Superior Group of Companies, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; compared with Q1 2023 unless otherwise noted. The company operates Branded Products, Healthcare Apparel, and Contact Centers. Amounts below are in millions, except per-share data.
Financial results and liquidity
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Net sales | $138.8 | $130.8; up 6.2% |
| Gross profit / gross margin | $55.3 / 39.8% | $47.1 / 36.0% |
| Selling and administrative expenses | $48.7 / 35.1% of sales | $43.4 / 33.2% of sales |
| Operating income | Filing does not provide a clear value as a separate line item | |
| Income before taxes | $4.6 | $0.9 |
| Net income / diluted EPS | $3.9 / $0.24 | $0.9 / $0.06 |
| EBITDA (non-GAAP) | $9.6 | $6.9 |
| Operating cash flow | $9.4 | $25.1 |
| Capital expenditures | $0.7 | $2.1 |
| Cash and cash equivalents | $22.0 at March 31 | $19.9 at December 31, 2023 |
| Working capital | $179.4 at March 31 | $178.8 at December 31, 2023 |
| Debt under credit facilities | $90.4 gross; $22.0 revolving and $68.4 term loan | $94.4 at December 31, 2023 |
Segment sales grew across the board: Branded Products $87.1 million (+6.4%), Healthcare Apparel $29.2 million (+3.8%), and Contact Centers $23.6 million (+6.8%, before eliminations). Segment EBITDA was $9.9 million, $2.6 million, and $2.9 million, respectively; corporate and other costs were $5.9 million.
Interest expense declined to $1.8 million from $2.6 million, which management attributed primarily to lower borrowings; the weighted average borrowing rate was 6.6%. The tax provision was $0.7 million, at a 14.8% effective rate, versus $0.1 million and 6.0%. The company paid dividends of $0.14 per share.
Changes versus Q1 2023
- Revenue increased 6.2%; management cited higher Branded Products orders and pricing, online Healthcare Apparel growth, and Contact Centers growth from existing customers.
- Gross margin improved 3.8 percentage points to 39.8%, with improvement in all three segments. Management cited favorable pricing/customer mix and lower costs in Branded Products, and better costs and manufacturing efficiencies in Healthcare Apparel.
- Net income rose to $3.9 million from $0.9 million. Higher gross profit and lower interest expense were partly offset by higher selling and administrative expense and taxes.
- Operating cash flow fell to $9.4 million from $25.1 million. The filing attributes the decline primarily to cash outflows for accounts payable and other current liabilities and higher selling and administrative expenses, partly offset by improved gross profit.
- Debt under the credit facilities declined by about $4.0 million from year-end. Financing cash flows included $10.9 million of debt repayments and $7.0 million of new borrowings.
Outlook, risks, and unusual items
- Outlook: No specific numerical earnings or revenue guidance is provided. Management expects cash, operating cash flows, and revolver availability to cover requirements for the next 12 months, and anticipates 2024 capital expenditures will exceed 2023 spending.
- Credit and liquidity: The revolving facility has $103.0 million of undrawn capacity. Facilities mature in August 2027, bear variable SOFR-based rates, and are secured by substantially all operating assets. The company reported compliance with its leverage and fixed-charge coverage covenants at March 31, 2024.
- Controls: Disclosure controls were deemed ineffective because a previously identified material weakness in segregation of duties, change management, and user access for certain Contact Centers IT systems remained unremediated. Management said remediation measures are in progress, but effectiveness must be tested over time.
- Operational risks: The filing highlights potential disruption to Healthcare Apparel manufacturing and warehousing in Haiti from civil unrest, including possible effects on production, shipping, and customer relationships. Other cited risks include inflation, interest rates, supply disruptions, competition, and geopolitical conditions.
- Unusual items: Q1 included a $0.4 million unrealized loss on written put options, compared with a $0.4 million gain in Q1 2023, and a $0.2 million loss from remeasurement of acquisition-related contingent liabilities versus a $0.6 million gain. A $0.5 million Sutter’s Mill contingent-consideration settlement was paid in Q1; Guardian contingent consideration was estimated at $1.6 million, with $0.9 million expected to be paid in Q3 2024.
- Management does not expect ordinary-course legal proceedings to materially affect results, cash flows, or financial position. Foreign-currency translation produced a $0.5 million loss in comprehensive income, versus a $0.3 million gain a year earlier.
- Subsequent to quarter-end, the company approved performance-share grants totaling 200,000 shares to two executives, subject to stock-price and service conditions.
Important facts for investors to verify
- Whether improved gross margins and revenue trends persist while selling and administrative costs continue to rise.
- Drivers of the sharp year-over-year operating cash flow decline and whether working-capital movements normalize.
- Variable-rate debt exposure, future repayments, covenant headroom, and continued access to the revolver.
- Progress and testing of the Contact Centers internal-control remediation plan.
- Potential business interruption and insurance coverage for the Haiti facilities, as well as the timing and final amount of Guardian contingent consideration.
- Potential dilution and compensation expense from equity awards, including the May 2024 performance-share grants.