What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-06 compared with 2024-05-07 · 127 added, 65 removed, 161 unchanged (54% of the section changed)

16 unchanged sentences

the Company ’ s ability to successfully remediate its material weakness in internal control over financial reporting and to maintain effective internal control over financial reporting ;

and other factors described in the Company’s filings with the Securities and Exchange Commission, including those described in the “Risk Factors” section herein and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 .

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.

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We sell our brands of healthcare service apparel to healthcare laundries, dealers, distributors, retailers and consumers primarily in the United States.

From a long-term perspective, we expect that demand for our signature marketing brands, including Fashion Seal Healthcare® and Wink®, will continue to provide opportunities for growth and increased market share.

From a long-term perspective, we expect that demand for our signature marketing brands, including Fashion Seal Healthcare® and Wink® (within CID Resources), will continue to provide opportunities for growth and increased market share.

Contact Centers

12 unchanged sentences

World events, including the Russian invasion of Ukraine and the resulting economic sanctions have impacted the global economy, including by exacerbating inflationary and other pressures.

In addition, the threat of a wider conflict in the Middle East following the Hamas terrorist attacks on Israel on October 7, 2023 could continue to affect oil prices and have other negative effects on the global economy.

In addition, the threat of a wider conflict in the Middle East could continue to affect oil prices and have other negative effects on the global economy.

Civil unrest in countries where we manufacture products, such as Haiti, may result in our facilities incurring damage or destruction that interrupts our manufacturing processes and adversely affects our reputation and our relationships with our customers.

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Summary of Results

The Company generated net income of $3.9 million and $0.9 million during the three months ended March 31, 2024 and 2023, respectively.

The increase in net income during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily due to increases in sales and gross margins across all segments, particularly in our Branded Products and Healthcare Apparel segments, and a decrease in interest expense, partially offset by increases in selling and administrative expenses for our Branded Products segment and Corporate functions and an increase in income tax expense.

EBITDA (a non-GAAP financial measure) was $9.6 million and $6.9 million during the three months ended March 31, 2024 and 2023, respectively.

EBITDA during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 increased primarily due to increases in sales and gross margins across all segments, particularly in our Branded Products and Healthcare Apparel segments, partially offset by increases in selling and administrative expenses for our Branded Products segment and Corporate functions.

The Company generated net income of $0.6 million and $1.2 million during the three months ended June 30, 2024 and 2023, respectively.

The decrease in net income during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 was primarily due to an increase in selling and administrative expenses, partially offset by an increase in gross margins in our Branded Products and Contact Centers segments and a decrease in interest expense.

The Company generated net income of $4.5 million and $2.1 million during the six months ended June 30, 2024 and 2023, respectively.

The increase in net income during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was primarily due to increases in net sales and gross margins, particularly in our Branded Products and Contact Centers segments, and a decrease in interest expense, partially offset by an increase in selling and administrative expenses.

EBITDA (a non-GAAP financial measure) was $5.6 million and $7.4 million during the three months ended June 30, 2024 and 2023, respectively.

EBITDA during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 decreased primarily due to higher selling and administrative expenses, partially offset by an increase in gross margins in our Branded Products and Contact Centers segments.

EBITDA was $15.2 million and $14.3 million during the six months ended June 30, 2024 and 2023, respectively.

EBITDA during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 increased primarily due to increases in net sales and gross margins, particularly in our Branded Products and Contact Centers segments, partially offset by higher selling and administrative expenses.

For a reconciliation of EBITDA to net income, its most directly comparable financial measure calculated and presented in accordance with GAAP, please read “Non-GAAP Financial Measure” below.

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

For the Three Months Ended March 31,

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

For the Three Months Ended June 30,

Branded Products

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Income tax expense

Net sales for the Company increased 6.2%, or $8.1 million, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

The increase was driven by net sales increases in all three of our reportable segments.

Branded Products net sales increased 6.4%, or $5.2 million, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

The increase was primarily due to higher order volume from larger customers, as well as, increased pricing.

Healthcare Apparel net sales increased 3.8%, or $1.1 million, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

The increase was primarily due to incremental online sales volume growth including sales growth through our direct-to-consumer website which was launched in the second quarter of 2023.

Contact Centers net sales increased 6.8%, before intersegment eliminations for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

The increase in net sales was primarily attributed to growth from existing customers.

Gross margin rate for the Company was 39.8% for the three months ended March 31, 2024 and 36.0% for the three months ended March 31, 2023.

The rate increase was due to an improvement in gross margin rates in all three of our reportable segments.

Gross margin rate for our Branded Products segment was 36.5% for the three months ended March 31, 2024 and 31.6% for the three months ended March 31, 2023.

The rate increase was primarily driven by a favorable shift in the mix of pricing and customers, as well as, lower costs.

Gross margin rate for our Healthcare Apparel segment was 39.4% for the three months ended March 31, 2024 and 35.9% for the three months ended March 31, 2023.

The rate increase was primarily driven by lower costs including improved manufacturing efficiencies from increased volume in our Haiti facilities compared to the prior year period, as well as, improved market conditions.

Gross margin rate for our Contact Centers segment was 53.7% for the three months ended March 31, 2024 and 53.5% for the three months ended March 31, 2023.

The rate remained relatively consistent between periods.

Net sales for the Company increased 2.0%, or $2.6 million, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023.

The increase was attributable to net sales increases in our Contact Centers and Branded Products segments, partially offset by a decrease in net sales in our Healthcare Apparel segment.

Branded Products net sales increased 2.1%, or $1.7 million, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023.

The increase was primarily due to higher order volume from larger customers driven by increased demand for our products, as well as increased pricing.

Healthcare Apparel net sales decreased 5.3%, or $1.5 million, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023.

The decrease was primarily due to lower volume from our store-based wholesale customers, partially offset by an increase in online sales volume from both our wholesale customers, as well as, from our direct-to-consumer website.

The lower volume from our store-based wholesale customers was primarily driven by lower demand and timing of customer orders.

Contact Centers net sales increased 9.1% or $2.1 million, before intersegment eliminations for the three months ended June 30, 2024 compared to the three months ended June 30, 2023.

The increase was primarily attributable to sales growth from expanding services to existing customers.

Gross margin rate for the Company was 38.5% for the three months ended June 30, 2024 and 36.8% for the three months ended June 30, 2023.

The rate increase was due to an improvement in gross margin rates in our Branded Products and Healthcare Apparel segments, partially offset by a decrease in gross margin rate in our Contact Centers segment.

Gross margin rate for our Branded Products segment was 34.6% for the three months ended June 30, 2024 and 32.2% for the three months ended June 30, 2023.

The rate increase was primarily driven by an increase in sales volume from higher margin customers in the current year period.

Gross margin rate for our Healthcare Apparel segment was 38.4% for the three months ended June 30, 2024 and 37.1% for the three months ended June 30, 2023.

The rate increase was primarily driven by lower sourcing costs.

Gross margin rate for our Contact Centers segment was 52.2% for the three months ended June 30, 2024 and 53.6% for the three months ended June 30, 2023.

The rate decrease was primarily due to increased employee related costs of our agents including agent training resulting in an increase in non-billable hours during the current year period, partially offset by sales growth from existing customers.

Selling and Administrative Expenses

As a percentage of net sales, total selling and administrative expenses was 35.1% for the three months ended March 31, 2024 and 33.2% for the three months ended March 31, 2023.

The rate increase was primarily driven by increased employee related costs, unrealized losses of $0.4 million recognized in 2024 compared to unrealized gains of $0.4 million recognized in the prior year period on written put options and an increase in expense relating to acquisition contingent liabilities from a gain of $0.6 million in 2023 to a loss of $0.2 million in 2024.

As a percentage of net sales, selling and administrative expenses for our Branded Products segment was 26.8% for the three months ended March 31, 2024 and 24.5% for the three months ended March 31, 2023.

The rate increase was primarily attributed to increased employee related costs, including sales commissions, and an increase in expense relating to acquisition contingent liabilities driven by fair market value adjustments in 2024 as compared to 2023.

As a percentage of net sales, selling and administrative expenses for our Healthcare Apparel segment was 33.6% for the three months ended March 31, 2024 and 33.8% for the three months ended March 31, 2023.

Selling and administrative expenses as a percentage of net sales remained relatively constant.

As a percentage of net sales, selling and administrative expenses for our Contact Centers segment was 44.2% for the three months ended March 31, 2024 and 43.8% for the three months ended March 31, 2023.The slight increase in selling and administrative expenses was primarily attributed to increased employee related expenses, including pay rate increases.

As a percentage of net sales, total selling and administrative expenses was 36.7% for the three months ended June 30, 2024 and 33.6% for the three months ended June 30, 2023.

The rate increase was primarily driven by increases in employee related costs, third-party professional services and expenditures related to marketing and advertising activities.

As a percentage of net sales, selling and administrative expenses for our Branded Products segment was 28.3% for the three months ended June 30, 2024 and 25.6% for the three months ended June 30, 2023.

The rate increase was primarily driven by increased employee related costs, including sales commissions, and an increase in expense relating to acquisition-related contingent liabilities driven by fair market value adjustments in 2024 as compared to 2023.

As a percentage of net sales, selling and administrative expenses for our Healthcare Apparel segment was 37.2% for the three months ended June 30, 2024 and 33.7% for the three months ended June 30, 2023.

The rate increase was primarily driven by an increase in expenditures related to marketing and advertising activities.

As a percentage of net sales, selling and administrative expenses for our Contact Centers segment was 42.4% for the three months ended June 30, 2024 and 42.2% for the three months ended June 30, 2023.

The increase in selling and administrative expenses was primarily driven by increased employee related expenses, including both headcount and select pay rate increases to support sales growth.

Interest Expense

Interest expense decreased to $1.8 million for the three months ended March 31, 2024 from $2.6 million for three months ended March 31, 2023.

This decrease was primarily due to a $53.7 million decrease in outstanding borrowings.

The weighted average interest rate on our outstanding borrowings remained constant at 6.6% for the three months ended March 31, 2024 and March 31, 2023, respectively.

Income tax expense increased to $0.7 million for the three months ended March 31, 2024 from $0.1 million for the three months ended March 31, 2023.

The effective tax rate was 14.8% and 6.0% for the three months ended March 31, 2024 and 2023, respectively.

Income tax expense and the effective tax rate for the three months ended March 31, 2024 and 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.

The tax rate was further favorably impacted by the windfall benefits associated with the stock option exercises during the three months ended March 31, 2024, as well as discrete non-taxable gains on the Company’s written put options and income generated on the Company’s SERP life insurance contracts, totaling $0.4 million and $0.2 million, respectively, during the three months ended March 31, 2023.

Interest expense decreased to $1.5 million for the three months ended June 30, 2024 from $2.6 million for three months ended June 30, 2023.

This decrease was due to a $52.8 million decrease in our weighted average outstanding borrowings along with a decrease in the weighted average interest rate on those borrowings from 7.2% for the three months ended June 30, 2023 to 6.5% for the three months ended June 30, 2024.

Income tax expense decreased to $0.1 million for the three months ended June 30, 2024 from $0.2 million for the three months ended June 30, 2023.

The effective tax rate was 7.7% and 11.8% for the three months ended June 30, 2024 and 2023, respectively.

Income tax expense and the effective tax rate for the three months ended June 30, 2024 and June 30, 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.

The tax rate was further favorably impacted by the windfall benefits associated with the stock option exercises during the three months ended June 30, 2024.

The effective tax rate may vary from quarter to quarter due to discrete, unusual or non-recurring items, the resolution of income tax audits, changes in tax laws, the tax impact from employee share-based payments, or other items.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

For the Six Months Ended June 30,

Branded Products

Healthcare Apparel

Contact Centers

Net intersegment eliminations

Consolidated net sales

Gross margin:

Branded Products

Healthcare Apparel

Contact Centers

Net intersegment eliminations

Consolidated gross margin

Selling and administrative expenses:

Branded Products

Healthcare Apparel

Contact Centers

Intersegment Eliminations

Consolidated selling and administrative expenses

Other periodic pension cost

Interest expense

Income before income tax expense

Income tax expense

Net sales for the Company increased 4.1%, or $10.6 million, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

The increase was attributable to net sales increases in our Branded Products and Contact Centers segments, slightly offset by a decrease in net sales in our Healthcare Apparel segment.

Branded Products net sales increased 4.3%, or $6.9 million, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

The increase was primarily due to higher order volume from larger customers, as well as increased pricing.

Healthcare Apparel net sales decreased 0.7%, or $0.4 million, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

Contact Centers net sales increased 8.0% or $3.6 million, before intersegment eliminations for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

The increase in net sales was primarily attributed to sales growth from existing customers.

Gross margin rate for the Company was 39.2% for the six months ended June 30, 2024 and 36.4% for the six months ended June 30, 2023.

The rate increase was due to an improvement in gross margin rates in our Branded Products and Healthcare Apparel segments.

Gross margin rate for our Branded Products segment was 35.6% for the six months ended June 30, 2024 and 31.9% for the six months ended June 30, 2023.

The rate increase was primarily driven by a favorable shift in the mix of pricing and customers.

Gross margin rate for our Healthcare Apparel segment was 38.9% for the six months ended June 30, 2024 and 36.5% for the six months ended June 30, 2023.

The rate increase was primarily driven by lower supply chain costs, as well as, challenging market conditions experienced in the prior year period.

Gross margin rate for our Contact Centers segment was 52.9% for the six months ended June 30, 2024 and 53.5% for the six months ended June 30, 2023.

The rate decrease was primarily due to increased employee related costs of our agents, partially offset by sales growth from existing customers.

Selling and Administrative Expenses

As a percentage of net sales, total selling and administrative expenses was 35.9% for the six months ended June 30, 2024 and 33.4% for the six months ended June 30, 2023.

The rate increase was primarily driven by increased employee related costs, an increase in expense relating to acquisition-related contingent liabilities from a gain of $0.7 million in 2023 to a loss of $0.3 million in 2024, unrealized losses of $0.7 million recognized in 2024 compared to unrealized gains of $0.1 million recognized in the prior year period on written put options and increased expenditures related to marketing and advertising activities.

As a percentage of net sales, selling and administrative expenses for our Branded Products segment was 27.5% for the six months ended June 30, 2024 and 25.0% for the six months ended June 30, 2023.

The rate increase was primarily attributed to increased employee related costs, including sales commissions, and an increase in expense relating to acquisition-related contingent liabilities driven by fair market value adjustments in 2024 as compared to 2023.

As a percentage of net sales, selling and administrative expenses for our Healthcare Apparel segment was 35.3% for the six months ended June 30, 2024 and 33.7% for the six months ended June 30, 2023.

The rate increase was primarily attributable to an increase in expenditures related to marketing and advertising activities.

As a percentage of net sales, selling and administrative expenses for our Contact Centers segment was 43.3% for the six months ended June 30, 2024 and 43.0% for the six months ended June 30, 2023.

The increase in selling and administrative expenses was primarily driven by increased employee related expenses, including both headcount and select pay rate increases to support sales growth.

Interest Expense

Interest expense decreased to $3.3 million for the six months ended June 30, 2024 from $5.2 million for six months ended June 30, 2023.

This decrease was due to a $55.1 million decrease in our weighted average outstanding borrowings along with a decrease in the weighted average interest rate on our outstanding borrowings from 6.9% for the six months ended June 30, 2023 to 6.6% for the six months ended June 30, 2024.

Income tax expense increased to $0.7 million for the six months ended June 30, 2024 from $0.2 million for the six months ended June 30, 2023.

The effective tax rate was 13.9% and 9.5% for the six months ended June 30, 2024 and 2023, respectively.

Income tax expense and the effective tax rate for the six months ended June 30, 2024 and June 30, 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.

The tax rate was further favorably impacted by the windfall benefits associated with the stock option exercises during the six months ended June 30, 2024 The effective tax rate may vary from quarter to quarter due to discrete, unusual or non-recurring items, the resolution of income tax audits, changes in tax laws, the tax impact from employee share-based payments, or other items.

Liquidity and Capital Resources

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Superior carries inventories of both raw materials and finished products, the practice of which requires substantial working capital, which we believe to be common in the industry.

Cash and cash equivalents was $22.0 million as of March 31, 2024 and $19.9 million as of December 31, 2023.

Working capital was $179.4 million at March 31, 2024 compared to $178.8 million at December 31, 2023.

The increase in working capital was primarily due to decreases in accounts payable and other current liabilities and an increase in cash and cash equivalents, offset by decreases in accounts receivable and inventory.

The decrease in accounts payable was primarily driven by the timing of payments for inventory purchases within our Branded Products segment.

The decrease in other current liabilities was primarily related to employee-related accruals as of December 31, 2023 that were paid in 2024, including accrued bonus compensation.

The decreases in accounts receivable was primarily related to lower sales in our Branded Products segment during the three months ended March 31, 2024 compared to the three months ended December 31, 2023 and the collection of customer payments.

The decrease in inventory was primarily driven by a decrease in purchasing activities during the period.

Cash and cash equivalents was $13.4 million as of June 30, 2024 and $19.9 million as of December 31, 2023.

Working capital was $169.3 million at June 30, 2024 compared to $178.8 million at December 31, 2023.

The decrease in working capital was primarily due to decreases in accounts receivable, cash and cash equivalents, and inventories, partially offset by a decrease in current liabilities and an increase in prepaid expenses and other current assets.

The decrease in accounts receivable was primarily related to lower sales in our Branded Products segment during the six months ended June 30, 2024 compared to the six months ended December 31, 2023 and the collection of aged customer receivables.

The decrease in cash and cash equivalents was driven by the repayment of outstanding borrowings with excess cash generated from operating activities during the six months ended June 30, 2024.

The reduction of inventories was driven by the sale of existing inventory stock and the targeted reduction in certain inventory products within our Branded Products segment.

The decreases in current liabilities include a reduction in accounts payable primarily driven by the timing of payments for inventory purchases within our Branded Products segment and a decrease in other current liabilities which was primarily related to employee-related accruals as of December 31, 2023 that were paid in 2024, including accrued bonus compensation, and the expiration of written put options.

The increase in prepaid expenses and other current assets was driven by increases in prepaid income taxes and insurance.

Material Short-Term Plans for Cash

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Our cash flows from operating, investing and financing activities, as reflected in the statements of cash flows, are summarized in the following table (in thousands):

Three Months Ended March 31,

Six Months Ended June 30,

Net cash provided by (used in):

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Effect of exchange rates on cash

Net increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Operating Activities.

The decrease in net cash provided by operating activities during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily attributable to increases in cash outflows for accounts payable and other current liabilities and selling and administrative expenses, partially offset by an increase in gross margin of $8.2 million.

Working capital cash changes during the three months ended March 31, 2024 primarily included a decrease of $12.1 million in accounts payable and other current liabilities, an increase of $3.8 million in contract assets and decreases of $9.4 million in accounts receivable and $4.5 million in inventory.

Working capital cash changes during the three months ended March 31, 2023 primarily included an increase of $1.6 million in accounts payable and other current liabilities, a decrease of $1.6 million in contract assets and a decrease of $10.2 million in accounts receivable.

The decrease in net cash provided by operating activities during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was primarily attributable to increases in cash outflows for accounts payable and other current liabilities and inventories and a decrease in cash inflows from contract assets, partially offset by an increase in net income.

Working capital cash changes during the six months ended June 30, 2024 primarily included decreases of $10.6 million in accounts receivable, $6.4 million in accounts payable and other current liabilities and $3.9 million in inventories, and increases of $4.5 million in contract assets.

Working capital cash changes during the six months ended June 30, 2023 primarily included increases of $10.6 million in inventories, $8.9 million in accounts receivable and $5.4 million in contract assets.

Investing Activities.

The decrease in net cash used in investing activities during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was attributable to a decrease of $1.4 million in capital expenditures.

The decrease in net cash used in investing activities during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was attributable to a decrease of $1.7 million in capital expenditures.

Financing Activities.

The decrease in net cash used in financing activities during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily attributable to a decrease of $8.0 million in net repayments of debt.

The decrease in net cash used in financing activities during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was primarily attributable to a decrease of $13.0 million in net repayments of debt.

Credit Facilities (See Note 3 to the Financial Statements )

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.

As of March 31, 2024, the Company had $90.4 million in outstanding borrowings under its Credit Facilities, consisting of $22.0 million outstanding under the revolving credit facility and $68.4 million outstanding under a term loan.

As of March 31, 2024, the Company had undrawn capacity of $103.0 million under the revolving credit facility.

As of June 30, 2024, the Company had $78.5 million in outstanding borrowings under its Credit Facilities, consisting of $11.0 million outstanding under the revolving credit facility and $67.5 million outstanding under a term loan.

As of June 30, 2024, the Company had undrawn capacity of $114.0 million under the revolving credit facility.

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% at March 31, 2024.

The weighted average interest rate on our outstanding borrowings under the Credit Facilities was 6.4% as of June 30, 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.

As of June 30, 2024, there were no outstanding letters of credit under the revolving credit facility.

Contractual principal payments for the term loan are as follows:

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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.

As of June 30, 2024, the Company was in compliance with these ratios.

Dividends and Share Repurchase Program

During the three months ended March 31, 2024 and 2023, the Company paid cash dividends of $2.3 million and $2.3 million, respectively.

During the six months ended June 30, 2024 and 2023, the Company paid cash dividends of $4.7 million and $4.6 million, respectively.

The Company anticipates that it will continue to pay dividends in the future as financial conditions permit.

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All purchases under this program will be open market transactions.

At March 31, 2024, the Company’s remaining repurchase capacity under its common stock repurchase program was 657,451 shares.

At June 30, 2024, the Company’s remaining repurchase capacity under its common stock repurchase program was 657,451 shares.

Shares purchased under the common stock repurchase program are constructively retired and returned to unissued status.

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The following table reconciles net income to EBITDA (in thousands):

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Interest expense

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As SOFR is a relatively new reference rate with a limited history, there may or may not be more volatility than with other reference rates such as LIBOR, which may result in increased borrowing costs for the Company.

A hypothetical increase in the SOFR of 100 basis points as of January 1, 2024 would have resulted in approximately $0.2 million in additional pre-tax interest expense for the three months ended March 31, 2024.

A hypothetical increase in the SOFR of 100 basis points as of January 1, 2024 would have resulted in approximately $0.4 million in additional pre-tax interest expense for the six months ended June 30, 2024.

For further information regarding our debt instruments, see Note 3 to the Financial Statements.

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In certain cases, we may enter into foreign currency cash flow hedges to reduce the variability of cash flows associated with our sales and expenses denominated in foreign currency.

As of March 31, 2024, we had no foreign currency exchange hedging contracts.

As of June 30, 2024, we had no foreign currency exchange hedging contracts.

There can be no assurance that our strategies will adequately protect our operating results from the effect of exchange rate fluctuations.

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Excluding intercompany payables and receivables considered to be long-term investments, changes in exchange rates for assets and liabilities not denominated in their functional currency are reported as foreign currency transaction gains (losses) within selling and administrative expenses in our statements of comprehensive income.

During the three months ended March 31, 2024 and 2023, foreign currency losses were not significant.

During the six months ended June 30, 2024 and 2023, foreign currency losses were not significant.

We also have exposure to foreign currency exchange risk from the translation of foreign subsidiaries from the local currency into the U.S.

Comprehensive income during the three months ended March 31, 2024 and 2023 included a foreign currency translation adjustment loss of $0.5 million and a foreign currency translation adjustment gain of $0.3 million, respectively.

Comprehensive income during the six months ended June 30, 2024 and 2023 included a foreign currency translation adjustment loss of $1.7 million and a foreign currency translation adjustment gain of $0.6 million, respectively.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis