Superior Group (SGC) Q3 2026 Earnings Call Transcript

DATE

Mon, Nov 09, 2026

CALL PARTICIPANTS

• Chief Executive Officer - Michael Benstock
• President and Chief Financial Officer - Mike Koempel
• President of the Company's Contact Center segment - Dominic Leide

TAKEAWAYS

• Revenue -- $146.0 million, representing a 5% increase compared to $138.5 million in the prior-year period.
• Diluted EPS -- $0.17, compared to $0.18 in the prior-year period, reflecting impact from charges in the Healthcare Apparel segment.
• Branded Products Revenue -- $92.1 million, an 8% increase driven by higher volumes with existing customers and new customer additions.
• Contact Centers Revenue -- $24.2 million, growing 7% due to new customer acquisitions and expansion within existing accounts.
• Healthcare Apparel Revenue -- $30.6 million, a 3% decline resulting from volume decreases with existing customers.
• Branded Products Gross Margin -- 36.4%, expanding by 160 basis points due to a favorable shift in pricing and customer mix.
• Healthcare Apparel Gross Margin -- 32.7%, declining by 580 basis points due to a $4 million incremental inventory write-down, which was partially offset by $1.8 million of tariff refunds.
• Contact Centers Gross Margin -- 52.9%, which remained flat compared to the prior-year period but increased 200 basis points sequentially.
• Inventory Write-Downs -- $9.5 million year-to-date, compared to $1.8 million in the prior-year period, as the company streamlines its product assortment.
• Select VoiceCom Acquisition -- Approximately $27 million cash upfront for a Philippine business process outsourcing firm with annual revenue of approximately $20 million.
• Debt Refinancing -- $200 million amended and extended credit facility, providing a five-year term to support capital allocation strategies.
• Operating Cash Flow -- $31 million year-to-date, up from $1 million in the same period last year.
• Average Debt Reduction -- $25 million decrease, contributing to net interest expense falling to just over $800,000 from $1.4 million.
• Full-Year Sales Guidance -- $578 million to $585 million, tightened from the previous range of $572 million to $585 million.
• Full-Year Adjusted EPS Guidance -- $0.60 to $0.66, representing 43% growth at the high end compared to $0.46 in 2025.
• Credit Loss Expense -- $3.2 million year-to-date, representing an increase from $2.3 million in the prior-year period due to a $1 million charge related to a Healthcare Apparel customer's financial position.
• Share Repurchases -- Approximately $9 million remaining under current authorization.
• Dividends -- $2.2 million paid during the third quarter.
• Healthcare Apparel EBITDA -- $3.7 million decrease compared to the prior-year period, driven by inventory and credit loss charges.

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RISKS

• Koempel stated, "we'd still expect there to be margin pressure heading into the first half of next year," referring to the ongoing repositioning of the Healthcare Apparel product assortment.
• Koempel noted that Healthcare Apparel revenue and SG&A were impacted by "credit loss charges resulting from the change in a customer's financial position," contributing to segment losses.

SUMMARY

Superior Group of Companies, Inc. (NASDAQ:SGC) reported consolidated revenue growth of 5% in the third quarter, fueled by performance in its Branded Products and Contact Centers divisions. Management indicated that the Healthcare Apparel segment is undergoing a strategic repositioning involving product streamlining, leadership changes, and inventory reductions, which negatively impacted quarterly margins. The company completed a debt refinancing and closed the acquisition of Select VoiceCom, expanding its Contact Center capabilities into the Philippines market. Updated full-year guidance reflects tightened ranges for both revenue and adjusted earnings, citing confidence in diversified business performance and underlying profitability.

• CEO Benstock stated, "This acquisition is expected to be accretive to our earnings in the first quarter of 2027, its first full quarter under the SGC umbrella, and further increase our already solid cash flow."
• Dominic Leide noted that the Philippines acquisition allows the company to offer "nearshore, onshore, and offshore delivery or a blended solution," which the company refers to as right-shoring.
• Management stated the Select VoiceCom acquisition price of approximately $27 million was based on a multiple of approximately five times estimated earnings.
• Dominic Leide stated, "we definitely have seen recent wins specifically because of our Guru iX, which is our suite of AI technologies."
• CFO Koempel indicated that the company remains in a strong financial position with significant cushion below covenant requirements, providing flexibility for further acquisitions in other business segments.

INDUSTRY GLOSSARY

• BPO: Business Process Outsourcing, the practice of contracting a specific business task, such as customer service or back-office functions, to a third-party service provider.
• Guru iX: The company's proprietary suite of artificial intelligence and automation solutions used within its Contact Center segment.
• Nearshore: The practice of outsourcing business processes to a nearby country, often sharing a border or similar time zone.
• Offshore: The practice of outsourcing business processes to a distant country to take advantage of lower labor costs or specialized skills.
• Right-shoring: A strategy used by the company to provide an optimized mix of nearshore, onshore, and offshore delivery solutions to clients.
• TOG: The Office Gurus, the brand name for the company's Contact Center segment.

Full Conference Call Transcript

Operator: Good morning and welcome to the Superior Group of Companies Third Quarter 2026 Conference Call. With us today are Michael Benstock, Chief Executive Officer, and Mike Koempel, President and Chief Financial Officer. In addition, Dominic Leide, President of the Company's Contact Center segment, will join today's Q&A session. As a reminder, this conference call is being recorded. This call may contain forward-looking statements regarding the company's plans, initiatives, and strategies, and the anticipated financial performance of the company, including, but not limited to, sales and profitability. Such statements are based upon management's current expectations, projections, estimates, and assumptions. Words such as expect, believe, anticipate, think, outlook, hope, and variations of such words and similar expressions identify such forward-looking statements.

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

Michael Benstock: Thanks, Operator, and thank you for those joining us this morning. Let's dive right into Q3. We generated top-line growth of 5% this quarter, which accelerated from the second quarter's 3% increase. This was driven by continued momentum for both Branded Products and Contact Centers, each of which grew revenues while also generating double-digit EBITDA growth. Our Healthcare Apparel segment continued to execute on the transition that we addressed in our previous earnings call with new and deeper leadership additions. These additions and strategies will lead us to more focused product and sourcing strategies, which in turn will lead to higher margins and reduced working capital needs.

Thanks to the strength of SGC's diversification and stronger underlying profitability, the impact was significantly offset. EPS was down just slightly year-over-year at 17 cents, despite the incremental charges related to the strategic repositioning of our Healthcare Apparel business that Mike will discuss in greater detail. During the quarter, we further improved our solid balance sheet, successfully completed a debt refinancing, which places us in a position of strength to execute our capital allocation strategy. To that point, we're pleased to have executed 1 of our key strategic growth initiatives, which we spoke about on prior calls with the recently announced acquisition of Select VoiceCom, a Philippine BPO.

With this transformational acquisition, our Contact Center segment, The Office Gurus, expands its global delivery capabilities from nearshore to also offshore across numerous new market channels. This expands our addressable market for services well beyond our prior capabilities. The sequential improvement in our segment results combined with an expanded offering in the Philippines, sets us up for a stronger platform for growth. This acquisition is expected to be accretive to our earnings in the first quarter of 2027, its first full quarter under the SGC umbrella, and further increase our already solid cash flow. Let's now discuss the quarterly performance of our 3 business segments. Branded Products, our largest business, drove revenue growth of 8% versus the year-ago quarter.

This reflects higher volumes with existing customers as well as new customer additions. Similar to last quarter, we expanded our gross margin partially due to stronger pricing and improved SG&A as a percentage of sales. The result was 31% growth in EBITDA. We are confident in our ability to expand our market share and are excited about the upcoming start of a Chief Revenue Officer, the repositioning one of our executives to focus on uniform sales under the Branded Products umbrella, as well as the recent hiring of a top executive to lead marketing to further expand our growth strategy in this segment. These 3 positions are investments that we're making to grow our business well beyond its current state.

Within Healthcare Apparel, consistent with the second quarter, new leadership is pursuing a more focused product strategy, which requires streamlining the current product assortment and its related inventory position. This, as well as other market factors, necessitated an inventory write-down during the quarter. As a result, our Healthcare Apparel segment EBITDA was about $3.7 million lower than the prior-year period. While the strategic shift has weighed on segment results, we view the transition by new leadership, including the recent hiring of a VP of Supply Chain as a necessary step in creating a stronger and more profitable Healthcare Apparel business that will benefit from favorable long-term secular trends.

Lastly, our Contact Center segment grew revenues 7% over the prior year and sequentially improved from the second quarter. While the gross margin rate was flat versus the prior year, it sequentially improved by 2 full points from the prior quarter and SG&A as a percentage of revenue improved by 2 points. The result was a 22% increase in EBITDA. We expect continued growth as we convert a growing pipeline into new business. Wrapping up, we are increasingly optimistic about our business today.

While there are plenty of opportunities to make further improvements, particularly related to the turnaround of our Healthcare Apparel segment, the combination of stronger underlying profitability, several critical leadership hires, and our recent acquisition materially improve our capabilities and prospects for growth. With that, Mike will now take us through the financial details and our improved outlook ranges for the year.

Michael Koempel: Thank you, Michael, and thanks, everyone, for being with us. We grew our third quarter consolidated revenue by 5% year-over-year to $146 million, which, as Michael noted, surpassed the second quarter growth of 3%. Branded Products led the way with top-line growth of 8% to $92 million, benefiting from higher volumes with existing customers. And Contact Centers grew revenue 7% to $24 million, driven by new customer acquisitions and growth from existing customers. Healthcare Apparel revenue was off just 3% to $31 million due to volume decreases with existing customers due in part to the change in a customer's financial position.

Our gross margin for the third quarter came in at 38%, which was about flat both year-over-year and sequentially, as strength in Branded Products margins was offset by a sharp decline in Healthcare Apparel. Branded Products gross margin improved by 160 basis points, primarily driven by a favorable shift in the mix of pricing and customers. Healthcare Apparel gross margin was down 580 basis points due to a $4 million incremental inventory write-down in connection with further streamlining the product assortment, partially offset by $1.8 million of tariff refunds. The Contact Centers' gross margin was flat compared to the year-ago quarter and up sequentially from the second quarter by 200 basis points.

SG&A for the third quarter was also roughly flat as a percentage of sales at 35.5%, with improvements at both our Branded Products and Contact Centers segments offset by Healthcare Apparel, primarily due to credit loss charges resulting from the change in a customer's financial position. Moving on to EBITDA, our third quarter result of $6.7 million compares to $7.5 million in the third quarter of 2025. Strong EBITDA growth in Branded Products and Contact Centers of 31% and 22% respectively, was more than offset by a $3.7 million decrease in Healthcare Apparel EBITDA due to the significant inventory and credit loss charges that I previously mentioned.

For the third quarter, our net interest expense improved once again to just over $800,000, down from $1.4 million a year earlier. This improvement was driven by a $25 million reduction in average debt outstanding. Turning to net income, we generated $2.6 million in the third quarter, which equated to diluted earnings per share of 17 cents, down just slightly versus the prior year, despite the aforementioned charges in Healthcare Apparel. Moving on to our balance sheet, we ended September with cash and equivalents of $28 million, up from $24 million at prior year-end, on top of the significant reduction in average debt outstanding.

Our improved financial position was driven by operating cash flow of $31 million year-to-date compared to just $1 million in the prior-year period. Also, during the third quarter, we amended and extended our $200 million credit facility for another 5 years, providing flexibility and capacity to support our capital allocation strategy. The strength of our balance sheet combined with our new credit facility enables us to pursue growth initiatives across our segments, such as the Contact Centers' acquisition of Select VoiceCom, as Michael mentioned earlier.

Lastly, during the third quarter, we paid $2.2 million in dividends, resulting in an attractive dividend yield, and we have approximately $9 million available under our share repurchase authorization to take advantage of opportunistic share repurchases. I'll wrap up with our updated full-year outlook, which includes a tightening of our previous ranges, given the continued strong performance of our diversified business and our confidence looking ahead. Our full-year 2026 net sales forecast is a range of $578 million to $585 million, compared to our previous range of $572 million to $585 million, and up from 2025 net sales of $566 million.

We are also tightening our full-year adjusted earnings per diluted share forecast to a range of 60 cents to 66 cents from our previous range of 54 cents to 66 cents and up from 46 cents in 2025, representing 43% growth at the high end. With that, operator, Michael, Dom, and I would be happy to take questions. If you could please open the lines.

Operator: [Operator Instructions] The first question today comes from Michael Baker with D.A. Davidson. Please go ahead.

Michael Baker: One, if I could just, any more detail you could give us on the Select VoiceCom acquisition? We can see a little bit just from their public information that they have 1,500 seats, but how does that compare with where you are now? How big is their business compared to what you have now? You talked about it being transformational. What about this is more of just a bolt-on and making it more transformational? Does it give you different areas of specialization or verticals? Just any more color and detail would be helpful, I think.

Dominic Leide: Sure, I'll start, Michael. Great question. As Mike and Michael have shared on previous calls, this has been a key strategic growth initiative for TOG. We've built a strong nearshore platform, and what Select VoiceCom adds is an established offshore operation in the Philippines, which is one of the world's largest and most established BPO markets. What this does for TOG is it significantly expands our addressable market by allowing us to offer clients now nearshore, onshore, and offshore delivery or a blended solution. We call that right-shoring.

It's going to bring -- it also brings established client relationships and expertise in industries that both complement our existing business, but are also new to TOG, most notably healthcare, which we're really excited about. Select VoiceCom has a meaningful presence in healthcare where they have the ability to hire Filipino registered nurses and physical therapists, which our sales team is really excited about going after that business. So I think, in addition to just its offshore capabilities, it's also going to provide cross-selling opportunities for our sales team and then also our ability to go in and offer our Guru iX, which is our AI and automation solutions to their customer base.

So there's a lot of reasons to be excited about this acquisition for TOG. Thank you.

Michael Baker: Yep, that sounds it. Any more financial details? What was Select VoiceCom's profitability? What kind of synergies? You said it would be accretive in the first quarter. Any incremental details on that?

Michael Koempel: Hi, Michael. It's Mike. So from a financial perspective, the revenues annually are about $20 million. And we're not disclosing further details around their profitability. We're going through a valuation analysis, which will determine amortization expense and things of that nature, which obviously could impact the profitability going forward. So we'll provide more pro forma financial information in our Form 10-K and obviously bake that into the guidance for 2027 when we do our fourth quarter earnings call.

Michael Baker: Fair enough. A couple more quick ones. Just on Healthcare Apparel, another write-down this quarter. Are we through now with the inventory write-downs? And if you could just tell us the size of the credit-related charge.

Michael Koempel: Sure. We're largely through, I would say, the most challenging part of Chris's repositioning of the assortment. So obviously, as you mentioned, we took a charge in Q2, which was really just Chris's first quarter. So Chris has been with the business just about 6 months plus, so it is taking him time, obviously, to formulate the strategy. We want to move swiftly, but we also want to move thoughtfully, which is why we've taken this what I'll call measured approach over the last couple quarters. With that said, we'd still expect there to be margin pressure heading into the first half of next year.

Again, as we just continue to more discount than I would say write down inventory to again, get to that tighter assortment, which again we feel on the other side of that will have stronger margins as well as less working capital pressure by lower inventory on hand.

Michael Baker: And the credit charge?

Michael Koempel: In the second part of your question, it was about $1 million.

Operator: The next question comes from Jim Sidoti with Sidoti & Company. Please go ahead.

James Sidoti: Is there any revenue from Select in the fourth quarter guidance?

Michael Koempel: There's no revenue in the guidance.

James Sidoti: So what do you expect? Has the acquisition closed and when will -- what's the payment schedule?

Michael Koempel: Sure. The acquisition did close, Jim. In our 8-K on November 2, we announced the closure of that transaction right there at the end of October. So we'll have about 2 months of activity. Of course, we've got acquisition-related closing costs that we'll be recording as well in the fourth quarter. As I mentioned, the annual revenue is about $20 million. You can kind of determine from there what that could mean on a monthly basis, as it's fairly, I'd say, even month to month.

And in the 8-K, we did disclose the purchase price, which we had mentioned was just about $27 million in cash up front with a 1-year earnout and that's based on a multiple of about 5x estimated earnings.

James Sidoti: All right. And with regard to the Branded Products business, this is, I think, the fourth very strong quarter for that business. How should we think of that going forward as we lap those very good results? Do you expect the growth to continue in this mid to upper single-digit range, or do you expect it to start to slow in Q4 and into 2027?

Michael Koempel: We expect the growth to continue. As Michael mentioned in his prepared remarks, we're obviously very happy with the performance of that business year-to-date, but at the same time, we want to keep the momentum going as well as grow even larger as we approach our long-term goal of hitting $1 billion. So we've made some investments in a Chief Revenue Officer and head of marketing where not only can we, I believe, get more out of the channels that we're in, but also explore other sale opportunities within that segment that are still open to us.

So we're excited about the additions that they'll bring as we head into 2027 and, as I said, help keep that momentum moving forward.

James Sidoti: And then with regard to acquisitions, do you expect to take a few quarters now to digest this before you go out and look for additional targets, or are you still actively pursuing acquisitions?

Michael Benstock: Good question. This is Michael. We're still pursuing acquisitions in the other businesses. We're not pursuing a TOG acquisitions at the moment. Obviously, we don't want, we don't need Dominic distracted. This is the first acquisition that TOG has done. So we'll let this one go before we consider anything else. And the rationale for this one was really to get into a new geography more than any reason and to kind of kickstart our ability to start selling offshore services. Jake is open to acquisitions. As he's told you many times, he kisses a lot of frogs along the way. There's plenty of opportunities out there.

We'll wait and see whether any of those come to fruition, but we are at any given time talking to multiple companies. We just have to find the right one and close it.

Michael Koempel: And I would just add, Jim, we ended the quarter in a very strong financial position well below covenant requirements. So even taking into account this acquisition, we still have significant cushion. So financially, we have the flexibility to continue to pursue another acquisition. As Michael said, we've got different management teams in different segments. So from an enterprise perspective, we certainly have the capacity with our capabilities to pursue it as well.

Operator: The next question comes from Michael Kupinski with NOBLE.

Jacob Mutchler: It's Jacob Mutchler on for Michael Kupinski this morning. Just to pick up where Jim left off there, on Branded Products, could you just talk a little bit on how the competitive landscape has evolved over the past year and are you seeing smaller competitors starting to struggle with higher costs? And could you just talk about some of the actions you've taken to manage input costs?

Michael Koempel: Sure, I think we're among the top 10 in a very large market. Our growth reflects the fact that not only are we growing with existing customers, but we're adding new customers as well. So certainly in times of tariffs and rising costs, we are certainly operate from a position of strength versus smaller competitors. And again, I think you see some of that in the results that we're in. In terms of us managing any type of cost pressure in that business, as we did with tariffs, a large portion of this business is priced order by order. And so we have the price elasticity to adjust pricing and absorb cost increases in cost inputs and still remain competitive.

We believe we offer a very strong end-to-end solution which provides value to our customers and we're able to price that accordingly. So overall, I think we continue, again, to be very competitive, particularly against the smaller competitors. And, again, I think you see that in both the top-line growth as well as the growth in EBITDA dollars.

Jacob Mutchler: Got you. And then with respect to integrating AI into the contact center operations, is that changing the economics of the customer contracts? Is it somewhat of a balancing act between productivity gains, but then also customers -- potential pricing pressures from customers as more competitors integrate AI into their workflows as well?

Dominic Leide: Yes, it's a great question. Obviously, AI is becoming more prevalent in every new customer conversation. And I think there's 2 different types of BPOs out there. There's BPOs that are kind of burying their head in the sand and not leaning into it, and then there's BPOs like TOG who have been leaning into it for about 2 years now, and looking for technologies and embracing technologies that can make our -- the client experience better, faster, and more efficient, as well as our agent experience better, faster, and more efficient. We've been doing that now for a couple of years across our entire business. We've implemented several AI technologies over the last couple of years.

And what it's doing is it's increasing the bandwidth of our agents. It's more agent augmentation solutions that we're leaning into. So our customers with the same budget, our agents are able to handle more interactions. They're able to provide first call resolution. So we're delivering better outcomes today than we've ever delivered in the past, which is providing better overall economics for our clients.

Operator: The next question comes from Frank DiLorenzo with Singular Research.

Frank DiLorenzo: Just to follow on to the AI question, has your AI focus helped with customer wins or customer retention? Do you have any data on that where you think it's actually helping you at the end of the day with the top line, bringing in some new customers or at least retaining or adding on to your current customer offerings?

Dominic Leide: Yes, great question and 100% yes. I mean, we have several documented wins of new logos where we won the business because of the AI and the automation that we can bring to the engagement. Even if the partner doesn't want the solution today, companies are looking for partners who have the solutions when they're ready for them. So we definitely have seen recent wins specifically because of our Guru iX, which is our suite of AI technologies. Thank you.

Frank DiLorenzo: Okay, great. Also, obviously in January, there's going to be a bit of a change with the political landscape in Washington and overall with the country. Do you see any impact on any of your businesses there, any changes to your approach? And kind of just to follow on to that, on the margin and cost side, is there any potential improvement next year, maybe possibly with tariff changes, anything along those lines?

Michael Benstock: Well, this is Michael. We have no idea what next year is going to look like. Anybody who says they know what next year is going to look like, don't believe them. We don't know what stalemates there are going to be between Congress and the executive branch and what that's going to create or what's going to be the impact on tariffs. We don't think there's going to be anything drastic that either Congress or by executive order could be put into place that could hurt us. We're hoping that nothing gets done in Washington for the next couple of years, and that's pretty much what we're banking on. And I think that's what most people are banking on.

Frank DiLorenzo: Okay, thanks. Just 1 other quick question on your geographic reach. You made a move this quarter. Going forward, is that going to be a new focus, possibly expanding upon that area, at least on the cost side of the business? Thanks.

Michael Koempel: Frank, you're referring, obviously, to our acquisition in the Philippines.

Frank DiLorenzo: Yes, yes.

Michael Koempel: I think from a geographic standpoint, I mean, at this time, we wouldn't be looking for another geography beyond the Philippines, not to say in a year or 3 years, whenever that could obviously change, but we feel like the Philippines certainly gives us that strong offshore footprint. It's a proven BPO space. And so I think geographically we'll be in these locations, I would say, for the foreseeable future.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Michael Benstock for any closing remarks.

Michael Benstock: I want to thank everybody for joining us today. We look forward to finishing out the year and giving you an update on our next call. In the meantime, feel free to reach out with any additional questions, and we look forward to seeing many of you at the upcoming conferences we'll be attending before year-end. Thanks again.

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

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