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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our Financial Statements, which present our results of operations for the years ended December 31, 2024 and 2023, as well as our financial positions at December 31, 2024 and 2023, contained elsewhere in this Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the “Special Note Regarding Forward Looking Statements” and “Risk Factors” sections of this Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Additionally, we use a non-GAAP financial measure to evaluate our results of operations. For important information regarding the use of such non-GAAP financial measure, including reconciliations to the most comparable GAAP measure, see the section titled “Non-GAAP Financial Measure” below.

Business Outlook

Superior Group of Companies, Inc. (together with its subsidiaries, the “Company,” “Superior,” “we,” “our,” or “us”) is comprised of three reportable business segments: (1) Branded Products, (2) Healthcare Apparel and (3) Contact Centers.

Branded Products

In our Branded Products segment, we produce and sell customized merchandising solutions, promotional products and branded uniform programs to our customers. As a strategic branding partner, we offer our customers customized branding solutions and strategies that generate favorable brand impressions, bolster customer retention and enhance employee engagement. Our products are sold to customers in a wide range of industries, including retail, hotel, food service, entertainment, technology, transportation and other industries. Sales volumes in this segment are impacted by a number of factors, including marketing programs of our customers and turnover of our customers’ employees, often times driven by the opening and closing of locations. From a long-term perspective, we believe that synergies within this segment will create opportunities to cross-sell products to new and existing customers.

Healthcare Apparel

In our Healthcare Apparel segment, 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 gowns. We sell our brands of healthcare service apparel to healthcare laundries, dealers, distributors and retailers 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.

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Contact Centers

In our Contact Centers segment (also known as “The Office Gurus”), which operates in El Salvador, Belize, Jamaica, Dominican Republic, and the United States, we provide outsourced, nearshore business process outsourcing, contact and call-center support services to North American customers. These services are also provided internally to the Company’s other two operating segments. The Office Gurus has become an award-winning business process outsourcer offering inbound and outbound voice, email, text, chat and social media support. The nearshore call-center market has grown as businesses look to reduce operating costs while maintaining high-quality customer support. Nearshore operators are able to provide comparable service to their U.S. counterparts at a fraction of the price. With an environment and career path designed to attract and maintain top talent across all sites, we believe The Office Gurus is positioned well to continue growing this business.

Global Economic and Political Conditions

Economic and political events over the past several years have altered the landscape in which we and other U.S. companies operate in a variety of ways. 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. The ongoing 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. While inflation and interest rates decreased in 2024, the effects of the conflict in the Middle East, further fluctuations in inflationary conditions and interest rates, additional sanctions or retaliatory measures related to the Russia-Ukraine crisis or other situations, including deteriorating or prolonged diplomatic tension between the United States and China, could further negatively affect U.S. and international commerce and exacerbate or prolong the period of high energy prices.

Prolonged or recurring disruptions or instability in the United States and global economies, and how the world reacts to those disruptions or instability, could have long-term impacts on our business. These business impacts could negatively affect us in a number of ways, including, but not limited to, reduced demand for our core products and services, reductions to our revenue and profitability, costs associated with complying with new or amended laws and regulations affecting our business, declines in our stock price, reduced availability and less favorable terms of future borrowings, valuation of our pension obligations, reduced credit-worthiness of our customers, and potential impairment of the carrying value of indefinite-lived intangible assets.

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The Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023

Operations

The following table provides highlights of our financial performance (in thousands, except percentages):

For the Years Ended December 31,

Net sales:

Gross margin:

Selling and administrative expenses:

(1) Please refer to "Non-GAAP Financial Measure" below for a reconciliation of EBITDA to net income.

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Net Income

The Company generated net income of $12.0 million during the year ended December 31, 2024 and net income of $8.8 million during the year ended December 31, 2023. The increase in net income during the year ended December 31, 2024 compared to the year ended December 31, 2023 was primarily due to increases in net sales and gross margins in all three of our reportable segments, and a decrease in interest expense, partially offset by an increase in selling and administrative expenses across all of our reportable segments.

EBITDA

EBITDA was $34.1 million and $33.5 million during the years ended December 31, 2024 and 2023, respectively. EBITDA for the year ended December 31, 2024 compared to the year ended December 31, 2023 increased primarily due to increased net sales and gross margins in all three of our reportable segments, partially offset by an increase in selling and administrative expenses across all of our reportable segments. 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.

Net Sales

Net sales for the Company increased 4.1% or $22.4 million, for the year ended December 31, 2024 compared to the year ended December 31, 2023. The increase was attributable to net sales increases in all three of our reportable segments.

Branded Products net sales increased 3.1%, or $10.6 million, for the year ended December 31, 2024 compared to the year ended December 31, 2023. The increase was primarily due to the expansion of business within existing accounts and new client wins.

Healthcare Apparel net sales increased 4.7%, or $5.3 million, for the year ended December 31, 2024 compared to the year ended December 31, 2023. The increase was primarily due to higher digital sales from both our wholesale customers and our direct-to-consumer website, partially offset by lower volume from our store-based wholesale customers.

Contact Centers net sales increased 6.0% before intersegment eliminations and 7.4% after intersegment eliminations for the year ended December 31, 2024 compared to the year ended December 31, 2023. The increase in net sales was attributable to sales growth from both new and existing customers.

Gross Margin

Gross margin is defined as net sales less cost of goods sold. Cost of goods sold consists primarily of direct costs of acquiring inventory, including cost of merchandise, inbound freight charges, purchasing costs, and inspection costs for our Branded Products and Healthcare Apparel segments. Cost of goods sold for our Contact Centers segment includes salaries and payroll related benefits for agents. The Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with out-bound freight are recorded in cost of goods sold. The cost of occupancy and operating the Company’s distribution centers are included in selling and administrative expenses. Gross margin rate is defined as gross margin divided by net sales.

Gross margin rate for the Company was 39.0% for the year ended December 31, 2024 up from 37.5% for the year ended December 31, 2023. The rate increase was primarily due to an improvement in gross margin rates in our Branded Products and Healthcare Apparel reportable segments.

Gross margin rate for our Branded Products segment was 35.3% for the year ended December 31, 2024 and 33.5% for the year ended December 31, 2023. The gross margin rate increased as compared to the prior year period primarily driven by sourcing mix resulting in lower product costs and pricing increases to existing customers.

Gross margin rate for our Healthcare Apparel segment was 38.4% for the year ended December 31, 2024 and 37.1% for the year ended December 31, 2023. The rate increase was primarily driven by lower supply chain costs.

Gross margin rate for our Contact Centers segment was 53.8% for the year ended December 31, 2024 and 53.7% for the year ended December 31, 2023. The rate remained flat year over year as cost increases kept pace with revenue increases.

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Selling and Administrative Expenses

As a percentage of net sales, total selling and administrative expenses was 35.3% for the year ended December 31, 2024 and 33.9% for the year ended December 31, 2023. The rate increase was primarily driven by increased commissions, employee related costs, increased expenditures related to marketing, advertising activities and the expiration of our written put option.

As a percentage of net sales, selling and administrative expenses for our Branded Products segment was 26.7% for the year ended December 31, 2024 and 25.7% for the year ended December 31, 2023. The rate increase was primarily due to increased employee related costs and sales commissions, partially offset by a decrease in bad debts expense for customer accounts.

As a percentage of net sales, selling and administrative expenses for our Healthcare Apparel segment was 34.5% for the year ended December 31, 2024 and 33.6% for the year ended December 31, 2023. The rate increase was primarily attributable to an increase in expenditures related to marketing and advertising activities along with employee related costs which were partially offset by expense leverage on increased net sales.

As a percentage of net sales, selling and administrative expenses for our Contact Centers segment was 44.4% for the year ended December 31, 2024 and 43.4% for the year ended December 31, 2023. The rate increase was primarily attributable to an increase in employee related expenses, including both headcount and select pay rate increases to support sales growth, as well as, an increase in bad debts expense.

Selling and administrative expenses for our Other segment, which represents unallocated Corporate costs, increased by $3.0 million, primarily driven by an increase in employee related costs, third party professional services and the fair value recognition of a written put option which expired in the second quarter of 2024.

Interest Expense

Interest expense decreased to $6.4 million for the year ended December 31, 2024 from $9.7 million for the year ended December 31, 2023. This decrease was due to a $30.7 million decrease in our weighted average outstanding borrowings along with a decrease in the weighted average interest rate on those borrowings from 6.7% for the year ended December 31, 2023 to 5.5% for the year ended December 31, 2024.

Income Taxes

Income tax expense increased to $2.3 million for the year ended December 31, 2024 from $1.0 million for the year ended December 31, 2023. The effective tax rate was 16.0% and 10.2% for the year ended December 31, 2024 and 2023, respectively. Income tax expense and the effective tax rate for the year ended December 31, 2024 and 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 effective tax rate may vary from year to year 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.

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Liquidity and Capital Resources

Liquidity Analysis

Short-Term Liquidity

For the next twelve months, our primary capital requirements are for capital to maintain our operations, meet contractual obligations, primarily consisting of our revolving credit facility, term loan, operating leases and acquisition-related contingent liabilities, and fund capital expenditures, dividends, stock repurchases, any potential merger and acquisition activity and other general corporate purposes. We currently anticipate that we will spend more in capital expenditures in 2025 than we spent in 2024. Management currently believes that the combination of our current cash level, cash flows provided by operating activities and availability under the revolving credit facility will be sufficient to satisfy the above requirements for the next twelve months.

Long-Term Liquidity

Beyond the next twelve months, our principal demand for funds will be for maintenance of our core business, to satisfy long-term contractual obligations, stock repurchases, any potential merger and acquisition activity and the Company’s ongoing capital expenditure program designed to improve the effectiveness and capabilities of its facilities and technology. The Company at all times evaluates its capital expenditure program in light of prevailing economic conditions. The Company's material contractual obligations include outstanding debt, operating leases, long-term pension liability and non-qualified deferred compensation plan liabilities in Other Liabilities. For additional details related to the Company’s long-term contractual obligations for long-term debt see Note 5, for contractual obligations for leases see Note 14 and for contractual obligations for acquisition-related contingent liabilities see Note 7. Management currently believes that the combination of our current cash level, cash flows provided by operating activities and availability under the revolving credit facility will be sufficient to satisfy the above requirements. Please refer to Notes 5 and 15 to our Consolidated Financial Statements located in Item 8 of this Annual Report on Form 10-K for our contractual obligations, including schedules of future minimum payments.

Cash Requirements

Working Capital Needs

The Company 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. The Company also requires working capital to invest in new product lines and technologies.

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Capital expenditures

Capital expenditures were $4.4 million and $5.0 million for the years ended December 31, 2024 and 2023, respectively.

Debt Service Obligations

In 2024 and 2023, we paid interest of $5.9 million and $9.6 million, respectively. The cost of borrowing decreased in 2024, with the weighted average interest rate on outstanding borrowings under our Credit Facilities of 5.5% at December 31, 2024 compared to 6.7% at December 31, 2023. As of December 31, 2024, the Company had undrawn capacity of $103.0 million under the revolving credit facility.

Sources of Capital and Liquidity

Cash on Hand

As of December 31, 2024, we had $18.8 million of cash on our balance sheet, of which $15.7 million of cash was held at foreign subsidiaries. Excess cash of $9.0 million from foreign operations may generally be transferred to operations in the US.

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Cash Flows from Operations

Net cash provided by operating activities primarily results from cash collected from customers for our promotional products, branded uniforms, healthcare apparel and accessories, offset by cash payments made for raw materials, salaries and payroll related benefits, leases and other general corporate expenditures.

In 2024, net cash provided by operating activities was $33.4 million. Cash collections from customers exceeded aggregate cash payments to vendors, lessors, employees and lenders primarily driven by the Company’s efforts to reduce outstanding receivable balances.

In 2023, net cash provided by operating activities was $78.9 million. Cash collections from customers exceeded aggregate cash payments to vendors, lessors, employees and lenders primarily driven by the Company’s collection of receivable balances coupled with positive non-cash add-backs for contract assets and decreases in cash outflows for inventory.

Credit Facilities and Debt Activity

The Company’s primary source of liquidity has been its net income and the use of credit facilities and term loans. The Company has access to a Revolving Credit Facility with a maximum principal amount of $125.0 million and a term loan in the original aggregate principal amount of $75.0 million 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.

For the year ended December 31, 2024, the Company had $7.7 million of net debt payments, consisting of $50.0 million in payments on the revolving credit facility and $4.7 million of payments in the term loan. For the year ended December 31, 2023, the Company had $61.8 million in net debt payments, consisting of $64.0 million in payments on the revolving credit facility and $3.8 million in payments on the term loan. For the years ended December 31, 2024 and 2023, the Company had borrowings of $47.0 million and $6.0 million on the revolving credit facility, respectively. Both the debt payments and borrowings during 2024 and 2023 primarily related to the utilization of our revolving credit facility in the normal course of business.

In the future, the Company may continue to use credit facilities and other secured and unsecured borrowings as a source of liquidity. Additionally, the cost of the Company’s future sources of liquidity may differ from the costs of the Company’s sources of liquidity to date.

Please refer to Note 5 to our Consolidated Financial Statements located in Item 8 of Part II of this Annual Report on Form 10-K for additional details on our outstanding long-term debt.

Dividends and Share Repurchase Program

During the years ended December 31, 2024 and 2023, the Company paid cash dividends of $9.3 million and $9.2 million, respectively. The Company anticipates that it will continue to pay dividends in the future as financial conditions permit.

On August 9, 2024, the Company’s Board of Directors approved a new stock repurchase plan. Under the plan, the Company is authorized to repurchase up to $10 million of its common stock over a period of one year ending in August 2025. This plan replaces the May 2, 2019 plan, as amended, which authorized the repurchase of up to 750,000 shares. 92,549 shares had been repurchased under the May 2, 2019 plan as of August 9, 2024. No further shares will be repurchased under that plan. The new stock repurchase plan allows the Company to purchase common stock from time to time through, among other ways, open market purchases, privately negotiated transactions, block purchases, and/or pursuant to Rule 10b5-1 trading plans, subject to applicable securities laws and other legal requirements and relevant factors. The number of shares purchased and the timing of any purchases will depend upon a number of factors, including the price and availability of the Company’s stock and general market conditions. The stock repurchase plan may be modified, suspended or terminated at any time, without prior notice. Shares repurchased may be reissued later in connection with employee benefit plans and other general corporate purposes. Shares purchased under the common stock repurchase plan are constructively retired and returned to unissued status. See Part II, Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. As of December 31, 2024, 523,472 shares have been purchased under the new plan and $2.6 million remains available to repurchase shares under the $10 million authorized.

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Non-GAAP Financial Measure

EBITDA, which is a non-GAAP financial measure, is defined as net income excluding interest expense, income tax expense, depreciation and amortization expense and impairment charges. The Company believes EBITDA is an important measure of operating performance because it allows management, investors and others to evaluate and compare the Company’s core operating results from period to period by removing (i) the impact of the Company’s capital structure (interest expense from outstanding debt), (ii) tax consequences and (iii) asset base (depreciation and amortization). The Company uses EBITDA internally to monitor operating results and to evaluate the performance of its business. In addition, the compensation committee has used EBITDA in evaluating certain components of executive compensation, including performance-based annual incentive programs.

EBITDA is not a measure of financial performance under GAAP. EBITDA should not be considered in isolation or as an alternative to net income, cash flows from operating activities or any other measure determined in accordance with GAAP. The items excluded to calculate EBITDA are significant components in understanding and assessing the Company’s results of operations. The presentation of the Company’s EBITDA may change from time to time, including as a result of changed business conditions, new accounting pronouncements or otherwise. If the presentation changes, the Company undertakes to disclose any change between periods and the reasons underlying that change. The Company’s EBITDA may not be comparable to a similarly titled measure of another company because other entities may not calculate EBITDA in the same manner.

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

Years Ended December 31,

Intangible assets impairment charge 260 -

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Critical Accounting Estimates

Our discussion and analysis of financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. Our accounting policies are more fully described in Note 1 to the Financial Statements included in this Form 10-K. The preparation of the financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate the estimates that we have made. These estimates are based upon our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Our actual results may differ from these estimates under different assumptions or conditions.

Critical accounting estimates are those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. We believe that the following critical accounting policies and estimates have a higher degree of inherent uncertainty and require our most significant judgments.

Revenue Recognition

Inventories

The Company at all times carries inventories of both raw materials and finished products. Inventories are stated at the lower of cost or net realizable value. Judgments and estimates are used in determining the likelihood that goods on hand can be sold to customers. Historical inventory usage, current revenue trends and market conditions are considered in estimating both excess and obsolete inventories. If actual product demand and market conditions are less favorable than those projected by management, inventory write-downs may be required, which may be material. An additional write-down in value of 5% of inventories would result in additional expense of approximately $5.0 million.

Intangibles

Indefinite-lived intangible assets such as trade names are not amortized but are subject to an annual impairment test in the fourth quarter based or on an interim basis if there are indicators of impairment present.

During the third quarter of 2024, the Company performed an interim impairment test on certain of its indefinite-lived trade name intangible assets within the Healthcare segment which resulted in an immaterial impairment of $0.3 million. We conducted a quantitative assessment using the relief-from-royalty method, which we believe to be an acceptable methodology due to its common use by valuation specialists in determining the fair value of intangible assets. This methodology assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to exploit the related benefits of these assets. The assumptions that have the most significant effect on the fair value calculations are the royalty rates, projected revenue growth rates, discount rates, and terminal values. Each royalty rate is determined based on the profitability of the trade name to which it relates.

In determining the fair value of our trade name indefinite lived intangible assets as of September 30, 2024, we used the following key assumptions:

• A weighted-average royalty rate of 2.8%;

• A long-term growth rate of 3.0%; and

• An assumed discount rate of 16.5%

The Company performed its annual impairment test for definite-lived intangible assets in the fourth quarter of 2024 and 2023. As part of our annual impairment assessments the Company determined the fair values were greater than the carrying values.

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Income Taxes

The Company is required to estimate and record income taxes payable for federal, state and foreign jurisdictions in which the Company operates. This process involves estimating actual current tax expense and assessing temporary differences resulting from differing accounting treatment between tax and book that result in deferred tax assets and liabilities. In addition, accruals are also estimated for federal and state tax matters for which deductibility is subject to interpretation.

Deferred income taxes are provided on undistributed earnings of foreign subsidiaries in the period in which the Company determines it no longer intends to permanently reinvest such earnings outside the United States. The Company expects to permanently reinvest the earnings from its wholly-owned Brazilian and UK subsidiaries, and accordingly, has not provided deferred taxes on the subsidiaries’ undistributed net earnings or basis differences. The Company believes that the tax liability that would be incurred upon repatriation of the earnings from its Brazilian and UK subsidiaries is immaterial at December 31, 2024.

Reserves are also estimated for uncertain tax positions that are currently unresolved. The Company routinely monitors the potential impact of such situations and believes that it is properly reserved. For the year ended December 31, 2024, there was no significant change in total unrecognized tax benefits. As of December 31, 2024, we had an accrued liability of $0.9 million for unrecognized tax benefits. We accrue interest and penalties related to unrecognized tax benefits in income tax expense, and the related liability is included in other long-term liabilities in our balance sheet.

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

We are subject to market risk exposure related to changes in interest rates on our debt. Interest on our Credit Facilities is based upon the secured overnight financing rate (“SOFR”). 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 $0.9 million in additional pre-tax interest expense for the year ended December 31, 2024. For further information regarding our debt instruments, see Note 5 to the Financial Statements.

Foreign Currency Exchange Risk

Sales to customers outside of the United States are subject to fluctuations in foreign currency exchange rates, which may negatively impact gross margin realized on our sales. Less than 5% of our sales contracts are denominated in foreign currencies. We cannot predict the effect of exchange rate fluctuations on our operating results. 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 December 31, 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.

Financial results of our foreign subsidiaries in the Branded Products segment are denominated in their local currencies, which include the Hong Kong dollar, the Chinese renminbi, the British pound, the Indian rupee, the Brazilian real, Colombian peso and the Canadian dollar. These operations may also have net assets and liabilities not denominated in their functional currency, which exposes us to changes in foreign currency exchange rates that impact income. 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 years ended December 31, 2024 and 2023 foreign currency transaction gains (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. dollar. Comprehensive income (loss) during the years ended December 31, 2024 and 2023, included a foreign currency translation adjustment loss of $3.4 million and a foreign currency translation adjustment gain of $0.7 million, respectively.

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Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page

Report of Independent Registered Public Accounting Firm (PCAOB ID 248) 35

Notes to the Consolidated Financial Statements:

Note 2 - Operating Segment Information 49

Note 3 - Net Sales 51

Note 4 - Net Income Per Share 52

Note 5 - Long-Term Debt 53

Note 6 - Acquisitions 54

Note 7 - Contingencies 54

Note 8 - Inventories 55

Note 9 - Intangible Assets 56

Note 10 - Property, Plant and Equipment, Net 57

Note 11 - Income Tax Expense 58

Note 12 - Share-Based Compensation 60

Note 13 - Stock Repurchase Plan 63

Note 15 - Benefit Plans 65

Note 16 - Other Information 66

Note 17 - Subsequent Events 66

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Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

Superior Group of Companies, Inc.

Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of Superior Group of Companies, Inc. (a Florida corporation) and subsidiaries (the “Company”) as of December 31, 2024 and 2023, and the related consolidated statements of comprehensive income, shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 11, 2025 expressed an unqualified opinion.

Basis for opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical audit matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Indefinite-lived Intangible Assets – CID Resources Trade name

As described further in Note 9 to the financial statements, the Company has an indefinite-lived intangible asset related to the CID Resources trade name of approximately $13.9 million. This indefinite-lived intangible asset is reviewed at least quarterly by the Company for impairment assessment. The Company considers historical and projected financial performance as well as industry information. We identified the quantitative fair value assessment of the CID Resources trade name as a critical audit matter.

The principal considerations for our determination that the impairment assessment of this indefinite-lived intangible asset is a critical audit matter are that the impairment assessment requires the Company to utilize subjective assumptions to estimate the discounted cash flows attributable to the CID Resources trade name, such as royalty rate and discount rate. This estimation process required a high degree of auditor judgement and an increased extent of effort.

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Our audit procedures related to the CID Resources trade name included the following, among others.

/s/ GRANT THORNTON LLP

We have served as the Company's auditor since 2022.

Tampa, Florida

March 11, 2025

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Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

Superior Group of Companies, Inc.

Opinion on internal control over financial reporting

We have audited the internal control over financial reporting of Superior Group of Companies, Inc. (a Florida corporation) and subsidiaries (the “Company”) as of December 31, 2024, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2024 and our report dated March 11, 2025 expressed an unqualified opinion on those financial statements.

Basis for opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and limitations of internal control over financial reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ GRANT THORNTON LLP

Tampa, Florida

March 11, 2025

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SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except shares and per share data)

Years Ended December 31,

Costs and expenses:

Net income per share:

Weighted average shares outstanding during the period:

Other comprehensive income (loss), net of tax

Defined benefit pension plans $ 301 $ (9 )

Foreign currency translation adjustment (3,375 ) 735

Other comprehensive income (loss) (3,074 ) 726

Cash dividends per common share $ 0.56 $ 0.56

See accompanying Notes to the Consolidated Financial Statements.

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SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and par value data)

December 31,

ASSETS

Current assets:

Prepaid expenses and other current assets 10,831 9,188

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Current portion of long-term debt 5,625 4,688

Current portion of acquisition-related contingent liabilities 814 1,403

Long-term acquisition-related contingent liabilities 935 557

Long-term operating lease liabilities 10,486 12,809

Commitments and contingencies (Note 7)

Shareholders’ equity:

Preferred stock, $.001 par value - authorized 300,000 shares (none issued) - -

Accumulated other comprehensive loss, net of tax (5,359 ) (2,285 )

Total liabilities and shareholders’ equity $ 415,134 $ 422,450

See accompanying Notes to the Consolidated Financial Statements.

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SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands, except shares and per share data)

Accumulated

Other

Additional Comprehensive Total

Common Common Paid-In Retained (Loss) Income, Shareholders’

Shares Stock Capital Earnings net of tax Equity

Share-based compensation expense - - 3,787 - - 3,787

Written put options - - 767 - - 767

Cash dividends declared ($0.56 per share) - - - (9,188 ) - (9,188 )

Pensions, net of taxes of $3 - - - - (9 ) (9 )

Change in currency translation adjustment, net of taxes of $0 - - - - 735 735

Share-based compensation expense - - 4,270 - - 4,270

Cash dividends declared ($0.56 per share) - - - (9,284 ) - (9,284 )

Pensions, net of taxes of $100 - - - - 301 301

See accompanying Notes to the Consolidated Financial Statements.

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SUPERIOR GROUP OF COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Years Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES

Share-based compensation expense 4,270 3,787

Deferred income tax benefit (1,581 ) (1,635 )

Change in fair value of acquisition-related contingent liabilities 437 (189 )

Change in fair value of written put options 653 489

Changes in assets and liabilities, net of acquisition of businesses:

Prepaid expenses and other current assets (2,375 ) 8,515

Accounts payable and other current liabilities 1,934 13,310

Payment of acquisition-related contingent liabilities (686 ) (279 )

Long-term pension liability 433 407

Other long-term liabilities 1,433 851

Net cash provided by operating activities 33,428 78,929

CASH FLOWS FROM INVESTING ACTIVITIES

Additions to property, plant and equipment (4,435 ) (4,963 )

Acquisition of business (4,000 ) -

Other investments - (545 )

Net cash used in investing activities (8,435 ) (5,508 )

CASH FLOWS FROM FINANCING ACTIVITIES

Borrowings under revolving lines of credit 47,000 6,000

Payments under revolving lines of credit (50,000 ) (64,000 )

Debt issuance costs - (300 )

Payment of cash dividends (9,284 ) (9,188 )

Payment of acquisition-related contingent liabilities (897 ) (553 )

Proceeds received on exercise of stock options 1,128 175

Shares withheld for taxes (317 ) -

Common stock reacquired and retired (7,417 ) -

Net cash used in financing activities (24,474 ) (71,616 )

Effect of currency exchange rates on cash (1,649 ) 369

Net (decrease) increase in cash and cash equivalents (1,130 ) 2,174

Cash and cash equivalents balance, beginning of year 19,896 17,722

Cash and cash equivalents balance, end of year $ 18,766 $ 19,896

Supplemental disclosure of cash flow information:

Income taxes paid (refunded), net $ 2,303 $ (978 )

See accompanying Notes to the Consolidated Financial Statements.

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Superior Group of Companies, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

NOTE 1 – Description of Business, Basis of Presentation and Summary of Accounting Policies:

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 or operations in the United States, Canada and 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 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”). The Company refers to the 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 to conform to the presentation used in the current period. Reclassifications only impact items within our statements of comprehensive income, our balance sheets and our statements of cash flows. These reclassifications did not have an effect on the Company’s consolidated results of operations, financial position or cash flows for the year ended December 31, 2024.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenue and expenses, as well as the disclosures of contingent assets and liabilities. Because of the inherent uncertainties in this process, actual future results could differ from those expected at the reporting date.

Cash and cash equivalents

The Company considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents.

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Revenue recognition

Revenue from contracts with customers is recognized using a five-step model consisting of the following: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. Performance obligations are satisfied when the Company transfers control of a good or service to a customer, which can occur over time or at a point in time. The amount of revenue recognized is based on the consideration to which the Company expects to be entitled to in exchange for those goods or services, including the expected value of variable consideration.

The Company records contract assets when revenue is recognized but has not yet invoiced the customer. This occurs when costs are incurred for the production of goods with customers for which we recognize revenue over time but the associated revenues have not been billed to the customer. Contract liabilities are recorded for arrangements where the Company has billed the customer but has not shipped the goods and the transaction does not meet the criteria for bill and hold revenue recognition.

The Company also has bill and hold arrangements with certain customers. For these arrangements, control over the product is transferred when the product is ready for physical transfer to the customer, as we have a present right to payment, the customer can direct the use of the product (i.e., request shipment to its facility), and legal title has passed to the customer. Revenue is recognized at the time the product is produced and we have transferred control to the customer.

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. Revenue from the sale of personal protective equipment, including facemasks, is generally recognized at a point in time when the goods are transferred to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contract. 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.

Accounts receivable and allowance for doubtful accounts

Judgments and estimates are used in determining the collectability of accounts receivable and in establishing allowances for doubtful accounts. The Company analyzes specific accounts receivable and historical bad debt experience, customer credit worthiness, current economic trends and the age of outstanding balances when evaluating the adequacy of the allowance for doubtful accounts. Changes in estimates are reflected in the period they become known. Charge-offs of accounts receivable are made once all collection efforts have been exhausted. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

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Cost of goods sold and shipping and handling fees and costs

Cost of goods sold for our Branded Products segment and our Healthcare Apparel segment consist primarily of direct costs of acquiring inventory, including cost of merchandise, inbound freight charges, purchasing, receiving and inspection costs. Cost of goods sold for our Contact Centers segment includes salaries and payroll related benefits for agents. The Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with out-bound freight are recorded in cost of goods sold. The cost of occupancy and operating the Company’s distribution centers are included in selling and administrative expenses.

Inventories

Inventories are stated at the lower of cost (first-in, first-out method or average cost) or net realizable value. Judgments and estimates are used in determining the likelihood that goods on hand can be sold to customers. Historical inventory usage and current revenue trends are considered in estimating both excess and obsolete inventories. If actual product demand and market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

Property, plant and equipment

Property, plant and equipment are stated at cost, less accumulated depreciation. Major renewals and improvements are capitalized, while replacements, maintenance and repairs which do not improve or extend the life of the respective assets are expensed in the period incurred. Costs of assets sold or retired and the related accumulated depreciation are eliminated from accounts and the net gain or loss is reflected in the statements of comprehensive income within selling and administrative expenses.

Property, plant and equipment is recorded at cost and depreciated using the straight-line method over its estimated useful life as follows:

Buildings (in years) 20 to 40

Improvements (in years) 5 to 40

Machinery, equipment and fixtures (in years) 3 to 10

Leasehold improvements are depreciated over the terms of the leases to the extent that such improvements have useful lives of at least the terms of the respective leases.

Leases

The Company primarily leases factories, warehouses, call centers, office space and equipment for various terms under long-term, non-cancelable operating lease agreements. A right-of-use asset represents the Company’s right to use an underlying asset for the lease term and a lease liability represents the Company’s obligation to make lease payments arising from the lease. The Company’s leases generally have expected lease terms of one to eight years. In the normal course of business, it is expected that the Company’s leases will be renewed or replaced by leases on other properties. Options to renew lease terms are included in determining the right-of-use asset and lease liability when it is reasonably certain that the Company will exercise that option. Certain of the lease agreements include rental payments adjusted periodically for inflation and generally require the Company to pay real estate taxes, insurance, and repairs. The Company’s lease agreements generally do not contain any material residual value guarantees or material restrictive covenants. The Company elected the short-term lease exception guidance under ASC 842.

Impairment of long-lived assets

Long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the asset is measured by comparison of its carrying amount to future net cash flows the asset is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds its fair value. There were no material impairments of long-lived assets for the years ended December 31, 2024 and 2023.

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Goodwill and Indefinite-lived intangible assets

The Company has made acquisitions that include both goodwill and indefinite-lived intangible assets. Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Goodwill and indefinite-lived intangible assets such as trade names are not amortized but are subject to an annual impairment test in the fourth quarter based on their estimated fair value. We test more frequently if there are indicators of impairment, or whenever such circumstances suggest that the carrying value of goodwill or trade names may not be recoverable. Examples of such events and circumstances that the Company would consider include the following:

An entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the impairment test is unnecessary.

Contingent Consideration

Contingent consideration relating to consideration transferred in exchange for an acquired business is recognized at its estimated fair value at the acquisition date. The contingent consideration is remeasured to fair value at each reporting date until the contingency is resolved. Recognition of any changes in fair value are included in selling and administrative expenses in our statements of comprehensive income.

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SERP

The Company is the sponsor of an unfunded supplemental executive retirement plan (“SERP”) which includes one active participant. In calculating our obligations and related expense, we make various assumptions and estimates, after consulting with outside actuaries and advisors. The annual determination of expense involves calculating the estimated total benefits ultimately payable to plan participants. Significant assumptions related to the calculation of our obligations include the discount rates used to calculate the present value of benefit obligations to be paid in the future. We review these assumptions annually based upon currently available information, including information provided by our actuaries.

Insurance

The Company self-insures for certain obligations related to employee health programs. The Company also purchases stop-loss insurance policies to protect it from catastrophic losses. Judgments and estimates are used in determining the potential value associated with reported claims and for losses that have occurred, but have not been reported. The Company’s estimates consider historical claim experience and other factors. The Company’s liabilities are based on estimates, and, while the Company believes that the accrual for loss is adequate, the ultimate liability may be in excess of or less than the amounts recorded. Changes in claim experience, the Company’s ability to settle claims or other estimates and judgments used by management could have a material impact on the amount and timing of expense for any period.

Taxes on income

Income taxes are provided for under the asset and liability method, whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The calculation of the Company’s tax liabilities also involves dealing with uncertainties in the application of complex tax regulations. The Company recognizes liabilities for uncertain income tax positions based on estimates of whether, and the extent to which, additional taxes will be required. The Company also accrues interest and penalties related to uncertain income tax positions as income taxes.

Share-based compensation

The Company awards share-based compensation as an incentive for employees to contribute to the Company’s long-term success. The Company grants options, stock-settled stock appreciation rights, restricted stock and performance shares. The Company recognizes share-based compensation expense for all awards granted to employees, which is based on the fair value of the award on the date of grant. Determining the appropriate fair value model and calculating the fair value of stock compensation awards requires the input of certain highly complex and subjective assumptions, including the expected life of the stock compensation awards and the Company’s common stock price volatility, risk free interest rate and dividend rate. The assumptions used in calculating the fair value of stock compensation awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of judgment. As a result, if factors change and the Company deems it necessary to use different assumptions, stock compensation expense could be materially different from what has been recorded in the current period. Forfeitures of share-based compensation awards are recognized as they occur.

Other comprehensive income (loss)

Comprehensive income (loss) includes net income and all other changes in equity during a period except those resulting from investments by or distributions to shareholders. Other comprehensive income (loss) consists of defined benefit pension plan activities and foreign currency translation adjustments. The related tax effects of these items are recorded in income tax expense within the statements of comprehensive income, upon reclassification from accumulated other comprehensive income (loss), net of tax.

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Foreign Currency Translations and Transactions

Assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the current rate of exchange on the last day of the reporting period. Changes in the carrying values of these assets and liabilities attributable to fluctuations in spot rates are recognized in net foreign currency translation adjustment, a component of accumulated other comprehensive income (loss), net of tax. Monetary assets and liabilities denominated in a currency that is different from a reporting entity’s functional currency are remeasured from the applicable currency to the reporting entity’s functional currency. Gains or losses resulting from transactions denominated in other currencies are recognized in net income each period. The majority of the Company’s transactions are settled in U.S. dollars.

Risks and concentrations

Financial instruments that potentially subject the Company to concentrations of credit risk include cash in banks in excess of federally insured amounts. The Company manages this risk by maintaining all deposits in high quality financial institutions and periodically performing evaluations of the relative credit standing of the financial institutions. When assessing credit risk the Company considers whether the credit risk exists at both the individual and group level. Consideration is given to the activity, region and economic characteristics when assessing if there exists a group concentration risk. At December 31, 2024 and 2023, the Company had no customer with an accounts receivable balance greater than 10% of total accounts receivable.

Principal raw materials used to manufacture the Company’s finished goods include cotton, polyester, spandex, cotton-synthetic, poly-synthetic blends, textiles, plastic, glass, fabric and metal. The majority of such fabrics are sourced in China, either directly by us or our suppliers. If we are unable to continue to obtain our raw materials and finished products from China or if our suppliers are unable to source raw materials from China, it could significantly disrupt our business. Further, the Company and the Company’s suppliers generally source or manufacture finished goods in parts of the world that may be affected by economic uncertainty, political unrest, logistical challenges (such as port strikes and embargos), foreign currency fluctuations, labor disputes, health emergencies, natural disasters or the imposition of duties, tariffs or other import regulations by the United States, any of which could result in additional cost or limit our supply of necessary goods and raw materials.

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, required 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 were liabilities under ASC 480, “Distinguishing Liabilities from Equity” because the options embodied obligations to repurchase the Company’s shares by paying cash. As of December 31, 2023, the fair value of the written put options were $1.8 million. The fair value of the written put options was based directly on the Company’s stock price and were included in other current liabilities in our balance sheets. The written put options expired after twenty-four months and contained certain quarterly maximums. During the twelve months ended December 31, 2024, the remaining unexpired options for 132,924 shares expired resulting in a $2.4 million reduction in other current liabilities with an offset to additional paid-in capital. Unrealized gains and losses from changes in the fair value of the written put options were included within selling and administrative expenses in our statements of comprehensive income.

Fair value of financial instruments

The carrying amounts of cash and cash equivalents, receivables and accounts payable approximated fair value as of December 31, 2024 and 2023, because of the relatively short maturities of these instruments. The carrying amount of the Company’s long-term debt approximated fair value as the rates are adjustable based upon current market conditions.

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Recent Accounting Pronouncements

We consider the applicability and impact of all Accounting Standard Updates (“ASUs”). ASUs not listed below were assessed and determined to be not applicable.

Recently Adopted Accounting Pronouncements

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. We have adopted the disclosure requirements of ASU 2023-07 in our consolidated financial statements as of and for the year ended December 31, 2024. The adoption of the ASU only impacted our disclosures, which are on a retrospective basis, with no impacts on our results of operations, cash flows or financial condition. The Company’s adoption of this standard did not have a material impact on its financial statements. See Note 2 for further details.

Recently Issued Accounting Pronouncements Not Yet Adopted

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.

In November 2024, the FASB issued ASU 2024-03,“Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses“ The ASU requires the disclosure of additional information about specific categories of costs and expenses in the notes to the consolidated financial statements. This guidance is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. This ASU will likely result in additional disclosures. We are currently evaluating the provisions of this ASU.

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NOTE 2 – 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, hotel, food service, entertainment, technology, transportation and other industries. The segment currently has sales offices in the United States and 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 gowns. This segment sells healthcare service apparel to healthcare laundries, dealers, distributors and retailers 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 table below.

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The chief operating decision maker, who is the Company’s Chief Executive Officer, evaluates the performance of our segments. Segment EBITDA is the profitability metric reported to the Company’s CODM for purposes of making decisions about allocation of resources to, and assessing performance of, each reportable segment. Segment EBITDA is calculated as net sales less cost of goods sold and selling and administrative expenses. Segment information for total assets is not presented as this information is not used by the Company’s CODM in measuring segment performance or allocating resources between segments.

The following tables set forth financial information related to the Company’s operating segments (in thousands):

For the Year Ended December 31, 2024:

Intangible assets impairment charge - 260 - - - 260

For the Year Ended December 31, 2023:

The following table reconciles total Segment EBITDA to income before income tax expense:

Years Ended December 31,

Income before income tax expense $ 14,294 $ 9,769

Intangible assets impairment charge 260 -

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NOTE 3 – Net Sales:

The following table presents disaggregated revenue by operating segment for the periods presented (in thousands):

Years Ended December 31,

Branded Products Segment:

Personal protective equipment 43 224

Healthcare Apparel Segment:

Personal protective equipment 3,638 3,007

Contact Centers Segment:

Net intersegment eliminations (3,778 ) (4,756 )

Branded Products and Contact Center segments have a substantial number of customers, none of which accounted for more than 10% of either segment’s 2024 net sales. Our Healthcare Apparel segment has one customer who accounts for 10% of the segment’s 2024 net sales.

The Company recognizes revenue when the customer takes control of the inventory, either upon shipment or when the material is made available for pick up. If the customer is deemed to take control of the inventory prior to pick up, the Company recognizes the revenue as a bill-and-hold transaction in accordance with Topic 606. Sales under bill-and-hold arrangements totaled $33.6 million and $14.3 million, for the years ended December 31, 2024 and 2023, respectively.

Contract Assets and Contract Liabilities

The following table provides information about accounts receivable, contract assets and contract liabilities from contracts with customers (in thousands):

December 31,

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. Accounts receivable, current contract assets, and current contract liabilities were $104.8 million, $53.0 million, and $2.2 million, respectively for the year ended December 31, 2022. The majority of the amounts included in contract assets on December 31, 2023 were transferred to accounts receivable during the year ended December 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. The contract liability balance as of December 31, 2023 was recognized into revenue during the twelve-months ended December 31, 2024

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NOTE 4 – 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, unvested shares of restricted stock and unvested 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 years ended December 31, 2024 and 2023 (net income is presented in thousands):

Years Ended December 31,

Net income per share:

Awards to purchase 329,848 and 1,113,935 shares of common stock with weighted average exercise prices of $21.36 and $15.95, were outstanding during the years ended December 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.

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NOTE 5 – Long-Term Debt:

Debt consisted of the following (in thousands):

December 31,

Credit Facilities:

Less: unamortized debt issuance costs (653 ) (898 )

Less:

Current portion of long-term debt 5,625 4,688

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 5.5% at December 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 December 31, 2024, there were no outstanding letters of credit under the revolving credit facility.

Contractual principal payments for the term loan are as follows: 2025 - $5.6 million; 2026 - $6.6 million; and 2027 - $52.5 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 December 31, 2024, the Company was in compliance with these ratios.

Debt Maturity Schedule

Contractual maturities of the Credit Facilities (excluding interest to be accrued thereon) at December 31, 2024 are as follows (in thousands):

Thereafter -

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NOTE 6 – Acquisitions:

On December 4, 2024, the Company, through BAMKO, acquired substantially all of the assets of Cormark Inc. doing business as 3Point Brand Management ("3Point" or "acquired company"), for a total purchase price of $6.4 million. The acquired company is an advertising company that specializes in creating a brand for some the country’s biggest brands through apparel, promotional marketing and other products. The purchase price for the acquisition consisted of the following: (a) $4.0 million of cash consideration, (b) the issuance of 89,445 restricted shares of Superior’s common stock valued at $1.5 million, and (c) estimated contingent future payments of $0.9 million based on the results of the acquired business through December 2027. The restricted shares vest ratably over a three-year period and are subject to transfer restrictions. Total goodwill recorded in connection with the acquisition was $2.3 million, and was assigned to the Branded Products reportable segment.

NOTE 7 – 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 December 31, 2024 was $0.8 million, all of which is expected to be paid in the third quarter of 2025. In the third quarter of 2024, $1.0 million was paid for the 2023 measurement period. The total estimated undiscounted remaining payment related to this contingent consideration payable is between $0.8 million and $1.0 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 purchase price to acquire substantially all of the assets of 3Point in December 2024 included contingent consideration based on varying levels of the acquired company’s EBITDA in each measurement period through December 2027. The estimated fair value of the acquired company's acquisition-related contingent consideration payable as of December 31, 2024 was $0.9 million, of which $0.9 million is expected to be paid in the second quarter of 2026. The total payments related to this contingent consideration payable is capped at $0.9 million per year and $2.6 million over the three year measurement period. The Company will continue to evaluate the acquired company's 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. 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.

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NOTE 8 - Inventories:

Inventories consisted of the following amounts (in thousands):

December 31,

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NOTE 9 - Intangible Assets and Goodwill:

Intangible Assets

The carrying amounts of indefinite-lived trade names are summarized as follows (dollars in thousands):

Trade names:

(1) Includes trade names and trademarks associated with CID Resources and Wink®.

As described in Note 1, the Company performs its annual impairment test for definite-lived intangible assets in the fourth quarter. As part of our annual impairment test the Company determined the fair values were greater than the carrying values. A quantitative impairment test was performed in the third quarter of 2024. As a result of this assessment the Company recognized a $0.3 million impairment charge during the year ended December 31, 2024. As a result of our annual assessment for the year ended December 31, 2023 there was no impairment.

Intangible assets as of December 31, 2024 and December 31, 2023 are summarized as follows (dollars in thousands):

Definite-lived intangible assets:

As part of the acquisition disclosed in Note 6, total intangible assets recorded to the Branded Products segment were valued at $4.0 million, of which $3.6 million related to the customer relationship intangible asset.

Amortization expense for intangible assets for the years ended December 31, 2024 and 2023 was $3.8 million and $4.6 million, respectively.

Estimated future intangible amortization expense is as follows (in thousands):

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Goodwill

As described in Note 6, the Company acquired $2.3 million of goodwill as a result of its acquisition of 3Point, all of which was recorded in our Branded Products reportable segment.

NOTE 10 - Property, Plant and Equipment, Net:

Property, plant and equipment, net, consisted of the following (in thousands):

December 31,

Buildings, improvements and leaseholds 23,801 16,929

Property, plant and equipment, net $ 41,879 $ 46,890

Depreciation expense was $9.4 million and $9.4 million in 2024 and 2023, respectively.

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NOTE 11 – Income Tax Expense:

The components of income before income tax expense are as follows (in thousands):

Years Ended December 31,

Income before income tax expense $ 14,294 $ 9,769

Aggregate income tax provision consists of the following (in thousands):

Years Ended December 31,

Current:

Deferred Taxes:

The significant components of the deferred income tax asset are as follows (in thousands):

December 31,

Deferred income tax assets:

Operating reserves and other accruals 9,077 6,613

Book carrying value in excess of tax basis of intangibles 1,808 1,831

Capitalized research expenses 3,502 2,547

Deferred income tax liabilities:

Book carrying value in excess of tax basis of property (4,123 ) (3,950 )

Deferred expenses (579 ) (430 )

The difference between the total statutory Federal income tax rate and the actual effective income tax rate is accounted for as follows:

Years Ended December 31,

Statutory federal income tax rate 21.0 % 21.0 %

State and local income taxes, net of federal income tax benefit 4.5 % 2.5 %

Rate impacts due to foreign operations (9.4 %) (12.8 %)

Compensation related 1.9 % 2.1 %

General business credits (3.4 %) (3.1 %)

Effective income tax rate 16.0 % 10.2 %

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The effective tax rate is the result of a variety of factors, and is primarily dependent on our jurisdictional mix of earnings across the Company’s domestic and foreign operations as well as applicable statutory tax rates and unrealized gains and losses associated with share-based compensation.

The Tax Cuts and Jobs Act of 2017 (“TCJA”) included certain provisions that continue to affect our income taxes, which, among other things, include interest deduction limitations and global intangible low taxed income regulations (“GILTI”).

The 2024 reduction of overall interest expense along with the Company’s increased level of income resulted in no current year limitation of interest expense deductibility. The Company utilized a portion of its disallowed interest deferred tax asset, resulting in a favorable interest expense deduction. The remaining deferred tax assets associated with the disallowed interest expense have an indefinite life and do not expire. Management believes these deferred tax assets are more likely than not to be realized and therefore no valuation allowance has been recorded.

The TCJA imposed a U.S. tax on GILTI that is earned by certain foreign affiliates owned by a U.S. shareholder. The computation of GILTI is generally intended to impose tax on the earnings of a foreign corporation that are deemed to exceed a certain threshold return relative to the underlying business investment. In accordance with guidance issued by FASB, the Company made a policy election to treat future taxes related to GILTI as a current period expense in the reporting period in which the tax is incurred. Deferred income taxes are provided on undistributed earnings of foreign subsidiaries in the period in which the Company determines it no longer intends to permanently reinvest such earnings outside the United States. The Company expects to permanently reinvest the earnings from its wholly-owned Brazilian and UK subsidiaries, and accordingly, has not provided deferred taxes on the subsidiaries’ undistributed net earnings or basis differences. The Company believes that the tax liability that would be incurred upon repatriation of the earnings from its Brazilian and UK subsidiaries is immaterial at December 31, 2024.

Only tax positions that meet the more-likely-than-not recognition threshold are recognized in the financial statements. As of December 31, 2024 and 2023, we had $0.9 million and $0.8 million of unrecognized tax benefits, all of which, if recognized, would favorably affect the annual effective income tax rate. We do not expect any significant amount of this liability to be paid in the next twelve months. Accordingly, the balance of $0.9 million as of December 31, 2024 is included in other long-term liabilities.

Changes in the Company’s gross liability for unrecognized tax benefits, excluding interest and penalties, are as follows (in thousands):

December 31,

Balance at the beginning of year $ 796 $ 807

Additions for tax positions of prior years 217 105

Reductions due to lapse of statute of limitations (102 ) (116 )

Balance at the end of year $ 911 $ 796

We accrue interest and penalties related to unrecognized tax benefits in income tax expense, and the related liability is included in other long-term liabilities in our balance sheet. During the years ended December 31, 2024 and 2023 there was no significant reduction to the liability for interest and penalties due to any lapses in statute of limitations. At December 31, 2024 and 2023, we had $0.3 million and $0.3 million, respectively, accrued for interest and penalties, net of tax benefit.

We anticipate that it is reasonably possible that the total amount of unrecognized tax benefits could decrease by approximately $0.2 million within the next twelve months due to the closure of tax years by expiration of the statute of limitations and audit settlements related to various state tax filing positions.

As a global organization, we file a U.S. federal income tax return as well as income tax returns in various states, and in non U.S. jurisdictions. As of December 31, 2024, the statute of limitations for the U.S. federal tax years 2020 through 2023 remain open to examination. For U.S. state and local jurisdictions tax years 2018 through 2023 are open to examination. We are also subject to examination in various foreign jurisdictions for tax years 2018 through 2023.

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NOTE 12 – Share-Based Compensation:

In May 2013, the shareholders of the Company approved the 2013 Incentive Stock and Awards Plan (the “2013 Plan”), authorizing the granting of incentive stock options, non-qualified stock options, stock appreciation rights (“SARs”), restricted stock, performance shares and other stock based compensation. In May 2022, the shareholders of the Company approved the 2022 Equity Incentive and Awards Plan (the “2022 Plan”), authorizing the granting of incentive stock options, non-qualified stock options, stock appreciation rights (“SARs”), restricted stock, performance shares and other stock based compensation. A total of 2,000,000 shares of common stock have been reserved for issuance under the 2022 Plan. All options and SARs have been or will be granted with exercise prices at least equal to the fair market value of the shares on the date of grant. At December 31, 2024, the Company had 605,983 shares of common stock available for grant for share-based compensation awards under the 2022 Plan. The 2022 Plan replaced the 2013 Plan. No new awards will be granted under the 2013 Plan, but outstanding awards granted under the 2013 Plan will continue unaffected.

Share-based compensation 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 and the total related tax benefit for the periods presented (in thousands):

Years Ended December 31,

Total share-based compensation expense $ 4,270 $ 3,787

Related income tax benefit $ 902 $ 767

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. Assumptions regarding volatility, risk-free interest rate, expected term and dividend yield are required for the Black-Scholes model. The risk-free interest rate is based on the yield of a U.S. treasury bond with a similar maturity to the award’s expected life. The expected life for awards granted is based on the historical exercise patterns experienced by the Company when the award is made. The determination of expected stock price volatility for awards is based on historical Superior common stock prices over a period commensurate with the expected life. The dividend yield assumption is based on the history and expectation of the Company’s dividend payouts.

The following table summarizes significant assumptions utilized to determine the fair value of stock options and SARs:

Years Ended December 31,

Stock Options:

Risk free interest rate 4.3% - 4.5% 3.5% - 4.9%

Expected award life (years) 3 - 6 3-10

Expected dividend yield 2.8% - 4.1% 4.7% - 7.1%

Weighted average fair value per share at grant date $ 4.27 $ 4.14

SARs:

Risk free interest rate 4.3 % 4.0 %

Expected award life (years) 3 3

Expected volatility 45.7 % 67.8 %

Expected dividend yield 4.1 % 4.7 %

Weighted average fair value per share at grant date $ 3.80 $ 4.58

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All stock options and SARs granted prior to August 3, 2018 vested immediately when granted. Awards issued thereafter 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 and SARs granted in tandem with stock options are subject to accelerated vesting under certain circumstances as outlined in the 2013 Plan and the 2022 Plan, as applicable.

A summary of stock option transactions during the year ended December 31, 2024 follows:

Weighted Average Aggregate

No. of Weighted Average Remaining Life Intrinsic Value

Shares Exercise Price (in years) (in thousands)

Intrinsic value is the difference between the market value of our common stock and the exercise price of each stock option multiplied by the number of stock options outstanding for those stock options where the market value exceeds their exercise price. Options exercised during the years ended December 31, 2024 and 2023 had intrinsic values of $0.9 million and $0.1 million, respectively. During the years ended December 31, 2024 and 2023 the Company received $1.1 million and $0.2 million, respectively, in cash from stock option exercises. No current tax benefits on stock option exercises were recognized during the years ended December 31, 2024 and 2023. Additionally, during the years ended December 31, 2024 and 2023 the Company received 12,366 and 7,627 shares, respectively, of its common stock as payment of the exercise price in the exercise of stock options for 19,899 and 9,115 shares, respectively, of its common stock. As of December 31, 2024, the Company had $0.6 million in unrecognized compensation related to nonvested stock options to be recognized over the remaining weighted average vesting period of one year.

A summary of stock-settled SARs transactions during the year ended December 31, 2024 follows:

Weighted Average Aggregate

No. of Weighted Average Remaining Life Intrinsic Value

Shares Exercise Price (in years) (in thousands)

SARs exercised during the years ended December 31, 2024 and 2023 had intrinsic values of $0.2 million and $0.2 million, respectively. No current tax benefits on SAR exercises were recognized during the years ended December 31, 2024 and 2023. As of December 31, 2024, the Company had $0.2 million in unrecognized compensation related to nonvested SARs to be recognized over the remaining weighted average vesting period of one year.

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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 and the 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 year ended December 31, 2024 follows:

Weighted Average

No. of Grant Date

Shares Fair Value

The table above includes 89,445 restricted shares issued in the acquisition of 3Point. See Note 6 for additional details.

As of December 31, 2024, the Company had $5.1 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.

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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. Expenses for grants of performance shares are 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 and the 2022 Plan, except in those circumstances in which award agreements or change in control agreements specify full vesting.

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, Chief Executive Officer and Michael Koempel, Chief Financial Officer, 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 115%, 130%, and 150% of the closing share price on May 10, 2024 and the executive is still employed by the Company twelve (12) months after the applicable stock price condition has been satisfied. The fair value and derived service periods of the shares were determined based on a Monte Carlo valuation model, which includes estimates of the Company’s stock price volatility of 50% and a risk free rate assumption of 4.6%. Expense for these grants is being recognized on a straight-line basis over each tranche’s derived service period.

A summary of performance share transactions during the year ended December 31, 2024 follows:

Weighted Average

No. of Grant Date

Shares Fair Value

As of December 31, 2024, the Company had $2.1 million of unrecognized compensation cost related to nonvested performance share grants expected to be recognized over the remaining weighted average service period of 1.3 years.

NOTE 13 – Stock Repurchase Plan:

On August 9, 2024, the Company’s Board of Directors approved a stock repurchase plan. Under the plan, the Company is authorized to repurchase up to $10 million of its common stock over a period of one year ending in August 2025. This plan replaces the May 2, 2019 plan, as amended, which authorized the repurchase of up to 750,000 shares. 92,549 shares had been repurchased under the May 2, 2019 plan as of August 9, 2024. No further shares will be repurchased under that plan. The new stock repurchase plan allows the Company to purchase common stock from time to time through, among other ways, open market purchases, privately negotiated transactions, block purchases, and/or pursuant to Rule 10b5-1 trading plans, subject to applicable securities laws and other legal requirements and relevant factors. The number of shares purchased and the timing of any purchases will depend upon a number of factors, including the price and availability of the Company’s stock and general market conditions. The stock repurchase plan may be modified, suspended or terminated at any time, without prior notice. Shares repurchased may be reissued later in connection with employee benefit plans and other general corporate purposes. Shares purchased under the common stock repurchase plan are constructively retired and returned to unissued status.

As of December 31, 2024, 523,472 shares have been purchased under the new plan and $2.6 million remains available to repurchase shares under the $10 million authorized.

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NOTE 14 – Leases:

The Company does

not have any material leases, individually or in the aggregate, classified as a finance leasing arrangement.

The components of lease cost were as follows (in thousands):

Years Ended December 31,

Short-term lease expense 431 609

Cash flow and noncash information related to our operating leases were as follows (in thousands):

Years Ended December 31,

Operating cash flows – cash paid for operating lease liabilities $ 4,481 $ 3,368

Other supplemental information related to our operating leases was as follows:

Years Ended December 31,

Weighted-average remaining lease term (in years) 4.7 4.6

Weighted average discount rate 6.78 % 6.57 %

Maturities of operating lease liabilities as of

December 31, 2024 were as follows (in thousands):

Operating Leases

Total lease payments 17,451

Less imputed interest 2,393

Present value of lease liabilities $ 15,058

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NOTE 15 – Benefit Plans:

Defined Benefit Plans

The Company is the sponsor of an unfunded supplemental executive retirement plan (“SERP”) which includes

one active participant. As of

December 31, 2024 and 2023, the Company’s projected benefit obligation under the unfunded SERP was

$13.6 million and

$13.6 million, respectively. Net periodic pension costs for the

twelve-months ended

December 31, 2024 and

Superior Group of Companies, Inc. SGC US Equity

SGC · 10-K · period ended 2024-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

Superior Group of Companies, Inc. SGC US Equity☆

SGC · 10-K · period ended 2024-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

Superior Group of Companies, Inc. SGC US Equity