Superior of panies(SGC) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements and condensed notes for the periods ended June 30, 2025 and 2024 Item 1. Financial Statements This section presents the unaudited consolidated financial statements, including comprehensive income, balance sheets, shareholders' equity, cash flows, and related condensed notes Consolidated Statements of Comprehensive Income (Unaudited) This statement details net sales, net income, and earnings per share for the three and six months ended June 30, 2025 and 2024 Three Months Ended June 30, 2025 vs 2024: | Metric | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Net sales | $144,045 | $131,736 | $12,309 | 9.3% | | Net income | $1,551 | $600 | $951 | 158.5% | | Basic Net income per share | $0.10 | $0.04 | $0.06 | 150.0% | | Diluted Net income per share | $0.10 | $0.04 | $0.06 | 150.0% | | Cash dividends per common share | $0.14 | $0.14 | $0.00 | 0.0% | Six Months Ended June 30, 2025 vs 2024: | Metric | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Net sales | $281,142 | $270,578 | $10,564 | 3.9% | | Net income | $793 | $4,512 | $(3,719) | (82.4%) | | Basic Net income per share | $0.05 | $0.28 | $(0.23) | (82.1%) | | Diluted Net income per share | $0.05 | $0.27 | $(0.22) | (81.5%) | | Cash dividends per common share | $0.28 | $0.28 | $0.00 | 0.0% | Consolidated Balance Sheets (Unaudited) This statement presents the Company's financial position, including assets, liabilities, and shareholders' equity, as of June 30, 2025, and December 31, 2024 Consolidated Balance Sheet Highlights (in thousands): | Item | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | | :---------------------------------- | :--------------------------- | :----------------------- | :-------------------- | | Total assets | $423,256 | $415,134 | $8,122 | | Total liabilities | $231,180 | $216,278 | $14,902 | | Total shareholders' equity | $192,076 | $198,856 | $(6,780) | | Inventories | $106,597 | $96,675 | $9,922 | | Long-term debt (less current maturities) | $93,720 | $80,410 | $13,310 | Consolidated Statements of Shareholders' Equity (Unaudited) This statement outlines changes in shareholders' equity, including net income, dividends, and share repurchases, for the six months ended June 30, 2025 Shareholders' Equity Changes (Six Months Ended June 30, 2025, in thousands): | Item | Amount (in thousands) | | :------------------------------------ | :-------------------- | | Balance, January 1, 2025 | $198,856 | | Common shares repurchased and retired | $(7,926) | | Cash dividends declared | $(4,515) | | Net income | $793 | | Change in currency translation adjustment | $2,103 | | Balance, June 30, 2025 | $192,076 | Consolidated Statements of Cash Flows (Unaudited) This statement summarizes cash flows from operating, investing, and financing activities for the six months ended June 30, 2025 and 2024 Cash Flow Summary (Six Months Ended June 30, in thousands): | Activity | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | | :-------------------------------- | :------------------ | :------------------ | :-------------------- | | Net cash provided by operating activities | $2,946 | $16,300 | $(13,354) | | Net cash used in investing activities | $(2,716) | $(1,974) | $(742) | | Net cash provided by (used in) financing activities | $936 | $(20,013) | $20,949 | | Net increase (decrease) in cash and cash equivalents | $2,260 | $(6,522) | $8,782 | | Cash and cash equivalents, end of period | $21,026 | $13,374 | $7,652 | Condensed Notes to the Consolidated Financial Statements (Unaudited) These notes provide detailed explanations for business segments, revenue, EPS, debt, contingencies, inventories, income taxes, and other financial details Note 1 - Description of Business and Basis of Presentation This note describes the Company's operating segments and the basis of presentation for the unaudited financial statements, including new accounting pronouncements - Superior Group of Companies, Inc. operates three segments: Branded Products, Healthcare Apparel, and Contact Centers[26][27][28] - The financial statements are unaudited and prepared in accordance with GAAP and SEC rules, with certain information condensed or omitted[29] - The Company is evaluating new accounting pronouncements (ASU 2023-09 and ASU 2024-03) for their impact on disclosures, with ASU 2023-09 effective for fiscal years beginning after December 15, 2024, and ASU 2024-03 for annual periods beginning after December 15, 2026[32][33] Note 2 - Operating Segment Information This note provides detailed financial information for the Company's three operating segments: Branded Products, Healthcare Apparel, and Contact Centers - The Company manages and reports three operating segments: Branded Products, Healthcare Apparel, and Contact Centers[35][36][37] - Segment EBITDA is the primary profitability metric used by the Company's CEO for evaluating segment performance and resource allocation[39] Segment Net Sales (in thousands): | Segment | Q2 2025 (in thousands) | Q2 2024 (in thousands) | H1 2025 (in thousands) | H1 2024 (in thousands) | | :---------------- | :------------------- | :------------------- | :------------------- | :------------------- | | Branded Products | $92,647 | $81,296 | $179,121 | $168,364 | | Healthcare Apparel | $28,253 | $26,592 | $55,516 | $55,829 | | Contact Centers | $23,977 | $24,832 | $48,202 | $48,384 | | Consolidated | $144,045 | $131,736 | $281,142 | $270,578 | Segment EBITDA (in thousands): | Segment | Q2 2025 (in thousands) | Q2 2024 (in thousands) | H1 2025 (in thousands) | H1 2024 (in thousands) | | :---------------- | :------------------- | :------------------- | :------------------- | :------------------- | | Branded Products | $8,979 | $6,724 | $14,726 | $16,671 | | Healthcare Apparel | $792 | $1,277 | $2,311 | $3,912 | | Contact Centers | $1,640 | $3,181 | $4,422 | $6,127 | | Total Segment EBITDA | $6,064 | $5,559 | $9,607 | $15,190 | Note 3 - Net Sales This note details revenue recognition policies for each segment and provides data on bill-and-hold arrangements, contract assets, and liabilities - Revenue for Branded Products and Healthcare Apparel is recognized when performance obligations are satisfied, either over time for goods with no alternative use or when goods are transferred to the customer[42] - Revenue for Contact Centers is recognized as services are delivered[43] Sales under Bill-and-Hold Arrangements (in millions): | Period | 2025 (in millions) | 2024 (in millions) | | :-------------------- | :----------------- | :----------------- | | Three Months Ended June 30 | $11.6 | $9.7 | | Six Months Ended June 30 | $19.5 | $13.6 | Contract Assets and Liabilities (in thousands): | Item | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------- | :--------------------------- | :----------------------- | | Accounts receivable | $94,194 | $95,092 | | Current contract assets | $53,762 | $51,688 | | Current contract liabilities | $2,078 | $2,833 | Note 4 - Net Income Per Share This note presents the calculation of basic and diluted net income per share, including weighted average shares outstanding Net Income Per Share and Weighted Average Shares Outstanding: | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------------------------ | :------ | :------ | :------ | :------ | | Net income (in thousands) | $1,551 | $600 | $793 | $4,512 | | Weighted average shares outstanding - basic | 14,813,984 | 16,221,073 | 15,206,819 | 16,124,553 | | Dilutive common stock equivalents | 287,958 | 548,224 | 366,873 | 486,822 | | Weighted average shares outstanding - diluted | 15,101,942 | 16,769,297 | 15,573,692 | 16,611,375 | | Basic Net income per share | $0.10 | $0.04 | $0.05 | $0.28 | | Diluted Net income per share | $0.10 | $0.04 | $0.05 | $0.27 | Note 5 - Long-Term Debt This note details the composition of the Company's long-term debt, including revolving credit and term loans, and compliance with debt covenants Debt Composition (in thousands): | Item | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :--------------------------- | :----------------------- | | Revolving credit facility | $38,000 | $22,000 | | Term loan | $61,875 | $64,688 | | Total Debt | $99,345 | $86,035 | | Long-term debt less current maturities | $93,720 | $80,410 | - The weighted average interest rate on outstanding borrowings under the Credit Facilities was 5.6% as of June 30, 2025[53] - The Company was in compliance with its fixed charge coverage ratio (at least 1.25 to 1.0) and net leverage ratio (not to exceed 4.0 to 1.0) as of June 30, 2025[55] Note 6 - Contingencies and Geographic Supply Considerations This note discusses acquisition-related contingent liabilities and the Company's global sourcing and manufacturing considerations, including tariff impacts - The fair value of Guardian acquisition-related contingent consideration payable was $1.0 million as of June 30, 2025, expected to be paid in Q3 2025[56] - The estimated fair value of 3Point acquisition-related contingent consideration payable was $1.2 million as of June 30, 2025, with $0.9 million expected in Q2 2026[57] - The Company sources the majority of its principal fabrics from China and manufactures/sources apparel in countries including Haiti, China, Madagascar, Vietnam, Pakistan, Bangladesh, and the United States[59][60] - Higher and/or new tariffs imposed by the U.S. government in 2025 are being monitored, and the Company is evaluating sourcing alternatives[62] Note 7 - Inventories This note provides a breakdown of the Company's inventory, including finished goods, work in process, and raw materials Inventories (in thousands): | Item | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :---------------- | :--------------------------- | :----------------------- | | Finished goods | $88,072 | $81,621 | | Work in process | $1,816 | $684 | | Raw materials | $16,709 | $14,370 | | Total Inventories | $106,597 | $96,675 | Note 8 - Income Taxes This note details income tax expense, effective tax rates, and the impact of earnings mix and new tax legislation Income Tax Expense and Effective Tax Rate: | Period | Income Tax Expense (in thousands) | Effective Tax Rate | | :-------------------- | :------------------------------ | :----------------- | | Three Months Ended June 30, 2025 | $285 | 15.5% | | Three Months Ended June 30, 2024 | $50 | 7.7% | | Six Months Ended June 30, 2025 | $137 | 14.7% | | Six Months Ended June 30, 2024 | $730 | 13.9% | - The effective tax rates are primarily impacted by the variability in the mix of earnings across foreign and domestic operations and favorably by compensation plans[66][67] - The Company is evaluating the impact of the recently enacted One Big Beautiful Bill Act (OBBBA) on its consolidated financial statements, with provisions effective from 2025 through 2027[68] Note 9 - Other Information This note provides details on the allowance for doubtful accounts receivable and the composition of other current liabilities Allowance for Doubtful Accounts Receivable (in thousands): | Item | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------- | :--------------------------- | :----------------------- | | Balance at the beginning of year | $3,101 | $4,237 | | Credit loss (reversal) expense | $2,100 | $232 | | Write-Off of Accounts Receivable | $(510) | $(1,368) | | Balance at the end of the period | $4,691 | $3,101 | Other Current Liabilities (in thousands): | Item | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :---------------------------------------- | :--------------------------- | :----------------------- | | Salaries, wages, commissions and other compensation | $12,208 | $18,544 | | Contract liabilities | $2,078 | $2,833 | | Accrued rebates | $1,236 | $1,593 | | Current operating lease liabilities | $4,681 | $4,572 | | Customer deposits | $8,816 | $7,750 | | Other accrued expenses | $12,591 | $9,075 | | Total Other current liabilities | $41,610 | $44,367 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the Company's financial condition and results of operations, covering business segments, economic impacts, performance, liquidity, and accounting estimates Business Outlook The Company's business outlook is shaped by its three distinct operating segments: Branded Products, Healthcare Apparel, and Contact Centers Branded Products This segment focuses on customized merchandising solutions, promotional products, and branded uniform programs across diverse industries - The Branded Products segment produces and sells customized merchandising solutions, promotional products, and branded uniform programs[73] - This segment serves a wide range of industries, including retail chain, food service, entertainment, technology, and transportation[73] - The Company believes synergies within this segment will create opportunities to cross-sell products to new and existing customers[73] Healthcare Apparel This segment manufactures and sells a wide range of healthcare apparel, including scrubs and lab coats, primarily to the U.S. market - The Healthcare Apparel segment manufactures and sells a wide range of healthcare apparel, such as scrubs, lab coats, protective apparel, and patient gowns[74] - Products are sold to healthcare laundries, dealers, distributors, and retailers primarily in the United States[74] - The Company expects continued demand for its signature marketing brands, including Fashion Seal Healthcare® and Wink®, to provide growth opportunities[74] Contact Centers This segment provides outsourced nearshore business process outsourcing and call-center support services to North American customers - The Contact Centers segment (The Office Gurus) provides outsourced, nearshore business process outsourcing, contact, and call-center support services to North American customers[75] - Operations are located in El Salvador, Belize, Dominican Republic, the United States, and Jamaica (until its closure on June 15, 2025)[75] - The Office Gurus is positioned for continued growth due to its ability to offer comparable service to U.S. counterparts at a fraction of the price[75] Global Economic and Political Conditions The Company monitors global economic and political conditions, including new tariffs and expiring trade agreements, which pose risks to operations and profitability - Higher and/or new tariffs impacting certain sources of the Company's materials and production were imposed by the U.S. government during 2025[76] - U.S. trade agreements/preferences with Africa (AGOA) and Haiti (HOPE, HELP) are set to expire on September 30, 2025, if not renewed or extended[76] - Prolonged disruptions from global economic and political instability could negatively affect demand, revenue, profitability, costs, stock price, and asset valuation[77] Results of Operations This section details financial performance for Q2 and H1 2025, analyzing changes in net sales, gross margin, expenses, interest, taxes, net income, and EBITDA by segment Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024 Q2 2025 saw increased net income and EBITDA, primarily from Branded Products, despite Contact Centers sales decline and Healthcare Apparel margin decrease due to tariffs Net Income Net income for Q2 2025 significantly increased, primarily driven by higher net sales and gross margins in the Branded Products segment - Net income for the three months ended June 30, 2025, increased by 158.5% to $1.6 million, up from $0.6 million in the prior year period[81] - The increase in net income was primarily driven by higher net sales and gross margins in the Branded Products segment[81] EBITDA EBITDA for Q2 2025 increased, primarily due to higher net sales and gross margins within the Branded Products segment - EBITDA for the three months ended June 30, 2025, increased by 9.1% to $6.1 million, up from $5.6 million in the prior year period[82] - The EBITDA increase was primarily due to higher net sales and gross margins in the Branded Products segment[82] Net Sales Consolidated net sales for Q2 2025 increased, driven by Branded Products, while Contact Centers experienced a decline - Consolidated net sales increased by 9.3% ($12.3 million) to $144.0 million for the three months ended June 30, 2025[83] Net Sales by Segment (Three Months Ended June 30, in thousands): | Segment | 2025 (in thousands) | 2024 (in thousands) | $ Change (in thousands) | % Change | | :---------------- | :------------------ | :------------------ | :---------------------- | :------- | | Branded Products | $92,647 | $81,296 | $11,351 | 14.0% | | Healthcare Apparel | $28,253 | $26,592 | $1,661 | 6.2% | | Contact Centers | $23,977 | $24,832 | $(855) | (3.4%) | - Branded Products sales increase was driven by $8.0 million in timing of orders, $3.8 million organic expansion with existing accounts (including tariffs), and $3.1 million from the 3Point acquisition[84] - Contact Centers net sales declined due to macroeconomic headwinds, client downsizing, and attrition outpacing new customer acquisitions[86] Gross Margin Consolidated gross margin rate for Q2 2025 remained stable, with Branded Products improving and Healthcare Apparel declining due to tariffs - Consolidated gross margin rate was 38.4% for Q2 2025, slightly down from 38.5% for Q2 2024[87] - Branded Products gross margin rate increased to 35.6% (from 34.6%) due to customer sales mix[87] - Healthcare Apparel gross margin rate decreased to 35.5% (from 38.4%) due to higher cost of goods, including recently enacted higher tariff costs[88] Selling and Administrative Expenses Consolidated S&A expenses as a percentage of net sales decreased in Q2 2025, with segment-specific increases in Branded Products and Contact Centers - Consolidated selling and administrative expenses as a percentage of net sales decreased to 36.3% for Q2 2025 from 36.9% for Q2 2024[90] - Branded Products S&A expenses increased by $2.5 million (10.7%) due to higher employee-related costs, an adjustment to credit loss reserves, and increased costs from the 3Point acquisition[91] - Contact Centers S&A expenses as a percentage of net sales increased to 48.4% (from 42.4%) primarily due to an increase in credit loss expense[93] Interest Expense, Net Net interest expense decreased in Q2 2025 due to a lower weighted average interest rate on outstanding borrowings - Interest expense, net decreased to $1.3 million for Q2 2025 from $1.5 million for Q2 2024, driven by a lower weighted average interest rate (5.6% vs 6.5%)[94] Income Taxes Income tax expense and the effective tax rate increased in Q2 2025, influenced by the mix of foreign and domestic earnings - Income tax expense increased to $0.3 million for Q2 2025 from $0.1 million for Q2 2024[95] - The effective tax rate was 15.5% for Q2 2025, up from 7.7% for Q2 2024, primarily impacted by the variability in the mix of earnings across foreign and domestic operations[95] Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024 H1 2025 saw a significant decrease in net income and EBITDA, primarily due to higher S&A expenses and lower margins, despite overall net sales growth Net Income Net income for H1 2025 significantly decreased due to higher S&A expenses in Branded Products and Contact Centers, and lower Healthcare Apparel margins - Net income for the six months ended June 30, 2025, decreased by 82.4% to $0.8 million, down from $4.5 million in the prior year period[99] - The decrease was primarily due to higher selling and administrative expenses in Branded Products and Contact Centers, and lower margins in Healthcare Apparel[99] EBITDA EBITDA for H1 2025 decreased significantly, primarily due to higher S&A expenses in Branded Products and Contact Centers, and lower Healthcare Apparel margins - EBITDA for the six months ended June 30, 2025, decreased by 36.8% to $9.6 million, down from $15.2 million in the prior year period[100] - The EBITDA decrease was primarily due to higher selling and administrative expenses in Branded Products and Contact Centers, and lower margins in Healthcare Apparel[100] Net Sales Consolidated net sales for H1 2025 increased, driven by Branded Products, while Healthcare Apparel and Contact Centers experienced slight declines - Consolidated net sales increased by 3.9% ($10.6 million) to $281.1 million for the six months ended June 30, 2025[101] Net Sales by Segment (Six Months Ended June 30, in thousands): | Segment | 2025 (in thousands) | 2024 (in thousands) | $ Change (in thousands) | % Change | | :---------------- | :------------------ | :------------------ | :---------------------- | :------- | | Branded Products | $179,121 | $168,364 | $10,757 | 6.4% | | Healthcare Apparel | $55,516 | $55,829 | $(313) | (0.6%) | | Contact Centers | $48,202 | $48,384 | $(182) | (0.4%) | - Branded Products sales increase was attributable to $8.0 million in timing of orders, $7.8 million organic expansion (including tariffs), and $6.2 million from the 3Point acquisition, partially offset by volume decreases[102] - Healthcare Apparel net sales decreased due to volume decreases in institutional apparel within existing customer accounts[103] Gross Margin Consolidated gross margin rate for H1 2025 decreased, primarily due to lower margins in Healthcare Apparel and Branded Products - Consolidated gross margin rate was 37.6% for H1 2025, down from 39.2% for H1 2024, primarily driven by Healthcare Apparel and Branded Products[105] - Branded Products gross margin rate decreased to 33.9% (from 35.6%) due to sourcing mix resulting in higher product costs and lower pricing to existing customers[106] - Healthcare Apparel gross margin rate decreased to 36.3% (from 38.9%) due to higher cost of goods, including recently enacted higher tariff costs[107] Selling and Administrative Expenses Consolidated S&A expenses as a percentage of net sales increased in H1 2025, with segment-specific increases in Branded Products and Contact Centers - Consolidated selling and administrative expenses as a percentage of net sales increased to 36.4% for H1 2025 from 36.0% for H1 2024[109] - Branded Products S&A expenses increased by $2.6 million (5.6%) due to higher employee-related costs, an adjustment to credit loss reserves, and increased costs from the 3Point acquisition[110] - Contact Centers S&A expenses as a percentage of net sales increased to 46.7% (from 43.3%) primarily due to an increase in credit loss expense[111] Interest Expense, Net Net interest expense decreased in H1 2025 due to a lower weighted average interest rate on outstanding borrowings - Interest expense, net decreased to $2.5 million for H1 2025 from $3.3 million for H1 2024, driven by a lower weighted average interest rate (5.6% vs 6.6%)[113] Income Taxes Income tax expense decreased in H1 2025, with the effective tax rate influenced by the mix of foreign and domestic earnings and compensation plans - Income tax expense decreased to $0.1 million for H1 2025 from $0.7 million for H1 2024[114] - The effective tax rate was 14.7% for H1 2025, up from 13.9% for H1 2024, primarily impacted by the variability in the mix of earnings across foreign and domestic operations and compensation plans[114] Liquidity and Capital Resources The Company relies on cash, operating cash flows, and credit facilities to meet short-term and long-term obligations, capital expenditures, and shareholder returns Liquidity Analysis The Company anticipates sufficient liquidity from cash, operating cash flows, and credit facilities to cover both short-term and long-term capital requirements Short-Term Liquidity The Company's short-term liquidity needs include operations, contractual obligations, capital expenditures, dividends, and potential M&A - Primary capital requirements for the next twelve months include maintaining operations, meeting contractual obligations (revolving credit facility, term loan, operating leases, acquisition-related contingent liabilities), funding capital expenditures, dividends, stock repurchases, and potential M&A[116] - Management believes current cash, cash flows from operating activities, and availability under the revolving credit facility will be sufficient to satisfy short-term requirements[116] Long-Term Liquidity Long-term liquidity demands include core business maintenance, contractual obligations, stock repurchases, potential M&A, and ongoing capital expenditures - Principal demand for funds beyond twelve months includes core business maintenance, long-term contractual obligations, stock repurchases, potential M&A, and ongoing capital expenditure programs[117] - Management believes current cash, cash flows from operating activities, and availability under the revolving credit facility will be sufficient to satisfy long-term requirements[117] Cash Requirements The Company requires significant working capital for inventory and new product investments, alongside funding capital expenditures for facility and technology enhancements Working Capital Needs The Company requires substantial working capital for inventories of raw materials and finished products, and for new product and technology investments - The Company requires substantial working capital for inventories of raw materials and finished products, which is common in the industry[118] - Working capital is also needed to invest in new product lines and technologies[118] Capital expenditures Capital expenditures for the six months ended June 30, 2025, increased compared to the prior year period - Capital expenditures were $2.7 million for the six months ended June 30, 2025, compared to $2.0 million for the same period in 2024[119] Sources of Capital and Liquidity Primary liquidity sources include operating cash flows, credit facilities, and term loans, complemented by dividends and a share repurchase program Cash Flows from Operations Net cash provided by operating activities decreased for the six months ended June 30, 2025, primarily due to increased inventory purchases - Net cash provided by operating activities was $2.9 million for the six months ended June 30, 2025, a decrease from $16.3 million in the prior year period[121][122] - Cash outflows for inventory purchases totaled $10.7 million in H1 2025, up from the prior year due to timing of purchases[121] Credit Facilities and Debt Activity The Company utilizes a revolving credit facility and term loan, with details on borrowings and payments for the six months ended June 30, 2025 - The Company has access to a $125.0 million revolving credit facility and a $75.0 million term loan, with the ability to request an additional $75.0 million[123] - For H1 2025, borrowings under revolving lines of credit were $57.0 million, and payments were $41.0 million[124] - Term loan payments for H1 2025 totaled $2.8 million[124] Dividends and Share Repurchase Program The Company paid cash dividends and initiated a share repurchase program during the six months ended June 30, 2025 - Cash dividends paid were $4.5 million for H1 2025, compared to $4.7 million for H1 2024[126] - The Company entered a 10b5-1 trading plan on June 19, 2025, to repurchase shares under a $17.5 million program authorized on March 11, 2025[127] Critical Accounting Estimates This section references critical accounting policies and estimates detailed in the Company's Annual Report on Form 10-K for December 31, 2024 Non-GAAP Financial Measure EBITDA, a non-GAAP measure, is used by management and investors to evaluate core operating results and for executive compensation - EBITDA is defined as net income excluding interest expense, net, income tax expense, depreciation and amortization expense, and impairment charges[129] - EBITDA is used internally to monitor operating results, evaluate business performance, and for executive compensation[129] EBITDA Reconciliation (in thousands): | Metric | Q2 2025 (in thousands) | Q2 2024 (in thousands) | H1 2025 (in thousands) | H1 2024 (in thousands) | | :-------------------------- | :------------------- | :------------------- | :------------------- | :------------------- | | Net income | $1,551 | $600 | $793 | $4,512 | | Interest expense, net | $1,250 | $1,541 | $2,495 | $3,328 | | Income tax expense | $285 | $50 | $137 | $730 | | Depreciation and amortization | $2,978 | $3,368 | $6,182 | $6,620 | | EBITDA | $6,064 | $5,559 | $9,607 | $15,190 | Cautionary Note Regarding Forward Looking Statements This section warns that forward-looking statements are subject to risks like competition, tariffs, and economic conditions, with no obligation to update them - Forward-looking statements are identified by words such as 'may,' 'will,' 'expect,' 'anticipate,' 'estimate,' 'believe,' 'intend,' 'project,' 'potential,' or 'plan'[132] - Such statements are subject to risks and uncertainties including competition, tariffs, supply disruptions, inflationary environments, employment levels, and general economic and political conditions[133] - The Company disclaims any obligation to publicly update forward-looking statements to reflect subsequent events or circumstances, except as required by law[133] Item 4. Controls and Procedures The Company's executive and financial officers confirmed effective disclosure controls and procedures, with no material changes to internal control over financial reporting in Q2 2025 Disclosure Controls and Procedures The Company's principal executive and financial officers concluded that disclosure controls and procedures were effective as of June 30, 2025 - The Company's principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of June 30, 2025[135] - These controls ensure that information required for SEC filings is recorded, processed, summarized, and reported within specified time periods[135] Changes in Internal Control over Financial Reporting There were no material changes in the Company's internal control over financial reporting during the quarter ended June 30, 2025 - There were no changes in the Company's internal control over financial reporting during the quarter ended June 30, 2025, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[136] PART II. OTHER INFORMATION This section provides additional information on legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings The Company is involved in ordinary course legal actions, which are not expected to materially impact its financial position, results, or cash flows - The Company is a party to certain lawsuits arising from the normal course of business[139] - The ultimate outcome of these matters is not expected to have a material impact on the Company's results of operations, cash flows, or financial position[139] Item 1A. Risk Factors New tariffs and expiring trade agreements are highlighted as material risks that could adversely impact the Company's revenue, operations, and financial position - No material changes to the Risk Factors described in the Annual Report on Form 10-K for the year ended December 31, 2024, except as set forth in this report[140] - Recently imposed and expanded tariffs by the U.S. government, impacting global trade, may have a material adverse impact on the Company's business[141] - The expiration of trade agreements/preferences with certain countries (AGOA, HOPE, HELP) on September 30, 2025, if not renewed, could also materially adversely impact revenue, operations, financial position, and cash flows[142] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity sales occurred in Q2 2025; the Company repurchased 400,705 common shares for $4.1 million under its $17.5 million program - There were no unregistered sales of equity securities during the quarter ended June 30, 2025[144] Common Stock Repurchases (Three Months Ended June 30, 2025): | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :-------------------------- | :----------------------------- | :--------------------------- | | April 1, 2025 to April 30, 2025 | 281,848 | $10.36 | | May 1, 2025 to May 31, 2025 | 74,467 | $10.02 | | June 1, 2025 to June 30, 2025 | 44,390 | $10.15 | | Total | 400,705 | $10.27 | - The Company entered into a 10b5-1 trading plan on June 19, 2025, for a $17.5 million share repurchase program authorized on March 11, 2025, with approximately $12.3 million remaining under the program as of June 30, 2025[150] Item 3. Defaults Upon Senior Securities This item is not applicable to the Company - This item is not applicable[147] Item 4. Mine Safety Disclosures This item is not applicable to the Company - This item is not applicable[148] Item 5. Other Information This item is not applicable to the Company - This item is not applicable[149] Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including CEO/CFO certifications and Inline XBRL documents - Exhibits include certifications by the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[151] - Inline XBRL documents (Instance Document, Taxonomy Extension Schema, Calculation Linkbase, Definition Linkbase, Label Linkbase, Presentation Linkbase) are submitted electronically[151] SIGNATURES This section contains the official signatures of the Chief Executive Officer and Chief Financial Officer, certifying the report - The report was signed on August 5, 2025, by Michael Benstock, Chief Executive Officer, and Michael Koempel, Chief Financial Officer[155][156]