Good afternoon, everyone. Welcome to the Superior Group of Companies First Quarter 2020 Conference Call. With us today are Michael Benstock, the Company's Chief Executive Officer; and Andy Demott, its Chief Operating Officer, Chief Financial Officer and Treasurer.After the speakers’ opening remarks, there will be a Q&A session. This call is being recorded, and your participation implies that you agree with this. If you don't, then simply drop off the line.Now I will turn the conference call over to Ms. Hala Elsherbini, Vice President of Halliburton Investor Relations, who will read the Safe Harbor statement. Ms. Elsherbini, the floor yours, ma'am.

Thank you.This conference call may contain forward-looking statements about Superior Group of Companies within the meaning of the Securities Act of 1933, the Securities Exchange Act of 1934, the Private Securities Litigation Reform Act of 1995 and all rules and regulations issued thereunder. Such statements are based upon management's current expectations, projections, estimates and assumptions. Words such as will, expect, believe, anticipate, think, outlook, hope and variations of such words and similar expressions identify such forward-looking statements, which includes statements on the impact of COVID-19 on the company's business, including inventory, supply chain, manufacturing capacity at the company's own and contract manufacturing facilities, service capacity and customer demand.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 include, but are not limited to the following: the effect of the COVID-19 crisis on the U.S. and global markets, our business, operations, customers, suppliers and employees; general economic conditions in the areas of the United States in which the company's customers are located; changes in the market where uniforms are worn, where Promotional Products are sold and where call center services are used; the impact of competition; the company's ability to successfully integrate operations following consummation of acquisitions and the availability of manufacturing materials as well as the risks and uncertainties disclosed in the company's periodic filings with the Securities and Exchange Commission, including the company's Annual Report on Form 10-K for the year ended December 31, 2019, the Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and the 8-K filed recently.Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements made herein and are cautioned not to place undue reliance on such forward-looking statements. The company does not undertake to update the forward-looking statements contained herein to conform to actual results or changes in the company's expectations whether as a result of new information for future events or otherwise, except as required by law. Please note that all growth comparisons that management makes today will relate to the corresponding period in 2019, unless otherwise noted.And with that, I will turn the call over to Michael.

Thank you, Hala, for the very long Safe Harbor statement. Good afternoon, everyone, and thank you for joining us to discuss Q1 2020 and our forward business outlook.Before providing an update on the quarter, the SGC family would like to thank all the frontline workers for their heroic efforts and selfless dedication to others. In these tumultuous times, our hearts go out to those directly impacted by COVID-19. I would also like to expressly thank our SGC family, whose passion and tireless dedication on behalf of the company and our customers has been absolutely extraordinary.Today, I will discuss execution of our strategic response to the ongoing pandemic, share performance highlights and discuss the current macro environment, after which Andy will provide operational and financial details during his remarks. I will then have some closing thoughts on our outlook.As I stated in my April 2 communication with shareholders, our global operations performed exceptionally well during a time of extreme pressure and uncertainty, while safeguarding the health and safety of our team members. Through early intelligence from our team on the ground in China, we took an aggressive posture and evolved our business structure worldwide to a work from home environment at an unprecedented pace. We accomplished this while continuing to achieve exceptional service levels.Our IT support team was extremely proactive, executing business continuity measures to equip our teams appropriately. Deemed an essential business, we mobilized our global resources to meet an extraordinary level of customers' evolving demands. Clients are reaching out to us to help them support, protect and elevate their brands. They understand we are more than just a company that supplies their employees who are the face of their brand with their daily attire. We are a valuable brand partner. Additionally, our distribution and manufacturing team members demonstrated operational…

Thank you, Michael, and good afternoon, everyone.I hope you and your families are safe and healthy. As noted earlier, we filed our Form 10-Q for the quarter this morning, so I'll begin with a quick review of business process, investments and integrations summarize our financial highlights for the quarter and review in more detailed financial implications from the current COVID-19 crisis, as well as actions we've taken to strengthen our financial position.Over the last two years, we executed on several strategic initiatives that have transformed our operations with more efficiencies, innovation and processes that greatly enhanced our resiliency to manage through such unprecedented times. I cannot understate the superb responsiveness of our team serving our customers, while at the same time, successfully executing SAP implementations at both CID and HPI with minimal disruptions. Our integration of HPI and the rest of our employee ID group is also complete, and our teams are operating synergistically across our organization. We are experiencing a pause in construction at our Eudora, Arkansas warehouse due to weather delays and manufacturing delays related to the coronavirus. This has afforded us two quarters of deferment on our capital expense plans and another opportunity to conserve cash. But we do intend to get back on track. We plan technology investments as this is a key part of our modernization upgrades to support our shared resources strategy.Now on to our financial highlights. We closed the first quarter with consolidated net sales, up 8.9% to $94.2 million. BAMKO led the sales increase, contributing 6.7%; with our Uniforms and Related Products business contributing 1.6%; and The Office Gurus, our Remote Staffing Solutions segment, contributed 0.6%.At the segment level, Uniform's quarterly net sales were up by 2.4% to $60.1 million. Of note, ASC 606 revenue recognition accounting standard had a minimal impact…

Thanks, Andy.Overall, we are extremely impressed and proud of the level of planning and execution across our organization. From the beginning of this COVID-19 health care crisis, the decisions and actions taken by our teams have been guided by three principles: doing what's best for the health and well-being of our team members, supporting our customers as their needs evolve and maintaining our organization's financial health. Our teams respond with innovation, resolve and meet needs of our customers and communities. The global need for health care supplies and for courageous healthcare professionals is greater now than at any other time in our lives.Our company's philanthropic nature is an important part of our rich legacy. We are eager to support our health care workers and the communities in which we work and live in now more than ever. We have allocated at retail value inventory in PPE worth approximately $5 million for donations in support of our frontline caregivers. We have designated donations to our communities in Arkansas, Florida, Texas, New York, El Salvador and Haiti. We are proud of our ability to contribute in the fight against COVID-19. And while we are tightening our belts in many ways, we're also supporting our global employees and their families by providing the appropriate PPE paying employee insurance co-pays, and increasing hourly pay for our hourly distribution and manufacturing employees. As we watch crisis developments unfold and as local authorities phase in return to work guidelines, we will take a measured approach, lagging behind to reduce as much health risk to our employees as possible.We're also actively implementing strict health safety measures at all locations to protect our workforce before returning to work. In addition to providing PPE for each employees, protocols include thorough and frequent sanitizing procedures through work -- throughout the…

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions].And our first question comes from Kevin Steinke of Barrington Research. Please go ahead.

I hope you're all well. So just thinking about the Uniform segment specifically here to start off with, it seems like at least for the second quarter, you should -- the businesses are going to balance themselves out pretty favorably to where you might not see a dramatic fall off. You've got strength in the health care business, strength in sales to your essential customers, and then that's offset by some of the more economically sensitive areas. So I mean, is that a fair way to look about it, maybe some protection to the second quarter in the Uniform segment? And then, I mean, I guess that kind of buys you some time until we get closer to a recovery.

I think you found the midpoint of all the different stress testing and models that we've done, Kevin that is how we see it. And I think you're pretty accurate in your assessment.

Okay. All right. That's good. Do you think the -- I mean it's hard to tell, I guess, it's -- but do you think -- you've got the WonderWink launch still coming in the third quarter. Do you think from what you're seeing now or is it too early to tell that there's continued lags in the health care demand and in Fashion Seal Healthcare and CID, excluding that WonderWink, the laundry friendly launch?

Let's take it in its pieces here. Fashion Seal Healthcare on the institutional side, I think will do quite well in the future. I can't speak specifically the third quarter or what kind of -- when this thing is over and everybody goes back to work and elective surgeries begin again, what kind of demand is going to be for reusable products. But there was a mention by Vice President, Pence, on one of the channels last week or one of the press --

Briefing.

Thank you. Briefings that he did. Lost for words, not often. With respect to the fact that shouting out to the reusable industry for all that they're doing and that there needs to be a movement as much of this product as you're going to use in the future. And as often as you're going to change this product in the hospital while they're in a hospital, whether it's an isolation gown, whether it's a scrub no matter what it is, even patient apparel. There's going to be a higher rate of changing -- making people change their clothes more often during the day. That bodes well for us. That's our business.Keep in mind, too, that most of those products for Fashion Seal Healthcare are made near shore. So our turnaround time isn't that great. If I were trying to react to an off, something that was being made in Asia or Africa or wherever, I'd have a five-, six-month turnaround of that product, it wouldn't really help me in third quarter. So we're thinking Fashion Seal Healthcare has got a pretty good runway to sustain through those quarters.The CID's business. CID is making a lot of deals on a lot of different levels and a lot of different channels. We're worried about the independent retailers. And particularly the smaller ones and how they're going to come out of this. We're doing all that we can to help support them. They're important to us. They're not the lion's share of our sales. But that's how the company got started, and those were -- a lot of those people were our very first customers at CID, and they're great brand ambassadors for us. But my fear is that many of them won't make it. And so we won't have them as…

Right, right. So the increase, the large increase in PPE sales, that's going to benefit BAMKO and at least they'll have a strong second quarter because of that. And then afterwards, unless we somehow get a quick snapback in large events, we should expect to see that fall off in the second half of the year, I guess?

I would expect some of it will fall off, some people are going to trail behind and then realize they got enough to get started, but not enough for replenishment. It's important to note, and maybe I should have put it in the script. But we've sold over $60 million of PPE equipment, which we're trying to give divisional credit for it. And you could spread it out between our Uniform divisions at BAMKO with the lion's share of it being at BAMKO. But our Uniform divisions have done quite well. And quite frankly, everybody's collaborating with everybody to make it happen because of the different source of supply and the different relationships we have in the Uniform Group and in the Promotional Group.

Right. Okay. So in The Office Gurus, you mentioned you expect to be back to pre-virus operating levels by the end of the second quarter. What gives you kind of a line of sight to being able to return to those levels?

Good question. Our billable agent is working 86%. And the reason why we're not working more is because there are some customers we have who needed less seats than they had before because their businesses are down. There are some customers who didn't need seats at all. For instance, we have a travel customer who didn't need seats at all, a smaller travel customer.And there are some customers who need more seats, but the net effect of that is 14% of our workforce is not currently engaged at home. A small percentage of those are people who can't work from home. They don't have Internet. They -- their conditions at home are too crowded for them to work from home in a call center-type of environment, a quiet environment they need. But here's the good news. We've already run classes for a couple of customers, new customers and expanding customers for new at-home agents that they want going forward.So we believe that most people on this call have met Dominic Leide, the President of that business. He says, by the end of second quarter, we'll be there. And so far, he hasn't been wrong in any of his predictions over the years. And quite frankly, it might even happen sooner. The line of sight of that is that we have a lot of customers who want us to put on more seats now, and we're doing so. And we have customers that are telling us who have either had to reduce or back off completely that as soon as this is over, they're coming back. So feeling very, very good about that.

Okay. Good. Just following up on PP&E. What sort of margin do those sales generate? I mean, should we think about it as kind of a normal margin in line with the Promotional Products? Or what -- is that going to have any impact one way or the other?

I would say the larger deals tend to be at margins, maybe even a little bit less than the Promotional business. But keep in mind that we don't have to handle any of these, that a lot of these are full containers. A lot of these we took prepayments on, so we're not chasing money on them. So we can afford to take it at lower margins. So we've discussed this a lot of times that we don't chase gross margins, we chase net margins. And we really have modeled all these deals out to make sure in the end that we're making the kind of money we deserve, while at the same time, making sure we're not overcharging anybody.And I would say that the margins will be slightly higher for BAMKO on these items than they have been in the past.

Okay. All right. Got it. I think you mentioned that the new opportunity pipeline is a strength or actually remains a strength, I guess, your ability to continue sourcing and very effectively would be one point in your favor, at least. You mentioned others might be price gauging. But just maybe talk about the new opportunity pipeline you have now and that might come to you because of this crisis, I guess, across all of your businesses.

Yes. You got a few hours, I'll give it to you -- I'll give you the short version. We've gone into strategic planning in the last week or so and started in each division some higher-level strategic planning, and we've done do just that, where are the opportunities? Where our competitors fail? And what opportunities will we have as a result and how has the world changed and so on and so forth.We'll start with our Uniform business, HPI. HPI's customers have been extremely impressed with the level of service they've gotten from us during this crisis. I think we built a lot of loyalty. We had loyalty, it's even stronger than ever. We have seen some competitors of HPI's that have not been able to service their essential customers, the people who remain in business. And some of those people have come to us, and we've been able to help here and there. But our first mission was to take care of our existing customer base. We certainly have touched more of HPI's prospect list by selling them PPE or offering them PPE than we ever would have imagined in this shorter time, that we've been able to do while having access to PPE. Many of the calls actually came to us. We didn't have to reach out. They came to us and said, look, our present uniform supplier can't give us PPE, do you have it? And we turned a lot of stones over to make that happen for them on the PPE side. So there's a certain amount of gratitude for having done that.I think when their business comes back -- fortunately, our biggest -- we have a little bit of airline business, JetBlue and Frontier, Spirit Air, we don't have a 1% market share. But fortunately,…

Okay. All right. Got it. So you mentioned some delays in the Eudora facility filled out. What does that do for your capital expenditure plans for the year, not only that, but maybe just trimming back or delaying in other areas as well?

Yes. Kevin, we -- that particular project, the delay in that by probably one quarter, 1.5 quarter, maybe two. Probably we'll reduce CapEx expense this year, around $1.5 million to $2 million. Additionally, we are taking a very hard look at all of our capital expenditures for items that were things that -- if there wasn't a payback relatively soon, we've delayed some of that. I would expect that where we originally budgeted somewhere around $12 million, $13 million for CapEx, that we probably will spend somewhere around $8 million, $9 million would be my expectation.

Okay. All right. And then you had some really nice operating cash flow in the first quarter, you were able to pay down some debt. You've talked about the concept before if sales are coming down in this type of environment, maybe that doesn't happen right away in the second quarter because some of the items you talked about. But if sales do indeed come down later in the year, does -- you've talked about the balance sheet starts to turn to cash and you start to generate more cash flow temporarily. I mean, could you see an opportunity to pay down more debt in a scenario like that?

Yes, I do see that opportunity, Kevin. I think that our balance sheet typically, whenever you're in an economic downturn, it does start turning back to cash. With the sales, I mentioned in my discussion with some of the significant sales at CID on what was excess inventory during the month of April, that, that will generate -- that's not inventory that we're going to replace. We just had -- we had more than we needed to have. So there will be some significant cash from operations for that. The part that you really can't evaluate effectively yet, I touched on it with the fact that we added another $700,000 in bad debt reserves. Some of your nonessential businesses that aren't operating right now are going to slow down paying for the receivables that they have. That will have some drag on cash flows, I would expect.Your guess on how much that is, right now is probably about as good as mine. But then at the bulk of our business, where Mike talked about PPE and a lot of those, we have required some substantial prepayments on those goods. So that we're not in a position of having to tie up a lot of our liquidity to be able to service that business. So I expect, as you go through the year, that we will continue to pay down debt. As you get into the third and fourth quarter and business slows down a bit more. I mean, you could see us -- it's potential there that we could borrow a little bit more towards the end of the year. But I think we're in a good position overall.

Okay. Got it. And then, Andy, I think all the various cost-saving measures you outlined, it totaled about $8 million annual. Is that correct?

It was $8.5 million.

$8.5 million, okay. Are there other things potentially -- I mean, if you had to cut further, is there other -- are there other levers you can pull? Hopefully, it doesn't get to that point but in your --

Yes, there are other things that we talked about generally that were discretionary spending. Obviously, our travel expenses are down significantly. Our marketing expense in certain parts of our business will be down significantly. There are other things that will generate cost reductions in addition to what we listed out specifically in that area.

Okay. I think lastly, you mentioned upfront, Michael, how the investments of the last 18 months have been critical to what you're doing today, what you've kind of been able to accomplish or how you're able to manage through this situation. Can you just maybe touch on some of the benefits of those investments, not only in the near term, but longer-term as you see it?

Sure. I'll start with the leadership changes that we made in combining HPI and Superior I.D. together, finally, on 1 SAP computer system with 1 set of leaders, both the sales and executive leadership and everybody underneath them, we were able to achieve a great deal of economies and operating efficiencies. And going forward, as 1 unit as opposed to 2 fragmented units after so many years is really refreshing. And I think we've seen the benefit of that already with the opportunities that they've been working on and the way they have succeeded. And if you look at -- having done the same thing with Fashion Seal Healthcare and CID, and that really has been an incredible collaborative effort on every single level, sales, marketing, everything, operations, sourcing. It has been fabulous to watch. It's a very dynamic group of people, stronger than they've ever been, feel very good about that. And also, remember, we went live in SAP in Feb?

Feb.

February. And I'm so glad we got it done before this. And the fact of the matter is, while things slowed down at the very beginning of this, a lot of people are already working from home and are given more time to train. And we've got a very, very dedicated workforce. Our sourcing groups, some of the changes we made there with the collaboration between BAMKO sourcing group and our Uniform sourcing group, has certainly paid dividends.There are so many different levels. We've closed Costa Rica last year, that was doing web development for us and shifted all that to India, which took most of last year. And the incredible resources we've had, and we've been able to get people up on, what we call BAMKOM, which is our e commerce solution. And being able to get all of our customers up on that, and I think we have -- I think we have two or three customers left, then we're basically done with that project. At much lower cost and really at a higher degree, I think, of excellence than we were able to achieve before. These are just some of the things. There have been so many I just can't make them all.Andy, you want to jump in and --

I think we're also -- with the new warehouse project in Eudora, there were -- it will provide significant improvement in our efficiency and ability to handle the volume for the Uniform business. And we've also combined a lot of the distribution capabilities of the uniform sector to be able to help serve BAMKO in some of the markets that Michael referred to earlier with some of the home delivery companies and other areas like that, that we carry and service that inventory for them now where they weren't capable of doing that in the past. I think all of those things are paying significant dividends.

Okay. Great. And just lastly, I'll say thanks for putting out that shareholder letter in early April. I thought that was very useful and very thorough in kind of framing what you're seeing in the market and relative to your business in these extraordinary times. So thank you and thanks for taking all the questions.

Thank you, Kevin, and be safe.

You too.

The next question we have will come from Mike Disler of [indiscernible].

I hope you all are well. As a long and multi-decade holder and accumulator, a multigenerational holder with your family, Mr. Benstock, and as a long-term former textile guy, I want to laud the company's passion and agility in these trying times. You guys are really putting out a letter, but is the least of it, although Mr. Steinke answered most of my questions, you -- he directed them for you. I just want to say that I don't think there are many companies that speak with such direct clarity to their fundamental issues as you all do, and I'm really proud to be a shareholder as many of my cohorts. The only thing I wanted to ask in retrospect is, since that 1977 mark, and this does not reflect on me, it certainly makes no difference in my lifestyle at all, my only concern is on a go-forward, meaning three- to five-year basis, the choice of capital allocation, whereby you go from $0.10 a quarter to $0, even General Electric is paying $0.01, it puts you on a different lift in terms of access to capital down the road. So my question really is, not did the Board waive this, clearly, they did. Is it -- was it a covenant decision with debt? Or was it merely just a Board decision to say, let's suspend rather than go to $0.01 a share? I'm just only looking for the next three-, five-, 10-year period in terms of your ability to access capital markets.

Sure. I think that as we went through the process and discussed it really with the significant amount of uncertainty in our markets right now, I mean, that we felt it was best right now to go with the suspension route. We did, I guess, temper that a little bit, probably temper that a little bit, with the language that we, the company and the Board, certainly recognize that dividend is an important part of our capital allocation and value proposition for our shareholders.And I would expect in the long-term that we will be back paying a healthy dividend. It's just right -- it's not a specific covenant issue at this point. We're in compliance with all of our covenants. I mean, I think that one of the factors that the bank looks at whenever they're looking at where we're at, and when they came back with their three months deferral on principal, they looked at all the different factors that we were -- and steps that we were taking at that point, where we were talking about suspending the dividend for a period of time, management taking pay cuts, employees taking pay cuts, Board of Directors taking reductions in their fees that everybody was sharing in for the time being, and that gave them comfort.And it just puts us on solid footing, should we need to do anything else with the bank. I just think it's prudent with the level of uncertainty right now to go this way. I mean we'll certainly evaluate that after we get out of this quarter and see where we're at. And hopefully, this thing turns out that the economy starts improving a little quicker, and there's not a deep recession coming out of this, but we just don't know right now.

Right. And just to follow-up, just to say, I have no objection personally at all to your decision, I'm only looking towards the company, what would inure to the benefit of the company for the next 5 to 10 years in terms of that, where you're just on a -- you end up being on a different lift as far as those in the, where I live up here in the New York area, put you guys on. And I just don't want that -- I'm sure you all considered that, and it's terrific. And I know it's -- everything is a drop in the bucket, but it's not $150,000 a quarter on a dividend at $0.01, is a bunch of salaries or a bunch of co-pays for your employees. And I laud everything you've done and I don't want to dismiss it and sound like a petty fellow from New York. I really just called to make sure that all the eyes were dotted and teeth were crossed, and that's it. I don't mean to sound petty in any manner. So thank you all for the hard work and for protecting your employees, your customers, all the people. And please stay well and keep doing the job you're doing. And we really appreciate it.

Mike, thank you very much. I don't think we have any more questions at this point. Do we?

No, no, sir. I was going to go ahead and conclude, sir. I hand it over to you, Mr. Benstock.

Great. I stand here, it's 100 years in, I've been doing this for 41, my father, God bless him, he's still in good enough health to worry about the company every single day. His 90th birthday is actually on our 100th-year anniversary on May 7. We're scaling way back in our celebrations, obviously. We don't want to spend the money and we don't want to do large gatherings. So nonetheless, I think it's quite an achievement for a company to have achieved what we have over the years. We're very proud of our heritage. We're very proud of our shareholder base and our customers, of course, our employees. This is the most extraordinary group of employees, and I have to tell you that I knew how extraordinary they were before, but I never really understood how much they had to give as much as they've given during this crisis, and my hat goes off to all of them.I thank all of you for your trust and your support in the company. We look forward to updating you on the second quarter 2020 results in July. Please stay healthy.

And we thank you, sir, and to the rest of the management team for your time also today. The conference call has now concluded. At this time, you may disconnect your lines. Thank you, again, everyone. Take care, and have a great day.