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SUPERIOR GROUP OF COMPANIES, INC.

SUPERIOR GROUP OF COMPANIES, INC.SGCEarnings & Financial Report

Nasdaq · Consumer Discretionary · Apparel & Other Finishd Prods of Fabrics & Similar Matl

Superior Coach was a coachbuilder in the American automotive industry. Founded in 1909 as the Garford Motor Truck Company, Superior is best known for constructing bodies for professional cars (hearses) and school buses. Following major downturns in both segments in the late 1970s, Superior was liquidated by its parent company in 1980. From 1925 to 1980, the company was based in Lima, Ohio.

What changed in SUPERIOR GROUP OF COMPANIES, INC.'s 10-K — 2022 vs 2023

Top changes in SUPERIOR GROUP OF COMPANIES, INC.'s 2023 10-K

218 paragraphs added · 250 removed · 176 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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We compete directly and indirectly with various companies that provide contact center and other business process solutions on an outsourced basis such as TaskUs, Transparent BPO, WebHelp, Focus Services, Ubiquity, CCI and RDI. TOG also competes with local entities in other offshore locations. The list of potential competitors includes both publicly traded and privately held companies.
We compete directly and indirectly with various companies that provide contact center and other business process solutions on an outsourced basis such as TaskUs, Transparent BPO, Concentrix + Webhelp, Focus Services, Ubiquity, CCI and RDI. TOG also competes with local entities in other offshore locations. The list of potential competitors includes both publicly traded and privately held companies.
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. 2 Table of Contents Products The Company produces and manufactures (through third parties or in its own facilities) and sells a wide range of promotional products and branded uniforms in its Branded Products segment and healthcare career and service apparel and accessories in its Healthcare Apparel segment.
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. 2 Table of Contents Products The Company produces and manufactures (through third parties or in its own facilities) and sells a wide range of promotional products and branded uniforms in its Branded Products segment and healthcare apparel and accessories in its Healthcare Apparel segment.
TOG’s competitors in the Contact Centers segment range in size from very small firms offering specialized services or short-term project completion to very large independent firms, and include the in-house operations of many customers and potential customers.
TOG’s competitors in the Contact Centers segment range in size from very small firms offering specialized services or short-term project completion to very large firms, and include the in-house operations of many customers and potential customers.
The Contact Centers segment has the Company’s largest labor force at approximately 4,300 full-time employees as of December 31, 2022. 5 Table of Contents Available Information The Company maintains an internet website at the following address: www.superiorgroupofcompanies.com. The information on the Company’s website is not incorporated by reference in this annual report on Form 10-K.
The Contact Centers segment has the Company’s largest labor force at approximately 4,300 full-time employees as of December 31, 2023. 5 Table of Contents Available Information The Company maintains an internet website at the following address: www.superiorgroupofcompanies.com. The information on the Company’s website is not incorporated by reference in this annual report on Form 10-K.
Prices within the promotional products industry are directly affected by the cost of raw materials. The market for promotional products is price sensitive and has historically exhibited price and demand cyclicality. The Branded Products segment has flexibility in its suppliers, as other suppliers of the same or similar products are widely available.
Prices within the promotional products industry can be directly affected by the cost of raw materials. The market for promotional products is price sensitive and has historically exhibited price and demand cyclicality. The Branded Products segment has flexibility in its suppliers, as other suppliers of the same or similar products are widely available.
Healthcare Apparel Segment: Career and service apparel for personnel of hospitals and healthcare facilities, such as: • Fashionable scrubs; • Institutional scrubs; • Barrier coats; • Patient gowns; • Miscellaneous products for use by linen suppliers and industrial launderers (e.g. industrial laundry bags); • Personal protective equipment (e.g.; isolation gowns and barrier fabric lab wear); and • Other mission-critical apparel to healthcare laundries, institutions and professionals.
Healthcare Apparel Segment: Career and service apparel for personnel of hospitals and healthcare facilities, such as: • Fashionable scrubs; • Institutional scrubs; • Laboratory coats; • Patient gowns; • Miscellaneous products for use by linen suppliers and industrial launderers (e.g. industrial laundry bags); • Clean room apparel; • Personal protective equipment (e.g.; isolation gowns and barrier fabric lab wear); and • Other mission-critical apparel to healthcare laundries, institutions and professionals.
Environmental Matters In view of the nature of our business, compliance with federal, state, and local laws regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has had no material effect upon our operations or earnings, capital expenditures or competitive position and we do not expect it to have a material impact in the foreseeable future.
Environmental Matters Compliance with federal, state, and local laws regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has had no material effect upon our operations or earnings, capital expenditures or competitive position and we do not expect it to have a material impact in the foreseeable future.
Superior also competes with local firms in most major metropolitan areas. The nature and degree of competition varies with the customer and the market. We believe our creative services, product development, proprietary web platforms and extensive global sourcing network, along with our major brands, enable us to be competitive and grow in this market.
Superior also competes with local firms in most major metropolitan areas. The nature and degree of competition varies with the customer and the market. We believe our creative services, product development, proprietary web and technology capabilities and extensive global sourcing network, along with our major brands, enable us to be competitive and grow in this market.
The Company believes that its redundant network of suppliers, including its own manufacturing facilities in Haiti, provide sufficient capacity to mitigate any dependency risks on a single supplier. The Branded Products segment also relies on the supply of other types of raw materials, including plastic, glass and metal.
The Company believes that its vast redundant network of suppliers, including its own manufacturing facilities in Haiti, provide sufficient capacity to mitigate most dependency risks on a single supplier. The Branded Products segment also relies on the supply of other types of raw materials, including plastic, glass and metal.
The Company’s principal products segments are: Branded Products Segment: Customized products to support: • Branded marketing programs; • Branded uniform programs; • Corporate awards, incentives and recognition programs; • Event promotions; • Employee and consumer rewards and incentives; and • Specialty packaging and displays.
The Company’s principal products segments are: Branded Products Segment: Customized products to support: • Branded marketing programs; • Gifts with purchase; • Branded uniform programs; • Corporate awards, incentives and recognition programs; • Event promotions; • Employee and consumer rewards and incentives; and • Specialty packaging and displays.
During the years ended December 31, 2022 and 2021, our Branded Products segment accounted for approximately 67% and 63%, respectively, of net sales. During the years ended December 31, 2022 and 2021, our Healthcare Apparel segment accounted for approximately 20% and 26%, respectively, of net sales. For more information on our reportable business segments, please refer to “ Item 7.
During the years ended December 31, 2023 and 2022, our Branded Products segment accounted for approximately 63% and 67%, respectively, of net sales. During the years ended December 31, 2023 and 2022, our Healthcare Apparel segment accounted for approximately 21% and 20%, respectively, of net sales. For more information on our reportable business segments, please refer to “ Item 7.
For a depiction of net sales from external customers, income (loss) before taxes on income and total assets by segment for the years ended December 31, 2022 and 2021, please refer to Note 17 to our Consolidated Financial Statements included in Part II, Item 8 (“Financial Statements and Supplementary Data”) (collectively referred to as “Financial Statements,” and individually referred to as “statements of comprehensive income (loss),” “balance sheets,” “statements of shareholders’ equity,” and “statements of cash flows” herein).
For a depiction of net sales from external customers, Segment Adjusted EBITDA and total assets by segment for the years ended December 31, 2023 and 2022, please refer to Note 17 to our Consolidated Financial Statements included in Part II, Item 8 (“Financial Statements and Supplementary Data”) (collectively referred to as “Financial Statements,” and individually referred to as “statements of comprehensive income (loss),” “balance sheets,” “statements of shareholders’ equity,” and “statements of cash flows” herein).
Superior’s most significant trade names are BAMKO® and HPI® within the Branded Products segment and The Office Gurus® within the Contact Centers segment. Superior’s most significant trademarks, which are critically important to the marketing and operation of Superior’s Healthcare Apparel segment, are Fashion Seal Healthcare ® and WonderWink ® .
Superior’s most significant trade names are BAMKO® and HPI® within the Branded Products segment, CID Resources within the Healthcare Apparel segment and The Office Gurus® within the Contact Centers segment. Superior’s most significant trademarks, which are critically important to the marketing and operation of Superior’s Healthcare Apparel segment, are Fashion Seal Healthcare ® and Wink™.
During the years ended December 31, 2022 and 2021, our Contact Centers segment accounted for approximately 13% and 11%, respectively, of net sales. 3 Table of Contents Competition Superior competes in its Branded Products segment with a multitude of national and regional companies, such as, BDA, Inc., HALO Branded Solutions, Inc., Staples, Inc., Cimpress PLC, HH Global Group Limited, and Lands’ End, Inc.
During the years ended December 31, 2023 and 2022, our Contact Centers segment accounted for approximately 16% and 13%, respectively, of net sales. 3 Table of Contents Competition Superior competes in its Branded Products segment with a multitude of national and regional companies, such as, BDA, Inc., HALO Branded Solutions, Inc., Staples, Inc., Cimpress PLC, HH Global Group Limited, Lands’ End, Inc. and Workwear Outfitters, LLC.
Item 1. Business Overview 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.
Item 1. Business Overview 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 redomiciled to Florida.
Additionally, the Company’s suppliers generally source or manufacture finished goods in parts of the world that may be affected by economic uncertainty, political unrest, labor disputes, health emergencies, or the imposition of duties, tariffs or other import regulations by the United States.
Additionally, we generally source or manufacture apparel in parts of the world that may be affected by economic uncertainty, political unrest, labor disputes, health emergencies, or the imposition of duties, tariffs or other import regulations by the United States.
Major competitors for our Healthcare Apparel segment include companies such as Medline Industries, Inc., Careismatic Brands, Barco Uniforms, Inc., FIGS, Inc., Encompass Medical and Standard Textile Co., Inc. We are a significant supplier of scrubs and patient apparel to hospitals.
Major competitors for our Healthcare Apparel segment include companies such as Medline Industries, Inc., Careismatic Brands, Barco Uniforms, Inc., FIGS, Inc., Encompass Medical and Standard Textile Co., Inc. We are a significant supplier of caregiver and patient apparel to hospitals, laundries and distributors that service hospitals and consumers.
As of December 31, 2022, the Company had approximately 6,800 employees worldwide, of which approximately 6,600 were full-time employees and approximately 200 were part-time employees. As of December 31, 2022, approximately 900 employees were employed in the U.S. and approximately 5,900 employees were employed in foreign countries.
As of December 31, 2023, the Company had approximately 6,900 employees worldwide, of which approximately 6,800 were full-time employees and approximately 100 were part-time employees. As of December 31, 2023, approximately 830 employees were employed in the U.S. and approximately 6,070 employees were employed in foreign countries.
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.
Superior’s Healthcare Apparel segment, primarily through its signature marketing brands Fashion Seal Healthcare®, CID Resources and Wink™, and its license with Carhartt® 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.
For the year ended December 31, 2022, Fashion Seal Healthcare (presently registered with the United States Patent and Trademark Office until 2029) and WonderWink (presently registered with the United States Patent and Trademark Office until August 2030) represented approximately 41% and 38%, respectively, of sales in that segment.
For the year ended December 31, 2023, Fashion Seal Healthcare (presently registered with the United States Patent and Trademark Office until 2029) and Wink™ represented approximately 39% and 43%, respectively, of sales in that segment.
If Superior or its suppliers are unable to source raw materials from China, it could significantly disrupt Superior’s business. Superior does not have a concentration of suppliers of finished apparel goods in any single country or region of the world, however, it does manufacture the majority of its products in Bangladesh, China, Haiti, Madagascar, and Vietnam.
Superior does not have a concentration of suppliers of finished apparel in any single country or region of the world, however, it does contract to manufacture or source the majority of its apparel in Bangladesh, China, Haiti, Madagascar, Vietnam and the United States.
Management ’ s Discussion and Analysis of Financial Condition and Results of Operations – Business Outlook, ” which disclosure is incorporated herein by reference. Services Through the recruitment and employment of highly qualified English-speaking agents, we provide our customers with outsourced, nearshore business process outsourcing, contact and call-center support services to North American customers in our Contact Centers segment.
Services Through the recruitment and employment of highly qualified English, Spanish and bilingual-speaking agents, we provide our customers with outsourced, nearshore business process outsourcing, contact and call-center support services to North American customers in our Contact Centers segment.
Customers The Branded Products segment has a substantial number of customers, none of which accounted for more than 10% of the segment’s 2022 net sales. No customer accounted for more than 10% of the Healthcare Apparel segment's 2022 net sales. The Contact Centers segment’s largest customer represented 12% of the segment’s 2022 net sales.
Customers Branded Products, Healthcare Apparel and Contact Centers segments have a substantial number of customers, none of which accounted for more than 10% of each segment’s 2023 net sales.
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.
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 chain retailer, food service, entertainment, technology, transportation and a wide range of other industries.
Guardian is a branded merchandise company that is one of the leading providers of promotional products to automotive dealers nationwide. Superior is comprised of three reportable business segments: (1) Branded Products, (2) Healthcare Apparel, and (3) Contact Centers.
Superior is comprised of three reportable business segments: (1) Branded Products, (2) Healthcare Apparel, and (3) Contact Centers. Superior’s Branded Products segment, primarily through its signature marketing brands BAMKO® and HPI®, produces and sells customized merchandise, promotional products and branded uniform programs.
Sutter’s Mill is a vertically integrated manufacturer of high quality, decorated promotional products. Sutter’s Mill has the capability to print on demand and create customized promotional programs and products for customers of any size. On May 1, 2022, the Company, through BAMKO, acquired substantially all of the assets of Guardian Products, Inc. (“Guardian”) of Norcross, Georgia.
In 2018, the Company changed its name to Superior Group of Companies, Inc. On May 1, 2022, the Company, through BAMKO, acquired substantially all of the assets of Guardian Products, Inc. (“Guardian”) based in Norcross, Georgia. Guardian is a branded merchandise company that is one of the leading providers of promotional products to automotive dealers nationwide.
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In 1998, the Company changed its name to Superior Uniform Group, Inc. and its state of incorporation to Florida. In 2018, the Company changed its name to Superior Group of Companies, Inc. On July 1, 2013, the Company acquired substantially all of the assets of HPI Direct, Inc.
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Management ’ s Discussion and Analysis of Financial Condition and Results of Operations – Business Outlook, ” which disclosure is incorporated herein by reference.
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(“HPI”), a company specializing in the design, manufacture and distribution of uniforms to major domestic retailers, foodservice chains, transportation and other service industries throughout the United States. Effective March 1, 2016, the Company acquired substantially all of the assets of BAMKO, Inc. BAMKO is a full-service merchandise sourcing and promotional products company based in Los Angeles, California.
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If Superior or its suppliers are unable to source raw materials from China, it could significantly disrupt Superior’s business as it also would for our competitors.
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With sales offices in the United States and Brazil, as well as support offices in China, Hong Kong, and India, BAMKO serves many well-known companies and brands. The transaction also included the acquisition of BAMKO’s subsidiaries in Hong Kong, China, Brazil and England as well as an affiliate in India.
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Depending on the context, when using the term “BAMKO” in this Form 10-K, we refer either to the Company’s wholly-owned subsidiary housing the acquired business (BAMKO, LLC) or to the business acquired in the transaction, as subsequently grown through additional acquisitions. 1 Table of Contents On August 21, 2017, the Company, through BAMKO, acquired substantially all of the assets of PublicIdentity, Inc.
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(“Public Identity”). Public Identity is a promotional products and branded merchandise agency that provides promotional products and branded merchandise to corporate clients and universities. On November 30, 2017, BAMKO closed on the acquisition of substantially all of the assets of Tangerine Promotions, Ltd. and Tangerine Promotions West, Inc.
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(collectively, “Tangerine”), a promotional products and branded merchandise agency that serves many well-known brands. Tangerine is a leading provider of Point-of-Purchase (POP) and Point-of-Sale (POS) merchandise. On May 2, 2018, the Company acquired CID Resources, Inc.
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(“CID”), a Delaware corporation, which manufactures medical uniforms, lab coats, and layers, and sells its products to specialty uniform retailers, ecommerce medical uniform retailers, and other retailers. On January 29, 2021, the Company, through BAMKO, acquired substantially all of the assets of Gifts By Design, Inc. (“Gifts by Design”) of Seattle, Washington.
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Gifts by Design is a promotional products and branded merchandise agency that is well-established as a developer and supplier of corporate awards, incentives, and recognition programs for some of the world’s biggest brands. On December 2, 2021, the Company, principally through BAMKO, acquired substantially all of the assets of Sutter’s Mill Specialties, Inc. (“Sutter’s Mill”) of Tempe, Arizona.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Substantially all of the assets of the Company are pledged as collateral under our indebtedness. Our credit agreement requires compliance with certain financial ratios and covenants and satisfaction of specified financial tests. Failure to meet any financial ratios, covenants or financial tests could result in an event of default under our credit agreement.
Substantially all of the operating assets of the Company are pledged as collateral under our indebtedness. Our credit agreement requires compliance with certain financial ratios and covenants and satisfaction of specified financial tests. Failure to meet any financial ratios, covenants or financial tests could result in an event of default under our credit agreement.
Major competitors for our Contact Centers segment include companies such as TaskUs, Transparent BPO, WebHelp, Focus Services, Ubiquity, CCI and RDI. We also compete with a multitude of foreign, regional and local competitors that vary by market.
Major competitors for our Contact Centers segment include companies such as TaskUs, Transparent BPO, Concentrix + Webhelp, Focus Services, Ubiquity, CCI and RDI. We also compete with a multitude of foreign, regional and local competitors that vary by market.
We could also incur substantial costs to defend legal actions relating to use of our intellectual property or prosecute legal actions against others using our intellectual property, either of which could have a material adverse effect on our business, results of operations or financial condition.
We could also incur substantial costs to defend legal actions relating to the use of our intellectual property or prosecute legal actions against others using our intellectual property, either of which could have a material adverse effect on our business, results of operations or financial condition.
In the ordinary course of our business, we might collect and store in our internal and external data centers, cloud services and networks sensitive data, including our proprietary business information and that of our customers, suppliers and business partners, as well as personal information of our customers and employees.
In the ordinary course of our business, we might collect and store in our internal and external data centers, cloud services and networks sensitive data, including our proprietary business information and that of our customers, suppliers and business partners, as well as personal information of our customers, employees and others.
Our workforce has been subject to union organization efforts from time to time, and we could be subject to future unionization efforts as our operations expand. Unionization of our workforce could increase our operating costs or constrain our operating flexibility.
Our workforce has been subject to union organization efforts from time to time, and we could be subject to future unionization efforts as our operations expand or change. Unionization of our workforce could increase our operating costs or constrain our operating flexibility.
Furthermore, the Company and the Company’s suppliers generally source or manufacture finished goods in parts of the world that may be affected by economic uncertainty, political unrest, logistical challenges (such as port strikes and embargos), foreign currency fluctuations, labor disputes, health emergencies, or the imposition of duties, tariffs or other import regulations by the United States, any of which could result in additional cost or limit our supply of necessary goods and raw materials.
Furthermore, the Company and the Company’s suppliers generally source or manufacture finished goods in parts of the world that have been and may be in the future affected by economic uncertainty, political unrest, logistical challenges (such as port strikes and embargos), foreign currency fluctuations, labor disputes, health emergencies, or the imposition of duties, tariffs or other import regulations by the United States, any of which could result in additional cost or limit our supply of necessary goods and raw materials.
Even if we are able to acquire businesses on favorable terms, managing growth through acquisitions is a difficult process that includes integration and training of personnel, combining facility and operating procedures, and additional matters related to the integration of acquired businesses within our existing organization.
Even if we are able to acquire businesses on favorable terms, managing growth through acquisitions is a difficult process that includes: integration and training of personnel, combining facility and operating procedures, and additional processes related to the integration of acquired businesses within our existing organization.
If we are unable to offset these effects, such as through the addition of new customers or the penetration of existing customers with a broader mix of product and service offerings, our revenue growth rates will be negatively impacted. Likewise, increases in tax rates or other changes in tax laws or other regulations can negatively affect our profitability.
If we are unable to offset these effects, such as through the addition of new customers or the expansion of relationships with existing customers through a broader mix of product and service offerings, our revenue growth rates will be negatively impacted. Likewise, increases in tax rates or other changes in tax laws or other regulations can negatively affect our profitability.
These proceedings could cause us to incur costs and may require us to devote resources to defend against these claims and could ultimately result in a loss or other remedies, such as product recalls, which could adversely affect our financial position and results of operations. Volatility in the global financial markets could adversely affect results.
These proceedings could cause us to incur costs and may require us to devote resources to defend against these claims and could ultimately result in a loss or other remedies, such as product recalls, which could adversely affect our financial position and results of operations. 15 Table of Contents Volatility in the global financial markets could adversely affect results.
Securities and Exchange Commission or other regulatory authorities, shareholder lawsuits, a loss of investor confidence and damage to our reputation. 13 Table of Contents We have recently recognized, and may recognize in the future, impairment charges, which could materially adversely affect our financial condition and results of operations.
Securities and Exchange Commission or other regulatory authorities, shareholder lawsuits, a loss of investor confidence and damage to our reputation. We have recently recognized, and may recognize in the future, impairment charges, which could materially adversely affect our financial condition and results of operations.
There also can be no assurance that we will be able to negotiate and conclude extensions of existing license agreements on similar economic terms or at all. 6 Table of Contents Our customers may cancel or decrease the quantity of their orders, which could negatively impact our operating results. Sales to many of our customers are on an order-by-order basis.
There also is no guarantee that we will be able to negotiate and conclude extensions of existing license agreements on similar economic terms or at all. 6 Table of Contents Our customers may cancel or decrease the quantity of their orders, which could negatively impact our operating results. Sales to many of our customers are on an order-by-order basis.
General Risk Factors We are subject to periodic litigation in both domestic and international jurisdictions that may adversely affect our financial position and results of operations. From time-to-time we may be involved in legal or regulatory actions regarding product liability, employment practices, intellectual property infringement, bankruptcies and other litigation or enforcement matters.
General Risk Factors We are subject to periodic litigation in both domestic and international jurisdictions that may adversely affect our financial position and results of operations. From time-to-time we may be involved in legal or regulatory actions regarding product liability, employment practices, intellectual property infringement, bankruptcies, telemarketing compliance, consumer protections and other litigation or enforcement matters.
Compromising and/or loss of information could result in loss of sales or legal or regulatory claims which could adversely affect our revenues and profits or damage our reputation. Failure to comply with data privacy and security laws and regulations could adversely affect our operating results and business.
Compromising and/or loss of information could result in loss of sales or legal or regulatory claims which could adversely affect our revenues and profits or damage our reputation. 8 Table of Contents Failure to comply with data privacy and security laws and regulations could adversely affect our operating results and business.
A number of U.S. states have enacted data privacy and security laws and regulations that govern the collection, use, disclosure, transfer, storage, disposal, and protection of personal information, such as social security numbers, financial information and other sensitive personal information.
Many U.S. states have enacted data privacy and security laws and regulations that govern the collection, use, disclosure, transfer, storage, disposal, and protection of personal information, such as social security numbers, financial information and other sensitive personal information.
If our estimates or assumptions to value the acquired assets and liabilities are not accurate, we may be exposed to losses, and/or unexpected usage of cash flow to fund the operations of the acquired businesses that may be material.
If our estimates or assumptions on the valuation of the acquired assets and liabilities are not accurate, we may be exposed to losses, and/or unexpected usage of cash flow to fund the operations of the acquired businesses that may be material.
Outside of the U.S., data protection laws, including the EU General Data Protection Regulation (the “GDPR”), also might apply to some of our operations or business partners. Legal requirements in these countries relating to the collection, storage, processing and transfer of personal data/information continue to evolve.
Data protection laws enacted outside of the U.S., such as the EU General Data Protection Regulation (the “GDPR”), also might apply to some of our operations or business partners. Legal requirements in these countries relating to the collection, storage, processing and transfer of personal data/information continue to evolve.
Our owned intellectual property and certain of our licensed intellectual property have significant value and are instrumental to our ability to market our products. Our most significant trade names are BAMKO® and HPI® within the Branded Products segment and The Office Gurus® within the Contact Centers segment.
Our owned intellectual property and certain of our licensed intellectual property have significant value and are instrumental to our ability to market our products. Our most significant trade names are BAMKO® and HPI® within the Branded Products segment, CID Resources within the Healthcare Apparel segment and The Office Gurus® within the Contact Centers segment.
In the event that payments become due under the SERP, we will have to use cash flow from operations or other sources to fund our obligations. As of December 31, 2022, we had $13.0 million in unfunded obligations related to the SERP. Risks Relating to Our Common Stock Certain existing shareholders have significant control.
In the event that payments become due under the SERP, we will have to use cash flow from operations or other sources to fund our obligations. As of December 31, 2023, we had $13.6 million in unfunded obligations related to the SERP. 13 Table of Contents Risks Relating to Our Common Stock Certain existing shareholders have significant control.
Prolonged inflationary conditions, high and/or increased interest rates, and additional sanctions or retaliatory measures related to the Russia-Ukraine crisis, or other situations, could further negatively affect U.S. and international commerce and exacerbate or prolong the period of high energy prices.
An escalating war in the Middle East, prolonged inflationary conditions, high and/or increased interest rates, additional sanctions or retaliatory measures related to the Russia-Ukraine crisis, or other situations, could further negatively affect U.S. and international commerce and exacerbate or prolong the period of high energy prices.
The CCPA, among other things, contains disclosure obligations for businesses that collect personal information about California residents and affords those individuals new rights relating to their personal information that may affect our ability to collect and/or use personal information. Meanwhile, several other states and the federal government have considered or are considering privacy laws like the CCPA.
The CCPA, among other things, contains disclosure obligations for businesses that collect personal information about California residents and affords those individuals new rights relating to their personal information that may affect our ability to collect and/or use personal information. Other states and the federal government are considering new data privacy and/or security laws.
Any increase in the amount of taxation incurred as a result of challenges to our tax filing positions could result in a material adverse effect on our business, results of operations and financial condition. Item 1B. Unresolved Staff Comments None.
Any increase in the amount of taxation incurred as a result of challenges to our tax filing positions could result in a material adverse effect on our business, results of operations and financial condition.
We cannot assure that our owned or licensed intellectual property or the operation of our business does not infringe on or otherwise violate the intellectual property rights of others. We cannot assure that third parties will not assert claims against us on any such basis or that we will be able to successfully resolve such claims.
We cannot assure that our owned or licensed intellectual property or the operation of our business does not infringe on or otherwise violate the intellectual property rights of others. It is possible that third parties will assert claims against us on such basis; if they do we cannot assure you that we will be able to successfully resolve such claims.
Our senior secured credit agreement contains various covenants that limit our ability to engage in specified types of transactions.
Our credit agreement contains restrictions that limit our flexibility in operating our business. Our senior secured credit agreement contains various covenants that limit our ability to engage in specified types of transactions.
Our outstanding indebtedness may have negative consequences on our business, such as requiring us to dedicate a sizable portion of our cash flow from operations to the payment of debt service, reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions, dividends, stock buybacks and other general corporate purposes, and increasing our vulnerability to adverse economic or industry conditions. 12 Table of Contents Our credit agreement contains restrictions that limit our flexibility in operating our business.
Our outstanding indebtedness may have negative consequences on our business, such as requiring us to dedicate a sizable portion of our cash flow from operations to the payment of debt service, reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions, dividends, stock buybacks and other general corporate purposes, and increasing our vulnerability to adverse economic or industry conditions.
There can be no assurance that we will be successful in integrating acquired businesses or managing our expanding operations. 7 Table of Contents In addition, although we conduct due diligence investigations prior to each acquisition, there can be no assurance that we will discover or adequately protect against all material liabilities of an acquired business for which we may be responsible as a successor owner or operator.
In addition, although we conduct due diligence investigations prior to each acquisition, there can be no assurance that we will discover or adequately protect against all material liabilities of an acquired business for which we may be responsible as a successor owner or operator.
Any increase in raw material prices increases our cost of sales and can decrease our profitability unless we are able to pass the costs on to our customers in the form of higher prices.
An increase in raw material prices would likely increase our cost of sales and decrease our profitability unless we are able to pass the costs on to our customers in the form of higher prices.
Our most significant trademarks, which are critically important to the marketing and operation of Superior’s Healthcare Apparel segment, are Fashion Seal Healthcare® and WonderWink®. For the year ended December 31, 2022, Fashion Seal Healthcare and WonderWink represented approximately 41% and 38%, respectively, of sales in that segment.
Our most significant trademarks, which are critically important to the marketing and operation of Superior’s Healthcare Apparel segment, are Fashion Seal Healthcare® and Wink™. For the year ended December 31, 2023, Fashion Seal Healthcare and Wink represented approximately 39% and 43%, respectively, of sales in that segment.
We believe our products are, in general, less subject to fashion trends compared to many other apparel manufacturers because the majority of what we manufacture and sell are branded uniforms, scrubs and other accessories. Our Contact Centers business is dependent on the trend toward outsourcing.
In addition, if we misjudge consumer preferences, our brand image may be impaired. We believe our products are, in general, less subject to fashion trends compared to many other apparel manufacturers because the majority of what we manufacture and sell are branded uniforms, scrubs and other accessories. Our Contact Centers business is dependent on the trend toward outsourcing.
In addition, if one or more of our competitors is able to reduce their production costs by taking advantage of any reductions in raw material prices or favorable sourcing agreements, we may face pricing pressures from those competitors and may be forced to reduce our prices or face a decline in revenues, either of which could have a material adverse effect on our business, results of operations and financial condition.
In addition, if one or more of our competitors is able to reduce their production costs by taking advantage of any reductions in raw material prices or favorable sourcing agreements, we may face pricing pressures from those competitors and may be forced to reduce our prices or face a decline in revenues, either of which could have a material adverse effect on our business, results of operations and financial condition. 10 Table of Contents We face intense competition within our industries and our revenue and/or profits may decrease if we are not able to respond to this competition effectively.
In the event that advance payments are made to manufacturers that do not have the ability to satisfy their contractual obligations due to their financial instability, geopolitical unrest or other factors, we may incur unrecoverable losses which could have a material adverse effect on our business, results of operations and financial condition.
In the event that advance payments are made to manufacturers that do not have the ability to satisfy their contractual obligations due to their financial instability, geopolitical unrest or other factors, we may incur unrecoverable losses which could have a material adverse effect on our business, results of operations and financial condition. 9 Table of Contents Implementation of technology initiatives could disrupt our operations in the near term and fail to provide the anticipated benefits.
Changes in tax laws or regulations in the jurisdictions in which we do business, including the United States, or changes in how the tax laws are interpreted, could further impact our effective tax rate, further restrict our ability to repatriate undistributed offshore earnings, or impose new restrictions, costs or prohibitions on our current practices and reduce our net income and adversely affect our cash flows. 15 Table of Contents We are also subject to tax audits in the United States and other jurisdictions and our tax positions may be challenged by tax authorities.
Changes in tax laws or regulations in the jurisdictions in which we do business, including the United States, or changes in how the tax laws are interpreted, could further impact our effective tax rate, further restrict our ability to repatriate undistributed offshore earnings, or impose new restrictions, costs or prohibitions on our current practices and reduce our net income and adversely affect our cash flows.
At December 31, 2022, our executive officers and Directors, and certain of their family members collectively owned approximately 34.3% of our outstanding common stock.
At December 31, 2023, our executive officers and directors, and certain of their family members collectively owned approximately 29.4% of our outstanding common stock.
Failure to anticipate, identify or promptly react to changing trends or styles may result in decreased demand for our products, as well as excess inventories and markdowns, which could have a material adverse effect on our business, results of operations and financial condition. In addition, if we misjudge consumer preferences, our brand image may be impaired.
Failure to anticipate, identify or promptly react to changing trends or styles may result in decreased demand for our products, as well as excess inventories and markdowns, which could result in inventory write-downs which may have a material adverse effect on our business, results of operations and financial condition.
We have significant retirement plan obligations with respect to certain of our employees and our available cash flow may be adversely affected in the event that payments become due under our supplemental executive retirement plan that is unfunded. The Company is the sponsor of an unfunded supplemental executive retirement plan (“SERP”) in which several of its employees are participants.
We have significant obligations under our unfunded supplemental executive retirement plan, and our available cash flow may be adversely affected in the event that payments become due under it . The Company is the sponsor of an unfunded supplemental executive retirement plan (“SERP”).
Implementation of technology initiatives could disrupt our operations in the near term and fail to provide the anticipated benefits. As our business grows, we continue to make significant investments in our technology, including in the areas of warehouse management, enterprise risk management and product design.
As our business grows, we continue to make significant investments in our technology, including in the areas of warehouse management, enterprise risk management and product design. The costs, potential problems and interruptions associated with the implementation of technology initiatives could disrupt or reduce the efficiency of our operations in the near term.
At this time, the extent and duration of these economic and political events and their effects on the economy and the Company are impossible to predict. 11 Table of Contents Changes to trade regulation, quotas, duties, tariffs or other restrictions caused by the changing U.S. and geopolitical environments or otherwise, such as those with respect to China, may materially harm our revenue and results of operations, such as by increasing our costs and/or limiting the amount of products that we can import.
Changes to trade regulation, quotas, duties, tariffs or other restrictions caused by the changing U.S. and geopolitical environments or otherwise, such as those with respect to China, may materially harm our revenue and results of operations, such as by increasing our costs and/or limiting the amount of products that we can import.
Furthermore, significant or sustained inflation could have an adverse impact on our operating and general and administrative expenses. Please see “ Our results of operations could be adversely affected by economic and political conditions globally and the effects of these conditions on our customers ’ businesses and levels of business activity ” below for a description of recent inflationary pressure.
Please see “ Our results of operations could be adversely affected by economic and political conditions globally and the effects of these conditions on our customers ’ businesses and levels of business activity ” above for a description of recent inflationary pressure.
World events, such as the Russian invasion of Ukraine and the resulting economic sanctions, have impacted the global economy, including by exacerbating inflationary and other pressures.
In light of continuing inflationary pressures, the Federal Reserve may decide to raise rates again. World events, such as the Russian invasion of Ukraine and the resulting economic sanctions, have impacted the global economy, including by exacerbating inflationary and other pressures.
These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our actual operating performance. 14 Table of Contents In the past, following periods of market volatility, shareholders have instituted securities class action litigation.
Furthermore, the stock market has experienced volatility that, in some cases, has been unrelated or disproportionate to the operating performance of particular companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our actual operating performance. In the past, following periods of market volatility, shareholders have instituted securities class action litigation.
In the past, global financial markets have experienced extreme disruption, including, among other things, volatility in securities prices, diminished liquidity and credit availability, rating downgrades of certain investments and declining valuations of others.
In the past, global financial markets have experienced extreme disruption, including, among other things, volatility in securities prices, diminished liquidity and credit availability, rating downgrades of certain investments and declining valuations of others. There might be further changes or volatility, which could lead to challenges in our business and negatively impact our financial results.
Failure to comply with U.S. and international data protection laws and regulations could result in government enforcement actions (which could include substantial civil and/or criminal penalties), private litigation and/or adverse publicity and could negatively affect our operating results and business. 8 Table of Contents We are subject to international, federal, national, regional, state, local and other laws and regulations, and failure to comply with them may expose us to potential liability.
Failure to comply with U.S. and international data protection laws and regulations could result in government enforcement actions (which could include substantial civil and/or criminal penalties), private litigation and/or adverse publicity and could negatively affect our operating results and business.
Some of our other locations and those of our suppliers, such as those located in the U.S., Central America and Haiti, also are exposed to hurricanes, earthquakes, floods and other extreme weather events; the damage that such events could produce could affect the supply of our products and services. 9 Table of Contents Risks Relating to Our Industries Increases in the price of finished goods, raw materials and labor used to manufacture our products could materially increase our costs and decrease our profitability.
Some of our locations and those of our suppliers, such as those located in the U.S., Central America and Haiti, also are exposed to hurricanes, earthquakes, floods and other extreme weather events; the damage that such events could produce could affect the supply of our products and services.
We are unable to predict the likely duration and severity of any disruption in financial markets and adverse economic conditions and the effects they may have on our business and financial condition. Inability to attract and retain key management or other personnel could adversely impact our business.
We are unable to predict the likely duration and severity of any disruption in financial markets and adverse economic conditions and the effects they may have on our business and financial condition. Furthermore, significant or sustained inflation could have an adverse impact on our operating and general and administrative expenses.
If we are unable to continue to obtain our raw materials and finished products from China or if our suppliers are unable to source raw materials from China, it could significantly disrupt our business.
The majority of such raw materials are sourced in China, either directly by us or our suppliers. If we are unable to source our raw materials and finished products from China or if our suppliers are unable to source raw materials from China, it could significantly disrupt our business.
Our rebranding efforts resulted in a $5.6 million non-cash impairment of indefinite-lived trade names related to our Branded Products segment during the year ended December 31, 2022. The estimated fair value of our intangible assets and long-lived assets is impacted by general economic conditions in the locations in which we operate.
For example, during the year ended December 31, 2022, the Company recorded non cash goodwill and indefinite lived trade name impairment charges totaling $45.9 million and $5.6 million respectively. The estimated fair value of our intangible assets and long-lived assets is impacted by general economic conditions in the locations in which we operate.
Furthermore, if any of our customers experience a significant downturn in their business, or fail to remain committed to our programs or brands, the customer may reduce or discontinue purchases from us. The reduction in the amount of our products purchased by customers could have a material adverse effect on our business, results of operations or financial condition.
Furthermore, if any of our customers experience a significant downturn in their business, or fail to remain committed to our programs or brands, the customer may reduce or discontinue purchases from us, which has happened.
Risks Relating to Our Indebtedness and Retirement Plan Obligations Our indebtedness may limit cash flow available to invest in the ongoing needs of our business. As of December 31, 2022, our total consolidated indebtedness was $156.1 million.
We may face increased competition from these competitors as they mature and expand their capabilities. Risks Relating to Our Indebtedness and Retirement Plan Obligations Our indebtedness may limit cash flow available to invest in the ongoing needs of our business. As of December 31, 2023, our total consolidated indebtedness was $94.4 million.
The apparel industry, including branded uniforms and healthcare, is subject to changing fashion trends and if we misjudge consumer preferences, the image of one or more of our brands may suffer and the demand for our products may decrease.
Any such quotas, duties, tariffs or restrictions could have a material adverse effect on our business, results of operations or financial condition. 12 Table of Contents The apparel industry, including branded uniforms and healthcare, is subject to changing fashion trends and if we misjudge consumer preferences, the image of one or more of our brands may suffer and the demand for our products may decrease.
Similarly, if customers or potential customers perceive the products or services offered by our existing or future competitors to be of higher quality than ours or part of a broader product mix, our revenues may decline, which would adversely affect our operating results. 10 Table of Contents Global, national or regional economic slowdowns, high unemployment levels, fewer jobs, changes in tax laws or cost increases might have an adverse effect on our operating results.
Similarly, if customers or potential customers perceive the products or services offered by our existing or future competitors to be of higher quality than ours or part of a broader product mix, our revenues may decline, which would adversely affect our operating results.
Deterioration in these general economic conditions may result in: declining revenue, which can lead to excess capacity and declining operating cash flow; reductions in management’s estimates for future revenue and operating cash flow growth; increases in borrowing rates and other deterioration in factors that impact our weighted average cost of capital; and deteriorating real estate values.
Deterioration in these general economic conditions may result in: • declining revenue, which can lead to excess capacity and declining operating cash flow; • reductions in management’s estimates for future revenue and operating cash flow growth; • increases in borrowing rates and other deterioration in factors that impact our weighted average cost of capital; and • deteriorating real estate values. 14 Table of Contents If our assessment of intangible assets or long-lived assets indicates an impairment of the carrying value for which we recognize an impairment charge, this may again adversely affect our financial condition and results of operations, potentially materially so.
Our operations rely heavily on our employees, and any labor shortage, disruption or stoppage caused by poor relations with our employees could reduce our operating margins and income. While we believe that our employee relations are good, and very few of our employees are currently subject to collective bargaining agreements, unions have traditionally been active in the U.S. apparel industry.
While we believe that our employee relations are good, and very few of our employees are currently subject to collective bargaining agreements, unions have traditionally been active in the U.S. apparel industry and recently have become more active generally.
Our financial performance will be negatively affected by these pricing pressures if we are forced to reduce our prices and we cannot reduce our product costs proportionally or if our product costs increase and we cannot increase our prices proportionally.
Our financial performance will be negatively affected by these pricing pressures if we are forced to reduce our prices and we cannot reduce our product costs proportionally or if our product costs increase and we cannot increase our prices proportionally. 11 Table of Contents Our results of operations could be adversely affected by economic and political conditions globally and the effects of these conditions on our customers’ businesses and levels of business activity.
In addition, some of our customers have, from time to time, and especially during the initial stages of the COVID-19 pandemic, experienced significant changes and difficulties, including consolidation of ownership, increased centralization of buying decisions, buyer turnover, restructurings, bankruptcies and liquidations.
The reduction in the amount of our products purchased by customers could have a material adverse effect on our business, results of operations or financial condition. In addition, some of our customers have, from time to time experienced significant changes and difficulties, including consolidation of ownership, increased centralization of buying decisions, buyer turnover, restructurings, bankruptcies and liquidations.
If our operating and other expenses increase faster than anticipated due to inflation, our financial condition, results of operations and cash flow could be materially adversely affected. We face intense competition within our industries and our revenue and/or profits may decrease if we are not able to respond to this competition effectively.
If our operating and other expenses increase faster than anticipated due to inflation, our financial condition, results of operations and cash flow could be materially adversely affected. Inability to attract and retain key management or other personnel could adversely impact our business and financial condition.
This competition may increase the price of acquisitions and reduce the number of acquisition candidates available to us. As a result, acquisition candidates may not be available to us in the future on favorable terms. Acquisition valuations require us to make certain estimates and assumptions to determine the fair value of the acquired entities (including the underlying assets and liabilities).
Acquisition valuations require us to make certain estimates and assumptions to determine the fair value of the acquired entities (including the underlying assets and liabilities).
Principal raw materials used in the manufacture of the Company’s finished goods include cotton, polyester, spandex, cotton-synthetic, poly-synthetic blends, textiles, plastic, glass, fabric and metal. The majority of such raw materials are sourced in China, either directly by us or our suppliers.
Risks Relating to Our Industries Increases in the price of finished goods, raw materials and labor used to manufacture our products could materially increase our costs and decrease our profitability. Principal raw materials used to manufacture the Company’s finished goods include cotton, polyester, spandex, cotton-synthetic, poly-synthetic blends, textiles, plastic, glass, fabric and metal.
Federal Reserve repeatedly has 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 likely will raise rates further.
Economic and political events in recent years 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 repeatedly has 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.
Our Contact Centers business and growth within that segment depend in large part on the industry trend toward outsourced customer contact management services. Outsourcing means that an entity contracts with a third party, such as us, to provide customer contact services rather than perform such services in-house.
Our Contact Centers business and growth within that segment depend in large part on the industry trend toward outsourced customer contact management services. There can be no assurance that this trend will continue, as organizations may elect to perform such services themselves.
There can be no assurance that this trend will continue, as organizations may elect to perform such services themselves. A significant change in this trend could have a material adverse effect on our business, financial condition and results of operations.
A significant change in this trend could have a material adverse effect on our business, financial condition and results of operations. We also compete with companies that utilize emerging technologies and assets, such as artificial intelligence and chatbots.
In addition, new or upgraded technology might not provide the anticipated benefits, might take longer than expected to realize the anticipated benefits, might fail or might cost more than anticipated. Failure to preserve positive labor relationships with our employees could adversely affect our results of operations.
They may also require us to divert resources from our core business to ensure that implementation is successful. In addition, new or upgraded technology might not provide the anticipated benefits, might take longer than expected to realize the anticipated benefits, might fail or might cost more than anticipated.
Any of these events could materially adversely affect our business, financial condition, results of operations and cash flows. We pursue acquisitions from time-to-time to expand our business, which may pose risks to our business. We selectively pursue acquisitions from time-to-time as part of our growth strategy. We compete with others within our industries for suitable acquisition candidates.
We selectively pursue acquisitions from time-to-time as part of our growth strategy. We compete with others within our industries for suitable acquisition candidates. This competition may increase the price of acquisitions and reduce the number of acquisition candidates available to us. As a result, acquisition candidates may not be available to us in the future on favorable terms.
Both factors increased shipping times as well as the price of shipping, whether by sea, air, rail, or vehicle. An interruption in any of our supply sources or facilities could adversely affect our results of operations until alternate sources or facilities can be secured.
An interruption in any of our supply sources or facilities, such as widely occurred during 2021, could adversely affect our results of operations until alternate sources or facilities can be secured. Principal raw materials used to manufacture the Company’s products include cotton, polyester, spandex, cotton-synthetic, poly-synthetic blends, textiles, plastic, glass, fabric and metal.
Removed
Along with many manufacturers that source goods and raw materials from abroad, we experienced significant supply disruptions and delays due to a variety of reasons.
Added
If we experience problems with our distribution systems, our ability to meet customer expectations, manage inventory and complete sales may be harmed. Our products are either distributed through our distribution centers in the United States or shipped directly from our vendors to our customers.
Removed
These changes were partially driven by interruptions in global supply chains (including as a result of port congestion and trucking shortages) and partially by a shift in customer buying habits to e-commerce, which had the effect of increasing demand for shipping capacity from Asia, leading to capacity constraints.
Added
Our distribution centers and storage locations include computer-controlled and automated equipment and rely on warehouse management systems to manage supply chain fulfillment operations, which means our operations are complicated, require coordination between our distribution centers and storage locations and are subject to a number of risks related to cybersecurity, the proper operation of software and hardware, including connections between software and/or hardware, electronic or power interruptions or other system failures.
Removed
Our business could be materially adversely impacted by the coronavirus (COVID-19) pandemic. COVID-19 was declared a pandemic by the World Health Organization and the Centers for Disease Control and Prevention in March of 2020. The global spread of COVID-19 created significant volatility and uncertainty and economic disruption, some of which continues.
Added
We maintain business interruption insurance, but it may not adequately protect us from the adverse effects that could result from significant disruptions to our distribution system, such as the long-term loss of customers or an erosion of our brand image.
Removed
While the situation is different than it was in prior years, the extent to which the COVID-19 pandemic ultimately impacts our business, financial condition, results of operations or cash flows still depends on numerous factors that continue to evolve and which we may not be able to accurately predict, including, without limitation: the duration and scope of the pandemic; the success of efforts to deliver effective vaccines and boosters on a timely basis to a number of people sufficient to prevent or substantially lower the severity of incidents of infection or variants; the duration and scope of governmental, business and individuals’ actions that have been and will be taken in response to the pandemic (including restrictions on travel and transport and workforce pressures); the effect on our suppliers and customers and customer demand for our core products and services; the effect on our sources of supply; the impact of the pandemic on economic activity and actions taken in response; closures of our and our suppliers’ and customers’ offices and facilities; the ability of our customers to pay for our products and services; financial market volatility; commodity prices; and the pace of recovery from the pandemic.
Added
Moreover, if we are unable to adequately staff our distribution centers to meet demand or if the cost of such staffing is higher than historical or projected costs, our results of operations could be harmed.
Removed
The potential effects of COVID-19 also could impact us in a number of other ways, including, but not limited to, 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, reduced credit-worthiness of our customers, and potential impairment of the carrying value of indefinite-lived intangible assets.
Added
Operating a distribution center comes with additional potential risks, such as workplace safety issues and employment claims for the failure or alleged failure to comply with labor laws or laws respecting union organizing activities.
Removed
The costs, potential problems and interruptions associated with the implementation of technology initiatives could disrupt or reduce the efficiency of our operations in the near term. They may also require us to divert resources from our core business to ensure that implementation is successful.
Added
If we encounter problems with our distribution systems, our ability to meet customer expectations, manage inventory and fulfillment capacity, complete sales and fulfill orders in a timely manner could be harmed, which could also harm our reputation and our relationship with our customers.
Removed
For example, our corporate headquarters is located in Florida, which is a hurricane-sensitive area; should a hurricane occur, the possibly resulting infrastructure damage and disruption to the area could negatively affect our company, such as by damage to or total destruction of our headquarters, surrounding transportation infrastructure, network communications and other forms of communication.
Added
If we are unable to accurately forecast customer demand, manage our inventory and plan for future expenses, our results of operations could be adversely affected. We base our current and future inventory needs and expense levels on our operating forecasts and estimates of future demand.
Removed
The principal fabrics used for our uniforms are made from cotton, polyester, cotton-synthetic and poly-synthetic blends. The principal components in our promotional products are plastic, glass, fabric and metal.
Added
To ensure adequate inventory supply, we must be able to forecast inventory needs and expenses and place orders sufficiently in advance with our suppliers and manufacturers, based on our estimates of future demand for particular products.
Removed
Our results of operations could be adversely affected by economic and political conditions globally and the effects of these conditions on our customers’ businesses and levels of business activity. 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.
Added
Our ability to forecast demand for our products has from time to time been and will continue to be affected by various factors, including unanticipated changes in general market conditions, and economic conditions or consumer confidence in future economic conditions. Failure to accurately forecast demand may result in inefficient inventory supply or increased costs.

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Item 2. Properties

Properties — owned and leased real estate

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Properties The following table describes the material facilities we owned or leased as of December 31, 2022: Location Status Square Feet Uses Seminole, Florida Leased 60,000 Corporate Office, Branded Products, Healthcare Apparel and Contact Centers Belmopan, Belize Leased 39,720 Contact Centers Compton, California Leased 24,449 Branded Products Coppell, Texas Leased 114,735 Healthcare Apparel Eudora, Arkansas Leased 260,000 Branded Products and Healthcare Apparel Kingston, Jamaica Leased 19,500 Contact Centers La Libertad, El Salvador Owned 52,591 Contact Centers Lake Providence, Louisiana Leased 215,000 Branded Products and Healthcare Apparel Lexington, Mississippi Owned 40,000 Healthcare Apparel Monticello, Arkansas Leased 92,000 Branded Products and Healthcare Apparel Oak Grove, Louisiana Leased 158,330 Branded Products Ouanaminthe, Haiti Leased 120,000 Branded Products and Healthcare Apparel Peachtree Corners, Georgia Leased 23,400 Branded Products Phoenix, Arizona Leased 21,243 Branded Products San Ignacio, Belize Owned 11,732 Contact Centers San Salvador, El Salvador Leased 17,777 Contact Centers Santiago, Dominican Republic Leased 7,500 Contact Centers Tempe, Arizona Leased 46,725 Branded Products The Company has an ongoing program designed to maintain and improve its facilities.
Petersburg, Florida Leased 8,193 Corporate, Branded Products, Healthcare Apparel and Contact Centers Belmopan, Belize Leased 33,470 Contact Centers Compton, California Leased 24,449 Branded Products Coppell, Texas Leased 114,105 Healthcare Apparel Eudora, Arkansas Leased 260,000 Branded Products and Healthcare Apparel Kingston, Jamaica Leased 19,500 Contact Centers La Libertad, El Salvador Owned 52,591 Contact Centers Lake Providence, Louisiana Leased 215,000 Branded Products and Healthcare Apparel Lexington, Mississippi Owned 40,000 Healthcare Apparel Monticello, Arkansas Leased 92,000 Branded Products and Healthcare Apparel Oak Grove, Louisiana Leased 68,330 Branded Products Ouanaminthe, Haiti Leased 120,000 Branded Products and Healthcare Apparel Peachtree Corners, Georgia Leased 23,400 Branded Products Phoenix, Arizona Leased 116,850 Branded Products Romeoville, Illinois Leased 28,290 Branded Products San Ignacio, Belize Owned 11,732 Contact Centers San Salvador, El Salvador Leased 17,777 Contact Centers Santiago, Dominican Republic Leased 7,900 Contact Centers The Company has an ongoing program designed to maintain and improve its facilities.
Added
Item 2. Properties The following table describes the material facilities we owned or leased as of December 31, 2023: Location Status Square Feet Uses St.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Information regarding the Company’s equity compensation plans is incorporated by reference to the information set forth in Item 12 of Part III of this Form 10-K under the section entitled “Equity Compensation Plan Information.” Issuer Purchases o f Equity Securities 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 December 31, 2022.
Information regarding the Company’s equity compensation plans is incorporated by reference to the information set forth in Item 12 of Part III of this Form 10-K under the section entitled “Equity Compensation Plan Information.” Issuer Purchases o f Equity Securities 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 December 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) October 1, 2022 to October 31, 2022 - $ - - November 1, 2022 to November 30, 2022 - - - December 1, 2022 to December 31, 2022 - - - 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.
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) October 1, 2023 to October 31, 2023 - $ - - November 1, 2023 to November 30, 2023 - - - December 1, 2023 to December 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.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The principal market on which Superior’s common shares are traded is the NASDAQ Stock Market under the symbol “SGC.” We declared cash dividends of $0.54 per share during the fiscal year ended December 31, 2022, which were paid in the first, second, third and fourth quarters of 2022.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The principal market on which Superior’s common shares are traded is the NASDAQ Stock Market under the symbol “SGC.” We declared aggregate cash dividends of $0.56 per share during the fiscal year ended December 31, 2023, which were paid in the first, second, third and fourth quarters of 2023.
The Company is in full compliance with all terms, conditions and covenants of such agreement. On March 2, 2023, we had 136 shareholders of record.
The Company is in full compliance with all terms, conditions and covenants of such agreement. On February 27, 2024, we had 126 shareholders of record.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Income tax expense for the year ended December 31, 2022 was impacted by a tax benefit of $7.0 million relating to the impairment of intangible assets and a portion of the goodwill impairment. The effective tax rate for the year ended December 31, 2022 was impacted by the nondeductible portion of the goodwill impairment charge totaling $21.1 million.
Income tax expense and the effective tax rate for the year ended December 31, 2022 was impacted by a tax benefit of $7.0 million relating to the impairment of intangible assets and a nondeductible portion of the goodwill impairment charge totaling $21.1 million.
During the third quarter of 2022, the Company determined that a triggering event occurred in relation to the depressed market price of the Company's common stock and corresponding significant decline in the Company’s market capitalization.
During the third quarter of 2022, the Company determined that a triggering event occurred in relation to the depressed market price of the Company’s common stock and corresponding significant decline in the Company’s market capitalization.
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).
Obligations outstanding under the Credit Facilities accrue interest at a variable rate equal to the secured overnight financing rate (“SOFR”) plus an adjustment between 0.10% and 0.25% (depending on the applicable interest period) plus a margin between 1.0% and 2.0% (depending on the Company’s net leverage ratio).
The Company expects to permanently reinvest the earnings from its wholly-owned Brazilian and UK subsidiaries, and accordingly, has not provided deferred taxes on the subsidiaries’ undistributed net earnings or basis differences. The Company believes that the tax liability that would be incurred upon repatriation of the earnings from its Brazilian and UK subsidiaries is immaterial at December 31, 2022.
The Company expects to permanently reinvest the earnings from its wholly-owned Brazilian and UK subsidiaries, and accordingly, has not provided deferred taxes on the subsidiaries’ undistributed net earnings or basis differences. The Company believes that the tax liability that would be incurred upon repatriation of the earnings from its Brazilian and UK subsidiaries is immaterial at December 31, 2023.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with our Financial Statements, which present our results of operations for the years ended December 31, 2022 and 2021, as well as our financial positions at December 31, 2022 and 2021, contained elsewhere in this Form 10-K.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with our Financial Statements, which present our results of operations for the years ended December 31, 2023 and 2022, as well as our financial positions at December 31, 2023 and 2022, contained elsewhere in this Form 10-K.
For further discussion of changes in the effective tax rate, refer to Note 9 to the Financial Statements. 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.
For further discussion of changes in the effective tax rate, refer to Note 9 to the Financial Statements. 24 Table of Contents 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.
We believe that the following critical accounting policies and estimates have a higher degree of inherent uncertainty and require our most significant judgments. Revenue Recognition Revenue is measured at the amount of consideration we expect to receive in exchange for the goods or services.
We believe that the following critical accounting policies and estimates have a higher degree of inherent uncertainty and require our most significant judgments. 28 Table of Contents Revenue Recognition Revenue is measured at the amount of consideration we expect to receive in exchange for the goods or services.
The Company believes Adjusted 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 (i) removing the impact of the Company’s capital structure (interest expense from outstanding debt), (ii) tax consequences, (iii) asset base (depreciation and amortization), (iv) the non-cash charges from the termination of the Company’s pension plans and the goodwill and intangible asset impairments and (v) gains or losses on sale of property, plant and equipment.
The Company believes Adjusted 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, (iii) asset base (depreciation and amortization), (iv) the non-cash charges from asset impairments and (v) gains or losses on the sale of property, plant and equipment.
The purchase price for the acquisition consisted of the following: (a) $11.1 million in cash, subject to a working capital adjustment, (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 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.
As of December 31, 2022, indefinite-lived intangible assets of $13.6 million and $14.2 million were included in the Branded Products segment and the Healthcare Apparel segment, respectively. 28 Table of Contents Income Taxes The Company is required to estimate and record income taxes payable for federal, state and foreign jurisdictions in which the Company operates.
As of December 31, 2023 and 2022, indefinite-lived intangible assets of $13.6 million and $14.2 million were included in the Branded Products segment and the Healthcare Apparel segment, respectively. Income Taxes The Company is required to estimate and record income taxes payable for federal, state and foreign jurisdictions in which the Company operates.
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. 18 Table of Contents Branded Products In our Branded Products segment, we produce and sell customized merchandising solutions, promotional products and branded uniform programs to our customers.
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.
Material Short-Term Plans for Cash For the next twelve months, our primary capital requirements is for capital to maintain our operations, meet the contractual obligations shown in the column titled “2023” in the contractual obligations table below, and to fund capital expenditures, dividends and other general corporate purposes.
Material Short-Term Plans for Cash For the next twelve months, our primary capital requirements are for capital to maintain our operations, meet the contractual obligations shown in the column titled “2024” in the contractual obligations table below, and to fund capital expenditures, dividends and other general corporate purposes.
As of December 31, 2022, we had an accrued liability of $0.8 million for unrecognized tax benefits. We accrue interest and penalties related to unrecognized tax benefits in income tax expense, and the related liability is included in other long-term liabilities in our balance sheet.
As of December 31, 2023, we had an accrued liability of $0.8 million for unrecognized tax benefits. We accrue interest and penalties related to unrecognized tax benefits in income tax expense, and the related liability is included in other long-term liabilities in our balance sheet. 30 Table of Contents
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 the requirements shown in the columns “2024-2025” and “2026-2027” in the contractual obligations table below, as well as the obligations described in footnote (3) to the table, and the continuation of the Company’s ongoing capital expenditure program designed to improve the effectiveness and capabilities of its facilities and technology.
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 the requirements shown in the columns “2025-2026” and “2027-2028” in the contractual obligations table below, as well as the obligations described in footnote (3) to the table, and the continuation of the Company’s ongoing capital expenditure program designed to improve the effectiveness and capabilities of its facilities and technology.
This sale was part of management’s plan to relocate the Company’s corporate headquarters to St. Petersburg, Florida. Interest Expense Interest expense increased to $4.9 million for the year ended December 31, 2022 from $1.2 million for the year ended December 31, 2021.
This sale was part of management’s plan to relocate the Company’s corporate headquarters to St. Petersburg, Florida. Interest Expense Interest expense increased to $9.7 million for the year ended December 31, 2023 from $4.9 million for the year ended December 31, 2022.
The interest rate on outstanding borrowings under the Credit Facilities was 6.2% at December 31, 2022. 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).
The weighted average interest rate on our outstanding borrowings under the Credit Facilities was 6.7% at December 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).
Working capital cash changes during the year ended December 31, 2022 included a decrease of $14.6 million in accounts payable and other current liabilities, an increase of $15.9 million in inventory and an increase of $15.1 million in contract assets. Working capital cash changes during the year ended December 31, 2021 included an increase of $24.5 million in inventories.
Working capital cash changes during the year ended December 31, 2022 included an increase of $15.9 million in inventories, an increase of $15.1 million in contract assets and a decrease of $14.6 million in accounts payable and other current liabilities. Investing Activities.
Adjusted EBITDA Adjusted EBITDA (a non-GAAP financial measure) was $27.9 million and $51.5 million during the years ended December 31, 2022 and 2021, respectively.
Adjusted EBITDA Adjusted EBITDA (a non-GAAP financial measure) was $33.5 million and $27.9 million during the years ended December 31, 2023 and 2022, respectively.
Global Economic and Political Conditions Economic and political events in the past twelve months 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.
Global Economic and Political Conditions Economic and political events in recent years 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.
The weighted average interest rate on our outstanding borrowings for the year ended December 31, 2022 was 2.4% compared to 0.9% for the year ended December 31, 2021. Income Taxes The effective income tax rate was 15.9% and 11.1% for the years ended December 31, 2022 and 2021, respectively.
The weighted average interest rate on our outstanding borrowings for the year ended December 31, 2023 was 7.0% compared to 2.4% for the year ended December 31, 2022. Income Taxes The effective income tax rate was 10.2% and 15.9% for the years ended December 31, 2023 and 2022, respectively.
As a percentage of net sales, selling and administrative expenses for our Healthcare Apparel segment was 34.7% for the year ended December 31, 2022 and 25.7% for the year ended December 31, 2021.
As a percentage of net sales, selling and administrative expenses for our Healthcare Apparel segment was 33.6% for the year ended December 31, 2023 and 34.7% for the year ended December 31, 2022.
Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Goodwill and indefinite-lived intangible assets such as trade names are not amortized but are subject to an annual (or under certain circumstances more frequent) impairment test in the fourth quarter based on their estimated fair value.
Goodwill and indefinite-lived intangible assets such as trade names are not amortized but are subject to an annual (or under certain circumstances more frequent) impairment test in the fourth quarter based on their estimated fair value.
This increase was primarily due to an increase in interest rates on our outstanding borrowings, $0.5 million of expense relating to the write-off of unamortized debt issuance costs associated with our former senior secured credit facility and an increase in outstanding borrowings.
This increase was primarily due to an increase in interest rates on our outstanding borrowings, partially offset by $0.5 million of expense relating to the write-off of unamortized debt issuance costs associated with our former senior secured credit facility in the third quarter of 2022 and a decrease in outstanding borrowings.
Summary of Results Net Income (loss) The Company generated a net loss of $32.0 million during the year ended December 31, 2022 and net income of $29.4 million during the year ended December 31, 2021.
Summary of Results Net Income (loss) The Company generated net income of $8.8 million during the year ended December 31, 2023 and a net loss of $32.0 million during the year ended December 31, 2022.
Credit Facilities (See Note 8 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.
Excess cash generated from operating activities during the year ended December 31, 2023 was used to repay outstanding borrowings under the revolving credit facility. 26 Table of Contents Credit Facilities (See Note 8 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.
Reserves are also estimated for uncertain tax positions that are currently unresolved. The Company routinely monitors the potential impact of such situations and believes that it is properly reserved. For the year ended December 31, 2022, there was a decrease of $0.1 million in total unrecognized tax benefits.
Reserves are also estimated for uncertain tax positions that are currently unresolved. The Company routinely monitors the potential impact of such situations and believes that it is properly reserved. For the year ended December 31, 2023, there was no significant change in total unrecognized tax benefits.
The increase in contract assets was primarily related to the timing of shipments to customers and receipts from suppliers for finished goods with no alternative use within our Branded Products segment.
The decrease in prepaid expenses and other current assets was primarily related to a decrease in prepaid taxes. The decrease in contract assets was primarily related to the timing of shipments to customers and receipts from suppliers for finished goods with no alternative use within our Branded Products segment.
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.
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 December 31, 2023, the Company was in compliance with these ratios.
As of December 31, 2022, approximately $11.3 million of our cash was held in our foreign subsidiaries, of which $7.9 million of cash was held at foreign subsidiaries from which the Company plans to repatriate the funds as needed for liquidity.
As of December 31, 2023, approximately $16.8 million of our cash was held in our foreign subsidiaries, of which $11.6 million of cash was held at foreign subsidiaries from which the Company plans to repatriate the funds as needed for liquidity.
The available balance under the revolving credit facility is reduced by outstanding letters of credit. As of December 31, 2022, the Company had undrawn capacity of $42.0 million under the revolving credit facility.
The available balance under the revolving credit facility is reduced by outstanding letters of credit. As of December 31, 2023, there were no outstanding letters of credit under the revolving credit facility. As of December 31, 2023, the Company had undrawn capacity of $100.0 million under the revolving credit facility.
Adjusted EBITDA during the year ended December 31, 2022 compared to the year ended December 31, 2021 decreased primarily due to an increase in inventory write-downs, a decrease in Healthcare Apparel net sales and an increase in selling and administrative expenses, partially offset by an increase in Branded Products and Contact Centers net sales.
Adjusted EBITDA during the year ended December 31, 2023 compared to the year ended December 31, 2022 increased primarily due to a decrease in inventory write-downs, partially offset by an increase in Contact Centers selling and administrative expenses.
The decrease in net cash used in investing activities during the year ended December 31, 2022 compared to the year ended December 31, 2021 was attributable to a decrease in capital expenditures of $6.7 million primarily related to the expansion of our distribution facility in Eudora, Arkansas in the previous year and a decrease in cash paid for acquisitions, which included the acquisitions of Guardian in 2022, Sutter's Mill in 2021 and Gifts by Design in 2021.
The decrease in net cash used in investing activities during the year ended December 31, 2023 compared to the year ended December 31, 2022 was attributable to $11.1 million of cash paid for the acquisition of Guardian in 2022 and a decrease in capital expenditures of $6.1 million primarily related to the expansion of our distribution facility in Eudora, Arkansas in the previous year.
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.
An escalating war in the Middle East, prolonged inflationary conditions, high and/or increased interest rates, additional sanctions or retaliatory measures related to the Russia-Ukraine crisis, or other situations, could further negatively affect U.S. and international commerce and exacerbate or prolong the period of high energy prices.
At December 31, 2022, 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 did not reacquire and retire shares of its common stock under this program during the years ended December 31, 2023 and 2022. At December 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.
As of December 31, 2022, the Company had $156.1 million in outstanding borrowings under its Credit Facilities, consisting of $83.0 million outstanding under the revolving credit facility and $73.1 million outstanding under a term loan.
As of December 31, 2023, the Company had $94.4 million in outstanding borrowings under its Credit Facilities, consisting of $25.0 million outstanding under the revolving credit facility and $69.4 million outstanding under a term loan.
Contractual principal payments for the term loan are as follows: 2023 - $3.7 million; 2024 - $4.7 million; 2025 - $5.6 million; 2026 - $6.6 million; and 2027 - $52.5 million.
Contractual principal payments for the term loan are as follows: 2024 - $4.6 million; 2025 - $5.6 million; 2026 - $6.6 million; and 2027 - $52.5 million. The term loan does not contain pre-payment penalties.
The Company’s rebranding efforts resulted in a $5.6 million impairment of indefinite-lived trade names related to its Branded Products segment during the year ended December 31, 2022.
The Company’s rebranding efforts resulted in a $5.6 million impairment of indefinite-lived trade names related to its Branded Products segment during the year ended December 31, 2022. Other Periodic Pension Plan Costs Other periodic pension plan costs decreased to $0.9 million for the year ended December 31, 2023 from $2.1 million for the year ended December 31, 2022.
In conjunction with the re-segmentation during the second quarter of 2022, the Company performed a goodwill impairment analysis and determined that the estimated fair value of the previous Uniforms and Related Products segment was lower than its carrying value primarily as the result of current market conditions, decline in expected cash flows and decrease in the Company’s stock price.
Goodwill and indefinite-lived intangible assets are tested at a level of reporting referred to as “the reporting unit.” The Company’s reporting units are defined as each of its three reporting segments. 29 Table of Contents In conjunction with the re-segmentation during the second quarter of 2022, the Company performed a goodwill impairment analysis and determined that the estimated fair value of the previous Uniforms and Related Products segment was lower than its carrying value primarily as the result of current market conditions, decline in expected cash flows and decrease in the Company’s stock price.
The decrease in net cash provided by operating activities during the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily attributable to increases in cash outflows for selling and administrative expenses, contract assets and accounts payable, partially offset by an increase in gross margin and a decrease in cash outflows for inventory.
The increase in net cash provided by operating activities during the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily attributable to decreases in cash outflows for inventory, accounts payable and other current liabilities and an increase in cash inflows from contract assets, partially offset by a decrease in net sales and an increase in interest paid.
As a percentage of net sales, cost of goods sold remained relatively flat. Selling and Administrative Expenses As a percentage of net sales, total selling and administrative expenses was 30.5% for the year ended December 31, 2022 and 26.5% for the year ended December 31, 2021.
Selling and Administrative Expenses As a percentage of net sales, total selling and administrative expenses was 33.7% for the year ended December 31, 2023 and 30.5% for the year ended December 31, 2022.
Additionally, we use a non-GAAP financial measure to evaluate our results of operations. For important information regarding the use of such non-GAAP financial measure, including reconciliations to the most comparable GAAP measure, see the section titled “Non-GAAP Financial Measure” below.
Additionally, we use a non-GAAP financial measure to evaluate our results of operations. For important information regarding the use of such non-GAAP financial measure, including reconciliations to the most comparable GAAP measure, see the section titled “Non-GAAP Financial Measure” below. Recent Acquisitions On May 1, 2022, the Company, through BAMKO, acquired substantially all of the assets of Guardian Products, Inc.
The Company’s Adjusted EBITDA may not be comparable to a similarly titled measure of another company because other entities may not calculate Adjusted EBITDA in the same manner. 26 Table of Contents The following table reconciles net income (loss) to Adjusted EBITDA (in thousands): Years Ended December 31, 2022 2021 Net income (loss) $ (31,970 ) $ 29,440 Interest expense 4,894 1,220 Income tax expense (benefit) (6,065 ) 3,687 Depreciation and amortization 13,004 9,291 Goodwill impairment charge 45,918 - Intangible assets impairment charge 5,581 - Pension plan termination charge - 7,821 Gain on sale of property, plant and equipment (3,435 ) - Adjusted EBITDA $ 27,927 $ 51,459 Critical Accounting Policies and Estimates Our discussion and analysis of financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP.
The following table reconciles net income (loss) to Adjusted EBITDA (in thousands): Years Ended December 31, 2023 2022 Net income (loss) $ 8,772 $ (31,970 ) Interest expense 9,718 4,894 Income tax expense (benefit) 997 (6,065 ) Depreciation and amortization 13,995 13,004 Goodwill impairment charge - 45,918 Intangible assets impairment charge - 5,581 Gain on sale of property, plant and equipment - (3,435 ) Adjusted EBITDA $ 33,482 $ 27,927 Critical Accounting Policies and Estimates Our discussion and analysis of financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP.
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 grown 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.
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 grown as businesses look to reduce operating costs while maintaining high-quality customer support.
Management currently believes that the combination of our current cash level, cash flows provided by operating activities and availability under the revolving credit facility, subject to a potential amendment as described in Note 8 to the Financial Statements, will be sufficient to satisfy the above requirements for the next twelve months.
We currently anticipate that we will spend more in capital expenditures in 2024 than we spent in 2023. 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.
The decrease in net income during the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily due to goodwill and indefinite-lived intangible assets impairment charges totaling $51.5 million in 2022, an increase in inventory write-downs of $10.8 million, a decrease in Healthcare Apparel net sales and an increase in selling and administrative expenses, partially offset by an increase in Branded Products and Contact Centers net sales, a decrease in income tax expense and a pension plan termination charge recorded in 2021.
The increase in net income during the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily due to goodwill and indefinite-lived intangible asset impairment charges of $51.5 million incurred in the prior year period, a decrease in inventory write-downs of $11.2 million, partially offset by increases in income tax expense, Contact Centers selling and administrative expenses and interest expense.
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 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.
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.
(“Guardian”) based in Norcross, Georgia. Guardian is a branded merchandise company that is one of the leading providers of promotional products to automotive dealers nationwide.
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.
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.
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).
As of December 31, 2023, the Company had undrawn capacity of $100.0 million under the revolving credit facility. 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.
The pension plan terminations did not require a cash outlay by the Company. 22 Table of Contents Gain on Sale of Property, Plant and Equipment During the year ended December 31, 2022, the Company sold its corporate headquarters building and related assets for net proceeds of $4.8 million and realized a gain on sale of $3.4 million.
This decrease was primarily due to a decrease in actuarial losses recognized on the supplemental executive retirement plan (“SERP”). Gain on Sale of Property, Plant and Equipment During the year ended December 31, 2022, the Company sold its corporate headquarters building and related assets for net proceeds of $4.8 million and realized a gain on the sale of $3.4 million.
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. The Company did not reacquire and retire shares of its common stock under this program during the years ended December 31, 2022 and 2021.
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.
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.
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. 27 Table of Contents Non-GAAP Financial Measure Adjusted EBITDA, which is a non-GAAP financial measure, is defined as net income (loss) excluding interest expense, income tax expense, depreciation and amortization expense, impairment charges and the other items described in the following sentence.
The increase in net cash provided by financing activities during the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily attributable to an increase in net borrowings of $11.8 million in debt, partially offset by a decrease of $2.0 million in proceeds received on exercise of stock options and an increase in dividend payments of $1.4 million.
The increase in net cash used in financing activities during the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily attributable to an increase in net payments of $61.8 million in debt in 2023 compared to net borrowings of $39.4 million in 2022.
These long-term liabilities include unrecognized tax benefits of $0.8 million, unfunded obligations related to the SERP of $13.0 million and deferred compensation liability of $7.7 million. 24 Table of Contents 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): For the Years Ended December 31, 2022 2021 Net cash provided by (used in): Operating activities $ (2,604 ) $ 17,080 Investing activities (17,425 ) (34,130 ) Financing activities 28,846 20,995 Effect of exchange rates on cash (30 ) (182 ) Net increase in cash and cash equivalents $ 8,787 $ 3,763 Operating Activities.
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): For the Years Ended December 31, 2023 2022 Net cash provided by (used in): Operating activities $ 78,929 $ (2,604 ) Investing activities (5,508 ) (17,425 ) Financing activities (71,616 ) 28,846 Effect of exchange rates on cash 369 (30 ) Net increase in cash and cash equivalents $ 2,174 $ 8,787 Operating Activities.
The Company’s rebranding efforts resulted in a $5.6 million impairment of indefinite-lived trade names related to its Branded Products segment during the year ended December 31, 2022. This charge was non-cash in nature and does not affect our liquidity or debt covenants.
The Company’s rebranding efforts resulted in a $5.6 million impairment of indefinite-lived trade names related to its Branded Products segment during the year ended December 31, 2022. For the year ended December 31, 2023, the Company completed its testing of indefinite-lived intangible assets and determined that the fair value was more than its carrying value.
Federal Reserve repeatedly has 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 likely will raise rates further.
Federal Reserve repeatedly has 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. World events, such as the Russian invasion of Ukraine and the resulting economic sanctions, have impacted the global economy, including by exacerbating inflationary and other pressures.
Contractual Obligations The following table sets forth a summary of our material contractual obligations as of December 31, 2022 (in thousands): Payments Due by Period 2023 2024-2025 2026-2027 Thereafter Debt: Revolving credit facility(1) $ - $ - $ 83,000 $ - Term Loan(1) 3,750 10,313 59,062 - Operating leases 3,207 3,569 1,080 - Acquisition-related contingent liabilities(2) 835 4,126 - - Total long term contractual cash obligations(3) $ 7,792 $ 18,008 $ 143,142 $ - (1) Excludes estimates for interest payable as amounts are based on variable rates.
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. 25 Table of Contents Contractual Obligations The following table sets forth a summary of our material contractual obligations as of December 31, 2023 (in thousands): Payments Due by Period 2024 2025-2026 2027-2028 Thereafter Debt: Revolving credit facility(1) $ - $ - $ 25,000 $ - Term Loan(1) 4,688 12,187 52,500 - Operating leases 4,315 8,237 5,998 1,680 Acquisition-related contingent liabilities(2) 1,403 557 - - Total long term contractual cash obligations(3) $ 10,406 $ 20,981 $ 83,498 $ 1,680 (1) Excludes estimates for interest payable as amounts are based on variable rates.
These increases were primarily attributed to providing expanded services to our existing customers and the onboarding of new customers in 2022. Cost of Goods Sold Cost of goods sold consists primarily of direct costs of acquiring inventory, including cost of merchandise, inbound freight charges, purchasing costs, and inspection costs for our Branded Products and Healthcare Apparel segments.
Cost of goods sold consists primarily of direct costs of acquiring inventory, including cost of merchandise, inbound freight charges, purchasing costs, and inspection costs for our Branded Products and Healthcare Apparel segments. Cost of goods sold for our Contact Centers segment includes salaries and payroll related benefits for agents.
Cost of goods sold for our Contact Centers segment includes salaries and payroll related benefits for agents. The Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with out-bound freight are recorded in cost of goods sold.
The Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with out-bound freight are recorded in cost of goods sold. The cost of occupancy and operating the Company’s distribution centers are included in selling and administrative expenses. Gross margin rate is defined as gross margin divided by net sales.
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.
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.
As a percentage of net sales, cost of goods sold for our Healthcare Apparel segment was 71.2% for the year ended December 31, 2022 and 62.6% for the year ended December 31, 2021. The percentage increase was primarily due to $11.4 million in inventory write-downs in 2022 of excess and obsolete inventory related to discontinued styles and personal protective equipment.
Inventory write-downs during the year ended December 31, 2022 included write-downs of $11.4 million on excess and obsolete inventory related to discontinued styles and personal protective equipment within our Healthcare Apparel segment. Gross margin rate for our Branded Products segment was 33.5% for the year ended December 31, 2023 and 29.6% for the year ended December 31, 2022.
COVID-19 has acted as a catalyst for rapid transformation within the traditional business process outsourcing model. 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.
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.
The inventory write-downs in our Branded Products segment were related to excess inventory associated with personal protective equipment. If actual product demand and market conditions are less favorable than those projected by management, additional inventory write-downs may be required, which may be material.
If actual product demand and market conditions are less favorable than those projected by management, additional inventory write-downs may be required, which may be material. An additional write-down in value of 5% of inventories would result in additional expense of approximately $5.0 million.
At this time, the extent and duration of these economic and political events and their effects on the economy and the Company are impossible 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.
At this time, the extent and duration of these economic and political events and their effects on the economy and the Company are impossible to predict, but the impact on the Company’s business could be material.
The cost of borrowing has increased in 2022, with the interest rate of outstanding borrowings under the revolving credit facility of 6.2% at December 31, 2022 compared to 0.9% at December 31, 2021 under the previous revolving credit facility.
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. The cost of borrowing increased in 2023, with the weighted average interest rate on outstanding borrowings under the revolving credit facility of 6.7% at December 31, 2023 compared to 6.2% at December 31, 2022.
As a percentage of net sales, selling and administrative expenses for our Contact Centers segment was 39.9% for the year ended December 31, 2022 and 36.9% for the year ended December 31, 2021. The percentage increase was primarily attributed to increased investment in organizational infrastructure, including facilities and personnel, to support future growth of this segment.
The rate decrease was primarily driven by reductions in overhead costs. 23 Table of Contents As a percentage of net sales, selling and administrative expenses for our Contact Centers segment was 43.4% for the year ended December 31, 2023 and 39.9% for the year ended December 31, 2022.
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. 23 Table of Contents Cash and cash equivalents increased by $8.8 million to $17.7 million as of December 31, 2022 from $8.9 million on December 31, 2021.
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.
As a percentage of net sales, selling and administrative expenses for our Branded Products segment was 23.2% for the year ended December 31, 2022 and 20.6% for the year ended December 31, 2021.
For more information on the written put options, please refer to the disclosure in Note 1 to the Financial Statements, which is incorporated herein by reference. As a percentage of net sales, selling and administrative expenses for our Branded Products segment was 25.7% for the year ended December 31, 2023 and 23.2% for the year ended December 31, 2022.
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.
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. 20 Table of Contents Contact Centers In our Contact Centers segment (also known as “The Office Gurus”), which operates in El Salvador, Belize, Jamaica, Dominican Republic, and the United States, we provide outsourced, nearshore business process outsourcing, contact and call-center support services to North American customers.
An additional write-down in value of 5% of inventories would result in additional expense of approximately $6.0 million. 27 Table of Contents Goodwill and indefinite-lived intangible assets The Company has made acquisitions in the past that included goodwill and indefinite-lived intangible assets.
Goodwill and indefinite-lived intangible assets The Company has made acquisitions in the past that included goodwill and indefinite-lived intangible assets. Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired.
These increases were partially offset by a decrease of $24.0 million in net sales of personal protective equipment driven by the progression of the COVID-19 pandemic. Healthcare Apparel net sales decreased 18.6%, or $26.0 million, for the year ended December 31, 2022 compared to the year ended December 31, 2021.
These decreases were partially offset by an increase in net sales of $12.8 million attributable to the acquisition of Guardian in May 2022. 22 Table of Contents Healthcare Apparel net sales increased 0.5%, or $0.6 million, for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Any such amendment or waiver would be subject to the applicable provisions of the Credit Agreement, including the approval of lenders constituting Required Lenders as defined under the Credit Agreement. Dividends and Share Repurchase Program During the years ended December 31, 2022 and 2021, the Company paid cash dividends of $8.7 million and $7.2 million, respectively.
Dividends and Share Repurchase Program During the years ended December 31, 2023 and 2022, the Company paid cash dividends of $9.2 million and $8.7 million, respectively. The Company anticipates that it will continue to pay dividends in the future as financial conditions permit.
The decrease in the current portion of long-term debt was the result of contractual obligations under the new credit agreement, which was entered into on August 23, 2022. The decrease in accounts payable was primarily driven by the timing of payments for inventory purchases within our Branded Products segment.
The increase in other current liabilities was primarily related to increases in contract liabilities associated with deferred revenue within our Branded Products segment and new facility leases. The increase in accounts payable was primarily driven by the timing of payments for inventory purchases within our segments.
The decrease was primarily due to a decrease in demand for healthcare apparel resulting from market conditions in 2022, most notably, a market saturated with inventory as the COVID-19 pandemic progressed. Additionally, net sales of personal protective equipment decreased by $5.2 million.
The decrease was primarily due to decreased demand during the first half of 2023 as a result of then-current market conditions that tightened our customers’ advertising spending, the timing of new branded uniform rollout programs for certain customers and a decrease of $6.3 million in net sales of personal protective equipment driven by the easing of the COVID-19 pandemic.
For a reconciliation of Adjusted EBITDA to net income (loss), its most directly comparable financial measure calculated and presented in accordance with GAAP, please read “Non-GAAP Financial Measure” below. 20 Table of Contents The Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021 Operations Net Sales (in thousands, except percentages): For the Years Ended December 31, 2022 2021 % Change Branded Products $ 387,931 $ 340,487 13.9 % Healthcare Apparel 113,321 139,288 (18.6 %) Contact Centers 84,218 64,312 31.0 % Net Intersegment Eliminations (6,639 ) (7,101 ) (6.5 %) Consolidated Net Sales $ 578,831 $ 536,986 7.8 % Net sales for the Company increased 7.8% from $537.0 million for the year ended December 31, 2021 to $578.8 million for the year ended December 31, 2022.
For a reconciliation of Adjusted EBITDA to net income (loss), its most directly comparable financial measure calculated and presented in accordance with GAAP, please read “Non-GAAP Financial Measure” below. 21 Table of Contents The Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022 Operations The following table provides highlights of our financial performance (in thousands, except percentages): For the Years Ended December 31, 2023 2022 % Change Net sales: Branded Products $ 342,680 $ 387,931 (11.7 %) Healthcare Apparel 113,878 113,321 0.5 % Contact Centers 91,500 84,218 8.6 % Net intersegment eliminations (4,756 ) (6,639 ) (28.4 %) Consolidated net sales 543,302 578,831 (6.1 %) Gross margin: Branded Products 114,627 114,797 (0.1 %) Healthcare Apparel 42,281 32,602 29.7 % Contact Centers 49,148 49,779 (1.3 %) Net intersegment eliminations (2,509 ) (3,819 ) (34.3 %) Consolidated gross margin 203,547 193,359 5.3 % Selling and administrative expenses: Branded Products 88,225 90,118 (2.1 %) Healthcare Apparel 38,209 39,295 (2.8 %) Contact Centers 39,682 33,631 18.0 % Intersegment Eliminations (2,509 ) (3,819 ) (34.3 %) Other 19,598 17,095 14.6 % Consolidated selling and administrative expenses 183,205 176,320 3.9 % Goodwill impairment charge - 45,918 (100.0 %) Intangible assets impairment charge - 5,581 (100.0 %) Other periodic pension cost 855 2,116 (59.6 %) Interest expense 9,718 4,894 98.6 % Gain on sale of property, plant and equipment - 3,435 (100.0 %) Income (loss) before income tax expense 9,769 (38,035 ) (125.7 %) Income tax expense (benefit) 997 (6,065 ) (116.4 %) Net income (loss) $ 8,772 $ (31,970 ) (127.4 %) Net Sales Net sales for the Company decreased 6.1% from $578.8 million for the year ended December 31, 2022 to $543.3 million for the year ended December 31, 2023.
The sale of personal protective equipment during the year ended December 31, 2021 was driven by market demand as a result of the progression of the COVID-19 pandemic. Contact Centers net sales increased 31.0% before intersegment eliminations and 35.6% after intersegment eliminations for the year ended December 31, 2022 compared to the year ended December 31, 2021.
Contact Centers net sales increased 8.6% before intersegment eliminations and 11.8% after intersegment eliminations for the year ended December 31, 2023 compared to the year ended December 31, 2022. These increases were primarily attributed to onboarding of new customers in 2023. Gross Margin Gross margin is defined as net sales less cost of goods sold.
As a percentage of net sales, cost of goods sold for our Branded Products segment was 70.4% for the year ended December 31, 2022 and 70.6% for the year ended December 31, 2021. As a percentage of net sales, cost of goods sold remained relatively flat.
During the year ended December 31, 2023, the Company recognized a $2.4 million charge to cost of goods sold to write-down inventory to its net realizable value, of which $1.6 million related to our Healthcare Apparel segment and $0.8 million related to our Branded Products segment.
Removed
Recent Acquisitions On January 29, 2021, the Company, through BAMKO, acquired substantially all of the assets of Gifts By Design, Inc. (“Gifts by Design”) of Seattle, Washington. Gifts by Design is a promotional products and branded merchandise agency that is well-established as a developer and supplier of corporate awards, incentives, and recognition programs for some of the world’s biggest brands.
Added
In addition, the threat of a wider war in the Middle East after the Hamas terrorist attacks on Israel could affect oil prices and have other effects on the global economy. Both crises have potentially far-reaching impacts on energy and food markets and global trade.
Removed
The purchase price for the acquisition consisted of $6.0 million in cash. On December 2, 2021, the Company, principally through BAMKO, acquired substantially all of the assets of Sutter’s Mill Specialties, Inc. (“Sutter’s Mill”) of Tempe, Arizona. Sutter’s Mill is a vertically integrated manufacturer of high quality, decorated promotional products.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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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 December 31, 2022, we had no foreign currency exchange hedging contracts.
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 December 31, 2023, we had no foreign currency exchange hedging contracts.
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 gains (losses) within selling and administrative expenses in our statements of comprehensive income (loss). During the years ended December 31, 2022 and 2021 foreign currency losses were not significant.
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 (loss). During the years ended December 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 (loss) during the years ended December 31, 2022 and 2021, included foreign currency translation adjustment losses of $0.2 million and $0.3 million, respectively. 29 Table of Contents
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 (loss) during the years ended December 31, 2023 and 2022, included a foreign currency translation adjustment gain of $0.7 million and a foreign currency translation adjustment loss of $0.2 million, respectively. 31 Table of Contents
Item 7A. 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. As a result of the Company entering into a new credit agreement on August 23, 2022, interest on our Credit Facilities is based upon the secured overnight financing rate (“SOFR”).
Item 7A. 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”).
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.
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, Colombian peso and the Canadian dollar.
A hypothetical increase in the SOFR of 100 basis points between August 23, 2022, the date we entered into our new Credit Agreement, and December 31, 2022 would have resulted in approximately $0.6 million in additional pre-tax interest expense. For further information regarding our debt instruments, see Note 8 to the Financial Statements.
A hypothetical increase in the SOFR of 100 basis points as of January 1, 2023 would have resulted in approximately $1.2 million in additional pre-tax interest expense for the year ended December 31, 2023. For further information regarding our debt instruments, see Note 8 to the Financial Statements.
Added
There can be no assurance that our strategies will adequately protect our operating results from the effect of exchange rate fluctuations.

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