SUPERIOR GROUP OF COMPANIES, INC. 10-Q

ITEM 1. Financial Statements SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (In thousands, except shares and per share data) Three Months Ended March 31, 2024 2023 Net sales $ 138,842 $ 130,773 Costs and expenses: Cost of goods sold 83,525 83,665 Selling and administrative expenses 48,749 43,379 Other periodic pension costs 189 214 Interest expense 1,787 2,570 134,250 129,828 Income before income tax expense 4,592 945 Income tax expense 680 57 Net income $ 3,912 $ 888 Net income per share: Basic $ 0.24 $ 0.06 Diluted $ 0.24 $ 0.06 Weighted average shares outstanding during the period: Basic 16,028,032 15,882,994 Diluted 16,453,452 16,118,329 Other comprehensive income (loss), net of tax: Recognition of net losses included in net periodic pension costs $ 23 $ 41 Foreign currency translation adjustment ( 481 ) 307 Other comprehensive income (loss) ( 458 ) 348 Comprehensive income $ 3,454 $ 1,236 Cash dividends per common share $ 0.14 $ 0.14 See accompanying Notes to the Condensed Consolidated Financial Statements. 3 SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except shares and par value data) March 31, December 31, 2024 2023 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 22,040 $ 19,896 Accounts receivable, less allowance for doubtful accounts of $ 4,213 and $ 4,237 , respectively 93,737 103,494 Accounts receivable - other 119 307 Inventories 92,573 98,067 Contract assets 52,511 48,715 Prepaid expenses and other current assets 6,549 8,881 Total current assets 267,529 279,360 Property, plant and equipment, net 45,319 46,890 Operating lease right-of-use assets 17,484 17,909 Deferred tax asset 12,349 12,356 Intangible assets, net 50,150 51,160 Other assets 15,650 14,775 Total assets $ 408,481 $ 422,450 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 41,653 $ 50,520 Other current liabilities 40,414 43,978 Current portion of long-term debt 5,156 4,688 Current portion of acquisition-related contingent liabilities 942 1,403 Total current liabilities 88,165 100,589 Long-term debt 84,445 88,789 Long-term pension liability 13,361 13,284 Long-term acquisition-related contingent liabilities 612 557 Long-term operating lease liabilities 12,513 12,809 Other long-term liabilities 8,564 8,784 Total liabilities 207,660 224,812 Commitments and contingencies (Note 5) Shareholders’ equity: Preferred stock, $ .001 par value - authorized 300,000 shares ( none issued) - - Common stock, $ .001 par value - authorized 50,000,000 shares, issued and outstanding 16,743,723 and 16,564,712 shares, respectively 16 16 Additional paid-in capital 79,602 77,443 Retained earnings 123,946 122,464 Accumulated other comprehensive loss, net of tax: Pensions ( 1,099 ) ( 1,122 ) Foreign currency translation adjustment ( 1,644 ) ( 1,163 ) Total shareholders’ equity 200,821 197,638 Total liabilities and shareholders’ equity $ 408,481 $ 422,450 See accompanying Notes to the Condensed Consolidated Financial Statements. 4 SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY THREE MONTHS ENDED March 31, 2024 AND 2023 (Unaudited) (In thousands, except shares and per share data) Accumulated Other Additional Comprehensive Total Common Common Paid-In Retained Income (Loss), Shareholders’ Shares Stock Capital Earnings net of tax Equity Balance, January 1, 2023 16,376,683 $ 16 $ 72,615 $ 122,979 $ ( 3,011 ) $ 192,599 Common shares issued upon exercise of options and SARs, net 4,604 - 35 - - 35 Restricted shares issued, net of forfeitures 117,025 - - - - - Share-based compensation expense - - 1,080 - - 1,080 Cash dividends declared ($ 0.14 per share) - - - ( 2,295 ) - ( 2,295 ) Comprehensive income: Net income - - - 888 - 888 Pensions, net of taxes of $ 14 - - - - 41 41 Change in currency translation adjustment, net of taxes of $ 0 - - - - 307 307 Balance, March 31, 2023 16,498,312 $ 16 $ 73,730 $ 121,572 $ ( 2,663 ) $ 192,655 Balance, January 1, 2024 16,564,712 $ 16 $ 77,443 $ 122,464 $ ( 2,285 ) $ 197,638 Common shares issued upon exercise of options and SARs, net 53,311 - 549 ( 100 ) - 449 Performance based shares issued 9,896 - - - - - Restricted shares issued, net of forfeitures 115,804 - - - - - Share-based compensation expense - - 1,015 - - 1,015 Written put options - - 595 - - 595 Cash dividends declared ($ 0.14 per share) - - - ( 2,330 ) - ( 2,330 ) Comprehensive income (loss): Net income - - - 3,912 - 3,912 Pensions, net of taxes of $ 7 - - - - 23 23 Change in currency translation adjustment, net of taxes of $ 0 - - - - ( 481 ) ( 481 ) Balance, March 31, 2024 16,743,723 $ 16 $ 79,602 $ 123,946 $ ( 2,743 ) $ 200,821 See accompanying Notes to the Condensed Consolidated Financial Statements. 5 SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Three Months Ended March 31, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 3,912 $ 888 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,252 3,388 Inventory write-downs 420 - Provision for bad debts - accounts receivable 83 ( 97 ) Share-based compensation expense 1,015 1,080 Change in fair value of acquisition-related contingent liabilities 152 ( 563 ) Change in fair value of written put options 392 ( 442 ) Changes in assets and liabilities, net of acquisition of businesses: Accounts receivable 9,419 10,150 Accounts receivable - other 188 2,928 Contract assets ( 3,835 ) 1,590 Inventories 5,010 2,807 Prepaid expenses and other current assets 2,252 2,403 Other assets ( 803 ) ( 657 ) Accounts payable and other current liabilities ( 12,122 ) 1,596 Long-term pension liability 108 209 Other long-term liabilities 4 ( 230 ) Net cash provided by operating activities 9,447 25,050 CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment ( 675 ) ( 2,114 ) Net cash used in investing activities ( 675 ) ( 2,114 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings of debt 7,000 1,000 Repayment of debt ( 10,937 ) ( 12,938 ) Payment of cash dividends ( 2,330 ) ( 2,295 ) Payment of acquisition-related contingent liabilities ( 557 ) - Proceeds received on exercise of stock options 449 35 Net cash used in financing activities ( 6,375 ) ( 14,198 ) Effect of currency exchange rates on cash ( 253 ) 140 Net increase in cash and cash equivalents 2,144 8,878 Cash and cash equivalents balance, beginning of period 19,896 17,722 Cash and cash equivalents balance, end of period $ 22,040 $ 26,600 See accompanying Notes to the Condensed Consolidated Financial Statements. 6 Superior Group of Companies , Inc. and Subsidiaries Notes to the Condensed Consolidated Financial Statements (Unaudited) NOTE 1 – Description of Business and Basis of Presentation : Description of business Superior Group of Companies, Inc. (together with its subsidiaries, “the Company,” “Superior,” “we,” “our,” or “us”) was organized in 1920 and was incorporated in 1922 as a New York company under the name Superior Surgical Mfg. Co., Inc. In 1998, the Company changed its name to Superior Uniform Group, Inc. and redomiciled to Florida. Effective on May 3, 2018, Superior Uniform Group, Inc. changed its name to Superior Group of Companies, Inc. Superior’s Branded Products segment, primarily through its signature marketing brands BAMKO® and HPI®, produces and sells customized merchandising solutions, promotional products and branded uniform programs. Branded products are manufactured through third parties or in Superior’s own facilities, and are sold to customers in a wide range of industries, including retail chain, food service, entertainment, technology, transportation and other industries. The segment currently has sales offices in the United States, Canada, Brazil, with support services in China and India. Superior’s Healthcare Apparel segment, primarily through its signature marketing brands Fashion Seal Healthcare®, Wink® and CID Resources, manufactures (through third parties or in its own facilities) and sells a wide range of healthcare apparel, such as scrubs, lab coats, protective apparel and patient apparel. This segment sells its products to healthcare laundries, dealers, distributors, retailers and consumers primarily in the United States. Superior’s Contact Centers segment, through multiple The Office Gurus® entities, including subsidiaries in El Salvador, Belize, Jamaica, Dominican Republic and the United States (collectively, “TOG”), provides outsourced, nearshore business process outsourcing, contact and call-center support services to North American customers. Basis of presentation The accompanying unaudited condensed consolidated financial statements of Superior included herein have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") ("U.S." or "United States") and the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. Intercompany items have been eliminated in consolidation. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10 -K for the year ended December 31, 2023 , and filed with the SEC. Management believes that the information furnished includes all adjustments of a normal recurring nature that are necessary to fairly present our consolidated financial position, results of operations and cash flows for the periods indicated. The results of operations for any interim period are not necessarily indicative of results to be expected for the full year. The Company refers to the condensed consolidated financial statements collectively as “financial statements,” and individually as “statements of comprehensive income,” “balance sheets,” “statements of shareholders’ equity,” and “statements of cash flows” herein. Reclassifications The accompanying financial statements for the previous year contain certain reclassifications. Reclassifications only impact items within Note 9 and have no effect on previously reported results of operations. 7 Written Put Options During the second quarter of 2022, the Company entered into written put options with a former employee that, if exercised by the former employee, requires the Company to repurchase up to 207,970 shares of its common stock at fair market value (as defined in the agreement), subject to certain limitations. The original fair value of the written put options upon entering into the agreement was $ 3.6 million. The written put options expire after twenty-four months and contain certain quarterly maximums. During the three months ended March 31, 2024 , a total of 37,524 written put options expired unexercised resulting in a $ 0.6 million reduction in other current liabilities with an offset to additional paid-in capital. The written put options are liabilities under ASC 480, “ Distinguishing Liabilities from Equity ” because the options embody obligations to repurchase the Company’s shares by paying cash. As of March 31, 2024 and December 31, 2023, the fair value of the written put options was $ 1.6 million and $ 1.8 million, respectively. The fair value of the written put options is based directly on the Company’s stock price and included in other current liabilities in our balance sheets. We recognized an unrealized loss of $ 0.4 million and an unrealized gain of $ 0.4 million on written put options during the three months ended March 31, 2024 and 2023, respectively. Unrealized gains and losses from changes in the fair value of the written put options are included within selling and administrative expenses in our statements of comprehensive income. At March 31, 2024 , the Company’s remaining repurchase obligation under the written put options comprised 95,400 shares of its common stock. Recent Accounting Pronouncements We consider the applicability and impact of all Accounting Standard Updates (“ASUs”). ASUs not listed below were assessed and determined to not be applicable. Recently Issued Accounting Pronouncements Not Yet Adopted In November 2023, the FASB issued ASU 2023 - 07, "Segment Reporting (Topic 280 ) — Improvements to Reportable Segment Disclosures" . The ASU requires that an entity disclose significant segment expenses impacting profit and loss that are regularly provided to the chief operating decision maker ("CODM"). The update is required to be applied retrospectively to prior periods presented, based on the significant segment expense categories identified and disclosed in the period of adoption. The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The adoption of this guidance will not affect the Company’s consolidated results of operations, financial position or cash flows and the Company is currently evaluating the effect the guidance will have on its disclosures. In December 2023, the FASB issued ASU 2023 - 09, "Income Taxes (Topic 740 ) — Improvements to Income Tax Disclosures" . The ASU requires that an entity disclose specific categories in the effective tax rate reconciliation as well as provide additional information for reconciling items that meet a quantitative threshold. Further, the ASU requires certain disclosures of state versus federal income tax expense and taxes paid. The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2024, which for the Company is the calendar year beginning January 1, 2025. Early adoption is permitted for annual financial statements that have not yet been issued. The amendments should be applied on a prospective basis although retrospective application is permitted. The adoption of this guidance will not affect the Company’s consolidated results of operations, financial position or cash flows and the Company is currently evaluating the effect the guidance will have on its disclosures. NOTE 2 – Inventories: Inventories consisted of the following amounts (in thousands): March 31, December 31, 2024 2023 Finished goods $ 67,110 $ 72,370 Work in process 834 671 Raw materials 24,629 25,026 Inventories $ 92,573 $ 98,067 8 NOTE 3 – Long-Term Debt: Debt consisted of the following (in thousands): March 31, December 31, 2024 2023 Credit Facilities: Revolving credit facility due August 2027 $ 22,000 $ 25,000 Term loan due August 2027 68,438 69,375 90,438 94,375 Less: Payments due within one year included in current liabilities 5,156 4,688 Debt issuance costs 837 898 Long-term debt less current maturities $ 84,445 $ 88,789 On August 23, 2022, the Company entered into a Credit Agreement (the “Credit Agreement”) among the Company, the domestic subsidiaries of the Company, as guarantors, the lenders party thereto (the “Lenders”), and PNC Bank, National Association, as administrative agent for the Lenders (the “Administrative Agent”), pursuant to which the Lenders are providing the Company senior secured credit facilities maturing in August 2027 consisting of a revolving credit facility in the aggregate maximum principal amount of $ 125.0 million and a term loan in the original aggregate principal amount of $ 75.0 million (collectively, the “Credit Facilities”), and the ability to request incremental revolving credit or term loan facilities in an aggregate amount of up to an additional $ 75.0 million, subject to obtaining additional lender commitments and satisfying certain other conditions. Obligations outstanding under the Credit Facilities accrue interest at a variable rate equal to the secured overnight financing rate ("SOFR") plus an adjustment between 0.10 % and 0.25 % (depending on the applicable interest period) plus a margin between 1.0 % and 2.0 % (depending on the Company’s net leverage ratio). The weighted average interest rate on our outstanding borrowings under the Credit Facilities was 6.6 % as of March 31, 2024 . During the term of the revolving credit facility, the Company will pay a commitment fee on the unused portion of the revolving credit facility equal to between 0.125 % and 0.250 % (depending on the Company’s net leverage ratio). The available balance under the revolving credit facility is reduced by outstanding letters of credit. As of March 31, 2024 , there were no outstanding letters of credit under the revolving credit facility. Contractual principal payments for the term loan are as follows: remainder of 2024 - $ 3.8 million; 2025 - $ 5.6 million; 2026 - $ 6.6 million and 2027 - $ 52.4 million. The term loan does not contain pre-payment penalties. The Credit Facilities are secured by substantially all of the operating assets of the Company, and the Company’s obligations under the Credit Facilities are guaranteed by all of its domestic subsidiaries. The Company’s obligations under the Credit Facilities are subject to acceleration upon the occurrence of an event of default as defined in the Credit Agreement. The Credit Agreement contains customary events of default and negative covenants, including but not limited to those governing indebtedness, liens, fundamental changes, investments, restricted payments (including dividends and related distributions), liquidations, mergers, consolidations or acquisitions, affiliate transactions and sales of assets or subsidiaries. The Credit Agreement also requires the Company to comply with a fixed charge coverage ratio of at least 1.25 to 1.0 and a net leverage ratio not to exceed 4.0 to 1.0. The Company’s net leverage ratio (as defined in the Credit Agreement) is generally calculated as the ratio of (a) indebtedness minus unrestricted cash to (b) consolidated EBITDA for the four most recently ended fiscal quarters. As of March 31, 2024 , the Company was in compliance with these ratios. 9 NOTE 4 – Net Sales: For our Branded Products and Healthcare Apparel segments, revenue is primarily generated from the sale of finished products to customers. Revenues for our Branded Products and Healthcare Apparel segments are recognized when the performance obligations under the contract terms are satisfied. For certain contracts with customers in which the Company has an enforceable right to payment for goods with no alternative use, revenue is recognized over time upon receipt of finished goods into inventory. Revenue for goods that do have an alternative use or that the customer is not obligated to purchase under the terms of a contract is generally recognized when the goods are transferred to the customer. The Company includes shipping and handling fees billable to customers in net sales. Shipping and handling activities that occur after the transfer of promised goods are accrued as control is transferred to the customer rather than being treated as a separate performance obligation. For our Contact Centers segment, revenue is generated from providing our customers with contact center services. Revenue for our Contact Centers segment is recognized as services are delivered. Revenue is measured at the amount of consideration we expect to receive in exchange for the goods or services. Variable consideration for estimated returns, allowances and other price variances is recorded based upon historical experience and current allowance programs. Contract terms may involve variable consideration clauses such as sales discounts and customer rebates, and revenue is adjusted accordingly for these provisions. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The promised amount of consideration in a contract is not adjusted for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised good or service to a customer and when the customer pays for that product or service will be one year or less. Sales taxes are excluded from the measurement of a performance obligation’s transaction price. Sales commissions are expensed as incurred when we expect that the amortization period of such costs will be one year or less. For further information regarding our net sales disaggregated by reportable segment see Note 9 . Contract Assets and Contract Liabilities The following table provides information about accounts receivable, contract assets and contract liabilities from contracts with customers (in thousands): March 31, December 31, 2024 2023 Accounts receivable $ 93,737 $ 103,494 Current contract assets 52,511 48,715 Current contract liabilities 5,780 5,346 Contract assets relate to goods produced without an alternative use for which the Company has an enforceable right to payment but which has not yet been invoiced to the customer. A portion of the amounts included in contract assets on December 31, 2023 were transferred to accounts receivable during the three months ended March 31, 2024 . Contract liabilities relate to payments received in advance of the Company completing its performance under a contract. Contract liabilities are included in other current liabilities in our balance sheets. During the three months ended March 31, 2024 , $ 2.0 million of revenue was recognized from the contract liabilities balance as of December 31, 2023 . 10 NOTE 5 – Contingencies: The purchase price to acquire substantially all of the assets of Sutter’s Mill Specialties, Inc. (“Sutter’s Mill”) in December 2021 included contingent consideration based on varying levels of Sutter’s Mill’s EBITDA in each measurement period from 2022 to 2024. In July 2023, management agreed to settle the remaining contingent consideration obligation associated with this acquisition for $ 0.5 million, which was paid in the first quarter of 2024. The purchase price to acquire substantially all of the assets of Guardian Products, Inc. (“Guardian”) in May 2022 included contingent consideration based on varying levels of Guardian’s EBITDA in each measurement period through April 2025. The estimated fair value of Guardian acquisition-related contingent consideration payable as of March 31, 2024 was $ 1.6 million, of which $ 0.9 million is expected to be paid in the third quarter of 2024. The total estimated undiscounted remaining payment related to this contingent consideration payable is between $ 1.9 million and $ 2.2 million. The Company will continue to evaluate the Guardian liability for remeasurement at the end of each reporting period and any changes will be recorded in the Company’s statements of comprehensive income. The carrying amount of the liability may fluctuate significantly and actual amounts paid may be different from the estimated value of the liability. The Company is involved in various legal actions and claims arising from the normal course of business. In the opinion of management, 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. 11 NOTE 6 – Share-Based Compensation : Share-based compensation expense is recorded in selling and administrative expense in the statements of comprehensive income. The following table details the share-based compensation expense by type of award for the periods presented (in thousands): Three Months Ended March 31, 2024 2023 Stock options and SARs $ 268 $ 309 Restricted stock 654 590 Performance shares 93 181 Total share-based compensation expense $ 1,015 $ 1,080 Stock Options and Stock Appreciation Rights (“SARs”) The Company grants stock options and stock-settled SARs to employees that allow them to purchase shares of the Company’s common stock. Stock options are also granted to outside members of the Board of Directors of the Company. The Company determines the fair value of stock options and SARs at the date of grant using the Black-Scholes valuation model. All stock options and SARs vest between one and three years after the grant date. Employee awards expire five years after the grant date, and those issued to directors expire ten years after the grant date. The Company issues new shares upon the exercise of stock options and SARs. Stock options, as well as SARs granted in tandem with stock options, are subject to accelerated vesting under certain circumstances as outlined in the 2013 Incentive Stock and Awards Plan (the “2013 Plan”) or 2022 Equity Incentive and Awards Plan (the “2022 Plan”), as applicable. A summary of stock option transactions during the three months ended March 31, 2024 follows: Weighted Average Aggregate No. of Weighted Average Remaining Life Intrinsic Value Shares Exercise Price (in years) (in thousands) Outstanding, January 1, 2024 953,176 $ 14.73 2.80 $ 1,718 Granted (1) 167,300 13.84 Exercised ( 53,042 ) 10.23 Lapsed or cancelled ( 136,527 ) 17.18 Outstanding, March 31, 2024 930,907 14.47 3.41 3,311 Exercisable, March 31, 2024 407,366 17.36 2.20 1,009 ( 1 ) The weighted average grant date fair value of stock options granted was $ 13.84 per share. As of March 31, 2024 , the Company had $ 1.2 million in unrecognized compensation cost related to nonvested stock options to be recognized over the remaining weighted average vesting period of 1.4 years. 12 A summary of stock-settled SARs transactions during the three months ended March 31, 2024 follows: Weighted Average Aggregate No. of Weighted Average Remaining Life Intrinsic Value Shares Exercise Price (in years) (in thousands) Outstanding, January 1, 2024 292,508 $ 14.35 2.07 $ 506 Granted (1) 79,128 13.84 Exercised ( 17,920 ) 8.48 Lapsed or cancelled ( 54,064 ) 21.14 Outstanding, March 31, 2024 299,652 13.34 2.89 1,159 Exercisable, March 31, 2024 149,492 13.96 1.41 587 ( 1 ) The weighted average grant date fair value of SARs granted was $ 13.84 per share. As of March 31, 2024 , the Company had $ 0.4 million in unrecognized compensation cost related to nonvested SARs to be recognized over the remaining weighted average vesting period of 1.5 years. Restricted Stock The Company has granted shares of restricted stock to directors and certain employees, which vest at a specified future date, generally after three years, over five years or when certain conditions are met. The shares are subject to accelerated vesting under certain circumstances as outlined in the 2013 Plan or 2022 Plan, as applicable. Expense for each of these grants is based on the fair value at the date of the grant and is being recognized on a straight-line basis over the respective service period. A summary of restricted stock transactions during the three months ended March 31, 2024 follows: Weighted Average No. of Grant Date Shares Fair Value Outstanding, January 1, 2024 428,366 $ 18.14 Granted 115,804 13.84 Vested ( 13,039 ) 25.78 Forfeited - - Outstanding, March 31, 2024 531,131 17.01 As of March 31, 2024 , the Company had $ 4.8 million of unrecognized compensation cost related to nonvested restricted stock grants expected to be recognized over the remaining weighted average vesting period of 1.8 years. Performance Shares The Company has granted performance shares, which either contain only service-based vesting conditions or service-based and performance-based vesting conditions. The service-based awards vest after the service period is met, which is generally three to five years. Expense for these grants is based on the fair value on the date of the grant and is being recognized on a straight-line basis over the respective service period. The performance-based awards generally vest after five years if the performance and service targets are met. The Company evaluates the performance conditions associated with these grants each reporting period to determine the expected number of shares to be issued. Expense for grants of performance shares is recognized on a straight-line basis over the respective service period based on the grant date fair value and expected number of shares to be issued. The awards are subject to accelerated vesting on a pro rata basis under certain circumstances as outlined in the 2013 Plan or 2022 Plan, as applicable, except in those circumstances in which award agreements or change in control agreements specify full vesting. 13 A summary of performance share transactions during the three months ended March 31, 2024 follows: Weighted Average No. of Grant Date Shares Fair Value Outstanding, January 1, 2024 283,521 $ 18.13 Granted - - Vested ( 14,068 ) 17.77 Forfeited - - Outstanding, March 31, 2024 269,453 18.15 As of March 31, 2024 , the Company had $ 1.0 million of unrecognized compensation cost related to nonvested performance share grants expected to be recognized over the remaining weighted average service period of 2.4 years. NOTE 7 – Income Taxes: The Company calculates its interim income tax provision in accordance with the accounting guidance for income taxes in interim periods. At the end of each interim period, the Company makes its best estimate of the annual expected effective tax rate and applies that rate to its ordinary year-to-date income or loss. The tax expense or benefit related to significant, unusual, or extraordinary items that will be separately reported or reported net of their related tax effect are individually computed and recognized in the interim period in which those items occur. The computation of the annual expected effective tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected operating income for the year and permanent and temporary differences. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or the tax environment changes. For the three months ended March 31, 2024 , the Company recorded a provision for income taxes of $ 0.7 million, which represents an effective tax rate of 14.8 %. The income tax provision and the effective tax rate for the three months ended March 31, 2024 was primarily impacted by the variability in the mix of earnings across the Company’s foreign and domestic operations, subject to various statutory tax rates in those jurisdictions as well as the windfall benefits associated with the stock option exercises in the quarter. For the three months ended March 31, 2023 , the Company recorded a provision for income taxes of $ 0.1 million, which represents an effective tax rate of 6.0 %. The income tax provision and the effective tax rate for the three months ended March 31, 2023 was primarily impacted by the variability in the mix of earnings across the Company’s foreign and domestic operations subject to various statutory tax rates in those jurisdictions as well as the favorable impact of discrete non-taxable gains on the Company’s written put option and income generated on the Company’s SERP life insurance contracts totaling $ 0.4 million and $ 0.2 million respectively. 14 NOTE 8 – Net Income Per Share: The Company’s basic net income per share is computed based on the weighted average number of shares of common stock outstanding for the period. Diluted net income per share includes the effect of the Company’s outstanding stock options, stock appreciation rights, nonvested shares of restricted stock and nonvested performance shares, if the inclusion of these items is dilutive. The following table presents a reconciliation of basic and diluted net income per share for the periods presented: Three Months Ended March 31, 2024 2023 Net income used in the computation of basic and diluted net income per share (in thousands) $ 3,912 $ 888 Weighted average shares outstanding - basic 16,028,032 15,882,994 Dilutive common stock equivalents 425,420 235,335 Weighted average shares outstanding - diluted 16,453,452 16,118,329 Net income per share: Basic $ 0.24 $ 0.06 Diluted $ 0.24 $ 0.06 Awards to purchase 400,075 and 1,008,972 shares of common stock with weighted average exercise prices of $ 20.86 and $ 17.03 per share were outstanding during the three months ended March 31, 2024 and 2023 , respectively, but were not included in the computation of diluted net income per share because the awards’ exercise prices were greater than the average market price of the common shares. N OTE 9 – Operating Segment Information : The Company manages and reports the following segments: Branded Products segment: Primarily through our signature marketing brands BAMKO® and HPI®, we produce and sell customized merchandising solutions, promotional products and branded uniform programs. Branded products are sold to customers in a wide range of industries, including retail chain, food service, entertainment, technology, transportation and other industries. The segment currently has sales offices in the United States, Canada, Brazil, with support services in China and India. Healthcare Apparel segment: Primarily through our signature marketing brands Fashion Seal Healthcare®, Wink® and CID Resources, we manufacture (through third parties or in our own facilities) and sell a wide range of healthcare apparel, such as scrubs, lab coats, protective apparel and patient apparel. This segment sells its products to healthcare laundries, dealers, distributors, retailers and consumers primarily in the United States. Contact Centers: Through multiple The Office Gurus® entities, including our subsidiaries in El Salvador, Belize, Jamaica, Dominican Republic and the United States (collectively, “TOG”), we provide outsourced, nearshore business process outsourcing, contact and call-center support services to North American customers. Intersegment eliminations include the elimination of revenues and costs from services provided by the Contact Centers segment to the Company’s two other segments. Such costs are recognized as selling and administrative expenses in the Branded Products and Healthcare Apparel segments. Income and expenses related to corporate functions that are not specifically attributable to an individual reportable segment are presented within Other in the tables below. During the fourth quarter of 2023, our chief operating decision maker began to evaluate the performance of our segments using Segment EBITDA instead of income before income taxes. The Company has modified its presentation of segment performance to be consistent with this change, including prior periods presented for consistent and comparable presentation. Amounts that are included in income before income tax expense and excluded from Segment EBITDA include the following: interest expense and depreciation and amortization expense. 15 The following tables set forth financial information related to the Company’s operating segments (in thousands): Branded Products Healthcare Apparel Contact Centers Intersegment Eliminations Other Total As of and For the Three Months Ended March 31, 2024: Net sales $ 87,068 $ 29,237 $ 23,552 $ ( 1,015 ) $ - $ 138,842 Segment EBITDA 9,947 2,635 2,946 - ( 5,897 ) $ 9,631 Supplemental information: Depreciation and amortization $ 1,500 $ 937 $ 723 $ - $ 92 $ 3,252 Capital expenditures $ 265 $ 173 $ 160 $ - $ 77 $ 675 Branded Products Healthcare Apparel Contact Centers Intersegment Eliminations Other Total As of and For the Three Months Ended March 31, 2023: Net sales $ 81,851 $ 28,154 $ 22,056 $ ( 1,288 ) $ - $ 130,773 Segment EBITDA 7,510 1,572 2,793 - ( 4,972 ) 6,903 Supplemental information: Depreciation and amortization $ 1,664 $ 974 $ 668 $ - $ 82 $ 3,388 Capital expenditures $ 1,271 $ 462 $ 381 $ - $ - $ 2,114 The following table reconciles income before income tax expense to Segment EBITDA (in thousands): Three Months Ended March 31, 2024 2023 Income before income tax expense $ 4,592 $ 945 Interest expense 1,787 2,570 Depreciation and amortization 3,252 3,388 Segment EBITDA $ 9,631 $ 6,903 NOTE 10 – Subsequent Events : On May 1, 2024, the Compensation Committee approved the Company entering into a grant of 125,000 and 75,000 performance shares to Michael Benstock and Michael Koempel, respectively, under the 2022 Equity Incentive and Awards Plan. The performance shares agreements were executed on May 6, 2024. Each performance share represents a contingent right to receive one share of common stock. The performance shares will vest if, in each case and during a four -year performance period beginning on January 1, 2024, subject to additional requirements, the average closing price of the Company’s common stock over a rolling thirty ( 30 ) day period equals or exceeds the closing share price on May 10, 2024 by 115 %, 130 %, and 150 % and the executive is still employed by the Company twelve ( 12 ) months after the applicable stock price condition has been satisfied. Mr. Koempel’s agreement provides protection for termination without Cause and for resignation for Good Reason during the period after the per share price has been satisfied. The fair value of the shares, yet to be determined, will be amortized across the performance period based on a Monte Carlo valuation model. 16