, we would be targeting inventories by the end of the year to be down about mid-single digits. Again, that would be a combination of bringing healthcare down but then also fueling some of the growth in the business that we’re seeing across the other segments. So certainly, bringing the inventory down will help drive an improvement in free cash flow and working capital which has been our focus. We feel as Michael mentioned his prepared remarks with the reserves that we’ve taken in reducing some of the pricing. We can achieve that target and that’s our goal for the year.

Tim Moore: That makes sense. And just my last question is, is there any seasonal dip in the gross margin in December quarter? You mentioned which is helpful what the gross margin would have been 34% or so backing up the inventory. And I know you had to write down December quarter of the year before. I was just wondering if there is ever any kind of seasonal spending drop or marketing drop at the end of the year by BAMKO customers. What do you think maybe more of the drop this year was tied to some of those technology customers and layoffs?

Mike Koempel: Yes. There is not typically much seasonality, Tim, in the business. Obviously, as I called out, the big impact to us here in Q4 was the inventory charge. But typically, across the businesses, there is not too much of an impact. As Michael called out, specifically in the fourth quarter. And within the Branded Products segment, there was a lapping of some of the charges that were taken in Q4 of last year, which gave Branded Products an improvement. And then I would have just had also within Branded Products, there is a margin rate improvement that we have seen just in the quarter, as some of the lower margin customers have been eliminated. But again, I wouldn’t characterize that, as a seasonal just more of the timing of when those actions took place.

Tim Moore: Fair enough. That’s it for my questions and thanks for answering them.

Operator: The next question will come from Mitra Ramgopal with Sidoti. Please go ahead. Please go ahead.

Mitra Ramgopal: Yes, good afternoon. And thanks for taking the questions. First, I was wondering if maybe you can help us in terms of CapEx of ’23. And you mentioned the elevated net capital leverage ratio. Would that impact your ability or willingness to spend this year, whether it’s on technology, headcount, et cetera, and also maybe even on consolidation opportunities?

Mike Koempel: Hi, Mitra. It’s Mike. Nice to hear from you. From a CapEx perspective, we had a significant capital investment year in 2021. It was over $17 million and as a company we typically will have a heavier investment year every four or five years. The capital you can see in 2022 was down to $11 million. And as we look and forward to 2023 and the projects to continue to support the business, we actually are budgeting capital expenditures for ’23 to be down about 30% from 2022. That still enables us to make what we believe are the appropriate investments to support the growth of the business. But at the same time also recognizes our needs to generate cash and bring our debt levels down. So, we feel good about our capital budget for this year.

And we have also thought very carefully about the timing of that spend. So, as we talked about before, as our financial forecast is more back end loaded, we’ve also been careful to plan our capital expenditures more toward the latter half of the year, so that we can react appropriately if conditions are better or if they happen to be unfavorable. We have the agility to adjust that if necessary. Does that answer your question Mitra?

Mitra Ramgopal: And actually, just curious in terms of capital allocation. And obviously, M&A is going to be a source for that. But how should we think in terms of priorities as relates to debt repayment, dividends, share by potential share repurchase?

Mike Koempel: Mitra, our focus in terms of just first of all, you again driving an improvement in our free cash flow, and then the priority really being to bring our debt levels down. Obviously, we recognize the importance of the dividend to our shareholders and that will be evaluated every quarter with our capital committee of the board going forward, but our first priority will be to manage the debt levels. And maybe I’ll pass it to Michael from a mergers and acquisitions standpoint.

Michael Benstock: As we said on the last call Mitra merger and acquisitions are not on the table right now. Obviously, with our debt levels, we don’t think it’s prudent to do so. Will it be opportunities, what to pass up on possibly, or what’s put on the backburner for another time, perhaps later in the year or next year. But right now, we’re really focused on creating efficiencies within the business and turning more of our balance sheet into cash. And that is our main focus. If you go out to our website we’ll have out there soon, our new investor deck and you could see we’ve taken M&A off, one of the things that we’re looking at as a driver for the business for the at least for this coming year. There will be opportunities later on.

And we think that we are a good acquirer. But it’s time for us to really focus on driving efficiencies. And we’ve been doing that since mid-last year, looking for opportunities to right size, the business to automate to create all kinds of efficiencies, whether it’s from a gross margin standpoint, or from an SG&A standpoint. And we think our success in that light depends on largely on how much we’re focused on it. So, we will be 100% focused on that.

Mitra Ramgopal: And then finally, I think, in the past, and you’ve mentioned, especially in periods of where you have prolonged inflation, or even high interest rates, et cetera, you’ve been able to take share, especially in an economic downturn, or just wondering, based on the guidance the second half of the year. And I know you’re being a little conservative, but I’m assuming you still expect that trend to continue as it relates to continuing to take share from competitors?

Michael Benstock: I can say that is our goal. Surely that is the thing that will get us closer to where we want to be from a debt level standpoint. And where we need to be from a shareholder value standpoint, is growing the business profitably. And that is a correct assumption. Whether it’s conservative or not, I’ll let you be the judge of that. But we intend to deliver on the guidance that we’ve given you today.

Mitra Ramgopal: Okay. Thanks, again to taking questions.

Operator: The next question will come from BJ Cook with Singular Research.

BJ Cook: Thanks, guys. Just a couple of quick ones here. On the inventory side, or the since the write downs are non-cash, can we assume that that’s just promotional pricing to get inventory back on track? Or is there more of that? And as we get on track for the rest of the year, can we expect any more on the right downside?

Mike Koempel: The write downs, certainly we’re into Q4, based on our evaluation of future selling prices, so you’re writing that inventory down will, in essence, enable us to, in essence, liquidate some of the underperforming inventory more aggressively. And take some margin pressure off of the healthcare business. And 2023, which is, as I mentioned before is where we see their upside in the business for 2023 from a margin perspective. So, in essence, it does help with the markdowns and help the clearing through different channels, both through our digital channel as well as with our wholesale customers.

BJ Cook: Good to see optimistic 2023 guidance and you broke out revenue. Just kind of curious, given the dynamic environment we’re kind of in now, everybody’s in now. From a profit perspective, is the guidance going to shake out similar to it has in the past? Or we’re going to see some this year?

Mike Koempel: I’m sorry, you’re breaking up a little bit. But I think you’re asking about profit guys by segment?

BJ Cook: Yeah, that’s right.

Mike Koempel: Sure. Well, our guidance, obviously, is on a consolidated basis, from an earnings perspective, what I would say just as, as additional context is, given, again, the down trending that we’ve experienced in healthcare in 2022, combined with the significant write offs that we’ve taken within that segment, the guidance certainly assumes an improvement, and the healthcare apparel results pretty significant improvement, if you just in 2022 alone, we took about over $10 million of charges and health care apparel segment, which again, we would not anticipate to repeat in 2023. And as Michael touched on it from the other segments, we anticipate that our contact center business will continue to grow, be profitable as it has in the past, with EBITDA margin, approximately 20%. So still a strong EBITDA margin. And we would expect our branded product segment to hold its margin going forward as it moves through the year.

Operator: The next question will come from Kevin Steinke with Barrington Research. Please go ahead.

Kevin Steinke: As I said, a couple of follow ups. You mentioned the accelerated sales force hiring in BAMKO and that’s actually tracking ahead of your targets. Just how quickly can use sales people ramp up and start contributing and I guess that could be a factor in you taking share and potentially contributing to the growth in the second half that you discussed.

Michael Benstock: Good question. Most of the salespeople that we recruit come from the industry, come to us with a book of business, or at least most of their book of business and are mostly commissioned salespeople. So, our cost to bring them on, we have to onboard them. Of course, we give them some support from our office in India primarily, which is a very low-cost support, and support that they hadn’t had at all at their previous employer usually. And generally, we get about 18 months in their entire book of business transfers over to us. So, it’s on an escalating basis, but it does vary by salesperson, Kevin. I mean some people come to us with $1 million book of business and immediately within a couple of months, we are writing on an annualized basis that much business.

And some people come to us with $1 million book of business and it takes us six months to start tracking half that in 18 months our expectation is we brought at least all of that over. I mean, the ultimate reason why these people come to work for us is because they think they can — and we have proven that, by aligning themselves with us, they can actually grow their book of business significantly more than they can at their current employer. So, somebody who might come to us with $1 million book of business what we are hoping and what we are working towards is, getting them to a $2 million book of business within an 18 to 24-month period of time.

Kevin Steinke: All right. That’s helpful. And then lastly, the direct-to-consumer website launch targeted for the second quarter within Healthcare Apparel. Can you just talk a little bit more about expectations for that, the strategy and how quickly you are assuming that could — that can kind of ramp?

Michael Benstock: It’s going to be a very slow ramp. You go out first, it’s a site that we will tweak and have to gain a lot of knowledge from the analytics we get from that side on who’s buying and who’s clicking, and how we incentivize people to sign up at the site for products and so on. So, it’s a slow ramp. We are not projecting much in the way of revenue in 2023. What we want to do in 2023 is just build awareness for our product among those who are already loyal to our product building a higher level of loyalty, so that we can bring in all their friends and other caregiver associates onto the site to escalate our growth. But this is a year to really build awareness and 2024 is the first year, where we believe that we will see some meaningful impact to our sales.

Kevin Steinke: Okay. That’s helpful insight. I appreciate it. That’s all I had. Thank you.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Michael Benstock for any closing remarks. Please go ahead, sir.

Michael Benstock: Thank you all for all the great questions. Good to have a feel beyond here and asking questions from different directions, we certainly appreciate it. I want to thank you all for joining us. But before I end the call, I like to extend a special note of gratitude to someone who’s contributed tremendously to the SGC over a long period of time. And the demand, as we announced last year is heading into retirement after 25. Very productive years with STC since joining us in 1998, as our CFO and more recently our CEO, he was here through a period of unprecedented expansion, diversification and change, and has been a tremendously valuable business partner. It’s been a true pleasure to work with AMD. And we’re incredibly pleased that he’s continuing to serve on our board of directors, which means we’ll continue to benefit from his experience and valuable perspective.

Sadly, we also announced this last month the passing of our Chairman of the board, Sidney Kirschner. As part of his distinguished career. Sid first joined our board more than 25 years ago, and served as Chairman for the past 11. We’ve benefited greatly from his insights and I personally considered Sidney, an incredible individual, a valuable mentor and a dear friend, there’ll be deeply missed by all those whose lives he touched. Thank you again for joining our call. We’ll keep you posted on our progress throughout the year and please don’t hesitate to reach out with any questions. Thanks again. Speak to you next quarter.

Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.