Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and the notes thereto included in the Consolidated Financial Statements in Part I, Item 1 ("Financial Statements") of this report and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2025.

The financial position, results of operations, cash flows and other information included herein are not necessarily indicative of the financial position, results of operations and cash flows that may be expected in future periods. See "Cautionary Note Regarding Forward-Looking Statements" below for a discussion of uncertainties and assumptions that may cause actual results to differ materially from those expressed or implied in the forward-looking statements.

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 chain, 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 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 portfolio of brands Wink®, Fashion Seal Healthcare®, its trade name CID Resources and our license of Carhartt Medical, will continue to provide opportunities for growth and increased market share.

Contact Centers

In our Contact Centers segment (also known as "The Office Gurus"), which operates in El Salvador, Belize, Dominican Republic and the United States, and in Jamaica until its closure on June 15, 2025, 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 can 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

During 2025, the U.S. government imposed higher tariffs and/or new tariffs which impacted certain sources of the Company's materials and production. Additionally, the U.S.'s trade agreements and/or preferences with certain countries in Africa, through the African Growth and Opportunity Act (AGOA), and with Haiti, through the Haitian Hemispheric Opportunity through Partnership Encouragement Act (HOPE) and the Haiti Economic Lift Program of 2010 (HELP), expired on September 30, 2025. In February 2026, these agreements were retroactively extended until December 2026 and during the six months ended June 30, 2026, the Company recorded a consolidated duties receivable of $2.3 million within other current assets through a reduction of inventory and reversal of cost of goods sold of $0.4 million, primarily in its Healthcare Apparel segment of which the majority has been collected. If not renewed and/or extended beyond December 2026, the cost of continuing to do business in these countries likely will negatively impact our results of operations and financial position, or result in us moving sourcing and manufacturing from these countries to countries with more favorable cost structures. We will continue to monitor the status of the trade agreements and preferences involving the U.S. government and the countries in which we source and/or manufacture products. See Item 1, "NOTE 6 - Contingencies and Geographic Supply Concentrations."

In February 2026, the United States Supreme Court ruled that the International Emergency Economic Powers Act (IEEPA) does not authorize the President to impose tariffs, effectively invalidating the tariffs imposed via that method. These IEEPA tariffs stopped being collected on February 24, 2026. The Supreme Court's ruling left open the questions of whether, how, and when payors of the tariffs might receive refunds; subsequently, the U.S. government created a system through which refunds of certain entries could be processed. The Company's accounting policy is to recognize tariff refunds (as a reduction of cost of goods sold) when the refund is probable and recognize corresponding refunds to customers (as a reduction of net sales) where contractually required or an implicit obligation exists. As of June 30, 2026, the Company has recorded a $4.3 million tariff refund, of which $3.1 million has been received in cash and corresponding refunds to customers of $2.7 million. The U.S. government implemented a new 10.0% tariff under Section 122 of the Trade Act of 1974, effective as of February 24, 2026. This tariff terminated on July 24, 2026. The U.S. government implemented new tariffs generally ranging from 10.0% to 12.5% under Section 301 of the Trade Act of 1974, effective as of July 24, 2026.

It is uncertain how inflation and interest rates will be impacted during the remainder of this year and in future years by the imposition of tariffs and other trade-related actions or inactions. World events, such as the Russia-Ukraine War, the joint U.S.-Israeli War with Iran in 2026 and other conflicts in the Middle East, continue to negatively affect the global economy. Additionally, civil unrest in countries where we manufacture products, like Haiti, may result in our facilities incurring damage or destruction and could interrupt our manufacturing processes and adversely affect our reputation and our relationships with our customers.

Prolonged or recurring disruptions or instability in the United States and global political and economic environments, 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, declines in our revenue and profitability, increased costs related to higher oil and natural gas prices and/or supply imbalances in the oil and natural gas markets, costs associated with complying with new or amended laws and regulations and mitigating the increased cost of the new tariffs and duties affecting our business, declines in our stock price, reduced availability and less favorable terms of future borrowings, negative impacts on the valuation of our pension obligations, reduced credit-worthiness of our customers, and additional impairment of the carrying value of indefinite-lived intangible assets and potentially goodwill.

Results of Operations

Three Months Ended June 30, 2026 Compared to Three Months Ended June 30, 2025 (in thousands)

	For the Three Months Ended June 30,
	2026			2025			$ Change			% Change
Net sales:
Branded Products	$	98,390		$	92,647		$	5,743			6.2	%
Healthcare Apparel		27,231			28,253			(1,022	)		(3.6	%)
Contact Centers		23,094			23,977			(883	)		(3.7	%)
Intersegment eliminations		(879	)		(832	)		(47	)		5.6	%
Consolidated net sales		147,836			144,045			3,791			2.6	%
Gross margin:
Branded Products		35,872			33,016			2,856			8.7	%
Healthcare Apparel		8,967			10,016			(1,049	)		(10.5	%)
Contact Centers		11,750			12,613			(863	)		(6.8	%)
Net intersegment eliminations		(470	)		(319	)		(151	)		47.3	%
Consolidated gross margin		56,119			55,326			793			1.4	%
Selling and administrative expenses:
Branded Products		26,001			25,432			569			2.2	%
Healthcare Apparel		9,946			10,078			(132	)		(1.3	%)
Contact Centers		10,354			11,612			(1,258	)		(10.8	%)
Intersegment Eliminations		(470	)		(319	)		(151	)		47.3	%
Corporate selling and administrative expenses		5,496			5,437			59			1.1	%
Consolidated selling and administrative expenses		51,327			52,240			(913	)		(1.7	%)
Interest expense, net		981			1,250			(269	)		(21.5	%)
Tradename impairment charge		2,600			-			2,600			100.0	%
Income before income tax expense		1,211			1,836			(625	)		(34.0	%)
Income tax (benefit) expense		(10	)		285			(295	)		(103.5	%)
Net income	$	1,221		$	1,551		$	(330	)		(21.3	%)
Adjusted EBITDA(1)	$	7,676		$	6,064		$	1,612			26.6	%

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

Net Income

The Company generated net income of $1.2 million and $1.6 million during the three months ended June 30, 2026 and 2025, respectively. The decrease in net income for the three months ended June 30, 2026 compared to the three months ended June 30, 2025 was due to a significant decline in our Healthcare Apparel segment results, primarily driven by a trade name impairment charge and write-down of inventory, partially offset by net tariff refunds. This decline was partially offset by growth in our Branded Products and Contact Centers segments.

Adjusted EBITDA

Adjusted EBITDA was $7.7 million and $6.1 million during the three months ended June 30, 2026 and 2025, respectively. The Adjusted EBITDA increase was primarily due to growth in our Branded Products and Contact Centers segments, partially offset by a decline in our Healthcare Apparel segment. For a reconciliation of Adjusted EBITDA to net income, its most directly comparable financial measure calculated and presented in accordance with generally accepted accounting principles in the United States of America ("GAAP"), please read "Non-GAAP Financial Measure" below.

Net Sales

Net sales for the Company increased 2.6%, or $3.8 million, for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. The increase was attributable to increases in net sales in our Branded Products segment, partially offset by declines in our Healthcare Apparel and Contact Centers segments.

Branded Products net sales increased 6.2%, or $5.7 million, for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. The increase was primarily due to volume increases of $7.5 million within existing customer accounts, partially offset by tariff refunds.

Healthcare Apparel net sales decreased 3.6%, or $1.0 million, for the three months ended June 30, 2026 compared to the three months ended June 30, 2025 primarily due to tariff refunds.

Contact Centers net sales decreased 3.7% or $0.9 million, before intersegment eliminations for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. The 3.7% decrease versus the prior period reflects client attrition that exceeded growth from new customer acquisitions.

Gross Margin

Gross margin rate for the Company was 38.0% for the three months ended June 30, 2026 and 38.4% for the three months ended June 30, 2025. The rate decrease was primarily due to lower gross margin rates in our Healthcare Apparel and Contact Centers segments.

Gross margin rate for our Branded Products segment was 36.5% for the three months ended June 30, 2026 and 35.6% for the three months ended June 30, 2025. The rate increase was primarily driven by a favorable shift in the mix of pricing and customers.

Gross margin rate for our Healthcare Apparel segment was 32.9% for the three months ended June 30, 2026 and 35.5% for the three months ended June 30, 2025. The rate decrease was primarily driven by the impact of a $2.6 million additional write-down of inventory, partially offset by $1.8 million of net tariff refunds.

Gross margin rate for our Contact Centers segment was 50.9% for the three months ended June 30, 2026 and 52.6% for the three months ended June 30, 2025. The decrease in the gross margin rate was primarily attributable to higher employee-related costs as compared to the prior year period.

Selling and Administrative Expenses

Selling and administrative expenses decreased $0.9 million for the three months ended June 30, 2026, compared to the three months ended June 30, 2025. As a percentage of net sales, total selling and administrative expenses was 34.7% for the three months ended June 30, 2026 and 36.3% for the three months ended June 30, 2025. The rate decrease was driven by expense leverage in our Branded Products segment and lower expenses in our Contact Centers segments.

Branded Products selling and administrative expenses increased $0.6 million for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. As a percentage of net sales, selling and administrative expenses was 26.4% for the three months ended June 30, 2026, down slightly from 27.5% for the three months ended June 30, 2025 driven by expense leverage from the second quarter sales increase.

Healthcare Apparel selling and administrative expenses decreased $0.1 million for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. Selling and administrative expenses as a percentage of net sales increased to 36.5% for the three months ended June 30, 2026 from 35.7% for the three months ended June 30, 2025.

Contact Centers selling and administrative expenses decreased $1.3 million for the three months ended June 30, 2026 compared to the three months ended June 30, 2025 due to a reduction in credit loss expense as compared to the prior year period. As a result, selling and administrative expenses as a percentage of net sales decreased to 44.8% for the three months ended June 30, 2026 from 48.4% for the three months ended June 30, 2025.

Corporate selling and administrative expenses were about flat to last year.

Interest Expense, Net

Interest expense, net decreased to $1.0 million for the three months ended June 30, 2026 from $1.3 million for the three months ended June 30, 2025. This decrease was due to a lower weighted average interest rate on borrowings, from 5.6% for the three months ended June 30, 2025 to 4.8% for the three months ended June 30, 2026.

Intangible Assets Impairment Charge

As a result of an interim impairment assessment, an impairment charge totaling $2.6 million was recognized in the second quarter of 2026 to reduce the carrying value of Healthcare Apparel trade names to their estimated fair value.

Income Taxes

An income tax benefit of ($0.01) million was recognized for the three months ended June 30, 2026 compared to an income tax expense of $0.3 million for the three months ended June 30, 2025. The effective tax rate was (0.8%) benefit and 15.5% expense for the three months ended June 30, 2026 and 2025, respectively. Income tax expense and the effective tax rate for the three months ended June 30, 2026 was primarily impacted by the discrete tax benefit relating to the $2.6 million trade name impairment charge recorded during the second fiscal quarter of 2026. The rate for both periods was further 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 quarter to quarter due to discrete, unusual or non-recurring items, the resolution of income tax audits, changes in tax laws, the tax impact from employee share-based payments, or other items.

Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025 (in thousands)

		For the Six Months Ended June 30,
		2026				2025				$ Change				% Change
Net sales:
Branded Products		$	189,259			$	179,121			$	10,138				5.7	%
Healthcare Apparel			55,832				55,516				316				0.6	%
Contact Centers			45,347				48,202				(2,855	)			(5.9	%)
Intersegment eliminations			(1,724	)			(1,697	)			(27	)			1.6	%
Consolidated net sales			288,714				281,142				7,572				2.7	%
Gross margin:
Branded Products			66,859				60,703				6,156				10.1	%
Healthcare Apparel			19,148				20,149				(1,001	)			(5.0	%)
Contact Centers			23,364				25,594				(2,230	)			(8.7	%)
Net intersegment eliminations			(918	)			(679	)			(239	)			35.2	%
Consolidated gross margin			108,453				105,767				2,686				2.5	%
Selling and administrative expenses:
Branded Products			50,747				48,852				1,895				3.9	%
Healthcare Apparel			20,724				19,604				1,120				5.7	%
Contact Centers			19,917				22,533				(2,616	)			(11.6	%)
Intersegment Eliminations			(918	)			(679	)			(239	)			35.2	%
Corporate selling and administrative expenses			11,225				12,032				(807	)			(6.7	%)
Consolidated selling and administrative expenses			101,695				102,342				(647	)			(0.6	%)
Interest expense, net			1,893				2,495				(602	)			(24.1	%)
Tradename impairment charge			2,600				-				2,600				100.0	%
Income before income tax expense			2,265				930				1,335				143.5	%
Income tax expense			210				137				73				53.3	%
Net income		$	2,055			$	793			$	1,262				159.1	%
Adjusted EBITDA(1)		$	12,500			$	9,607			$	2,893				30.1	%

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

Net Income

The Company generated net income of $2.1 million and $0.8 million during the six months ended June 30, 2026 and 2025, respectively. The increase in net income for the six months ended June 30, 2026 compared to the six months ended June 30, 2025 was primarily due to growth in our Branded Products and Contact Centers segments along with a decrease in consolidated interest expense, net partially offset by a loss in our Healthcare Apparel segment.

Adjusted EBITDA

Adjusted EBITDA was $12.5 million and $9.6 million during the six months ended June 30, 2026 and 2025, respectively. The Adjusted EBITDA increase was primarily due to growth in our Branded Products and Contact Centers segments partially offset by a loss in our Healthcare Apparel segment. For a reconciliation of Adjusted EBITDA to net income, its most directly comparable financial measure calculated and presented in accordance with generally accepted accounting principles in the United States of America ("GAAP"), please read "Non-GAAP Financial Measure" below.

Net Sales

Net sales for the Company increased 2.7% or $7.6 million, for the six months ended June 30, 2026 compared to the six months ended June 30, 2025. The increase was attributable to increases in net sales in our Branded Products and Healthcare Apparel reportable segments, partially offset by a decline in our Contact Centers segment.

Branded Products net sales increased 5.7% or $10.1 million, for the six months ended June 30, 2026 compared to the six months ended June 30, 2025. The increase was primarily due to $11.9 million of volume increases within existing customer accounts partially offset by tariff refunds.

Healthcare Apparel net sales increased 0.6% or $0.3 million, for the six months ended June 30, 2026 compared to the six months ended June 30, 2025. The increase was primarily due to volume increases within existing customer accounts partially offset by tariff refunds.

Contact Centers net sales decreased 5.9% or $2.9 million, before intersegment eliminations for the six months ended June 30, 2026 compared to the six months ended June 30, 2025. The 5.9% decrease versus the prior year period reflects client attrition that exceeded growth from new customer acquisitions.

Gross Margin

Gross margin rate for the Company was 37.6% for the six months ended June 30, 2026 and 2025.

Gross margin rate for our Branded Products segment was 35.3% for the six months ended June 30, 2026 and 33.9% for the six months ended June 30, 2025. The rate increase was primarily driven by a favorable shift in the mix of pricing and customers.

Gross margin rate for our Healthcare Apparel segment was 34.3% for the six months ended June 30, 2026 and 36.3% for the six months ended June 30, 2025. The rate decrease was primarily driven by the impact of a $2.6 million additional write-down of inventory, partially offset by $1.8 million net tariff refunds.

Gross margin rate for our Contact Centers segment was 51.5% for the six months ended June 30, 2026 and 53.1% for the six months ended June 30, 2025. The decrease in the gross margin rate was primarily attributable to higher employee related costs as compared to the prior year period.

Selling and Administrative Expenses

Selling and administrative expenses decreased $0.6 million for the six months ended June 30, 2026, compared to the six months ended June 30, 2025. As a percentage of net sales, total selling and administrative expenses was 35.2% for the six months ended June 30, 2026 and 36.4% for the six months ended June 30, 2025. The rate decrease was due to an improvement in selling and administrative expenses as a percentage of net sales rates in our Branded Products and Contact Centers segments, partially offset by an increased rate in our Healthcare Apparel segment.

Branded Products selling and administrative expense increased $1.9 million for the six months ended June 30, 2026 compared to the six months ended June 30, 2025 primarily due to increased commission expense from increased gross margin. As a percentage of net sales, selling and administrative expenses for our Branded Products segment was 26.8% for the six months ended June 30, 2026, down slightly from 27.3% for the six months ended June 30, 2025.

Healthcare Apparel selling and administrative expense increased $1.1 million for the six months ended June 30, 2026 compared to the six months ended June 30, 2025 primarily due to $1.0 million of employee severance costs. As a percentage of net sales, selling and administrative expenses for our Healthcare Apparel segment was 37.1% for the six months ended June 30, 2026 and 35.3% for the six months ended June 30, 2025.

Contact Centers selling and administrative expense decreased $2.6 million for the six months ended June 30, 2026 compared to the six months ended June 30, 2025 primarily due to a reduction in credit loss expense as compared to the prior year period and cost reductions implemented in 2025 related to the closure of our Jamaica office. As a percentage of net sales, selling and administrative expenses for our Contact Centers segment was 43.9% for the six months ended June 30, 2026 and 46.7% for the six months ended June 30, 2025.

Corporate selling and administrative expenses decreased $0.8 million primarily due to lower third-party professional services and lower share-based compensation expenses.

Interest Expense, Net

Interest expense, net decreased to $1.9 million for the six months ended June 30, 2026 from $2.5 million for the six months ended June 30, 2025. This decrease was due to a lower weighted average interest rate on borrowings, from 5.6% for the six months ended June 30, 2025 to 4.8% for the six months ended June 30, 2026.

Intangible Assets Impairment Charge

As a result of an interim impairment assessment, an impairment charge totaling $2.6 million was recognized in the second quarter of 2026 to reduce the carrying value of Healthcare Apparel trade names to their estimated fair value.

Income Taxes

Income tax expense increased to $0.2 million for the six months ended June 30, 2026 from $0.1 million for the six months ended June 30, 2025. The effective tax rate was 9.3% and 14.7% for the six months ended June 30, 2026 and 2025, respectively. Income tax expense and the effective tax rate for the six months ended June 30, 2026 was primarily impacted by the discrete tax benefit relating to the $2.6 million trade name impairment charge recorded during the current quarter, as well as items related to the Company's share-based compensation and long-term incentive plans. The rate for both periods was further impacted by the variability in the mix of earnings across the Company's foreign and domestic operations, which are subject to various statutory tax rates in those jurisdictions. The effective tax rate may vary from quarter to quarter due to discrete, unusual or non-recurring items, the resolution of income tax audits, changes in tax laws, the tax impact from employee share-based payments, or other items.

Liquidity and Capital Resources

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 and operating leases, and fund any potential merger and acquisition activity, capital expenditures, dividends, stock repurchases and other general corporate purposes. Management 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, long-term pension liability, operating leases, acquisition-related contingent liabilities and non-qualified deferred compensation plan liabilities in Other Liabilities. 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.

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.

Capital expenditures

Capital expenditures were $1.9 million and $2.7 million for the six months ended June 30, 2026 and 2025, respectively.

Sources of Capital and Liquidity

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, finished goods, salaries and payroll related benefits, leases and other general corporate expenditures.

For the six months ended June 30, 2026, net cash provided by operating activities was $17.7 million. Cash collections from customers exceeded aggregate cash payments to vendors, lessors and employees, primarily driven by the Company's collection of receivable balances and by reduced inventory purchasing, which provided $2.4 million of cash in the current period compared to $10.7 million of cash outflows in the prior year period. These sources were partially offset by an $8.2 million increase in contract assets.

For the six months ended June 30, 2025, net cash provided by operating activities was $2.9 million. Cash collections from customers exceeded aggregate cash payments to vendors, lessors, employees and lenders. These cash payments included $10.7 million of cash outflows for inventory purchases, up from the prior year primarily due to the timing of purchases.

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 six months ended June 30, 2026, the Company had $26.0 million in borrowings and $35.0 million in payments on the revolving credit facility. For the six months ended June 30, 2026, the Company had $2.8 million in payments on the term loan.

For the six months ended June 30, 2025, the Company had $57.0 million in borrowings and $41.0 million in payments on the revolving credit facility. For the six months ended June 30, 2025, the Company had $2.8 million in payments on the term loan.

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.

Dividends and Share Repurchase Program

During the six months ended June 30, 2026 and 2025, the Company paid cash dividends of $4.4 million and $4.5 million, respectively. The Company anticipates that it will continue to pay dividends in the future as financial conditions permit.

On March 20, 2026, the Company entered into a 10b5-1 trading plan (the "Plan") for the purpose of repurchasing up to $2.5 million in shares of the Company's outstanding common stock (the "Repurchase Limit") in accordance with the $17.5 million share repurchase program previously authorized by the Company's Board of Directors, which was announced by the Company on March 11, 2025. The Plan is intended to comply with Rule 10b5-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Plan allows the Company to repurchase shares up to the Repurchase Limit commencing March 21, 2026 and ending on the earlier of the date on which the Repurchase Limit is reached or other events specified in the Plan. Repurchases of common stock under the Plan will be administered through an independent broker and are subject to certain price, market, volume and timing constraints specified in the Plan.

Critical Accounting Estimates

See Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates" in our Annual Report on Form 10-K for the year ended December 31, 2025.

Interim Impairment Tests:

The Company performs its goodwill and indefinite-lived intangible impairment tests annually as of August 31st or more frequently as events or changes in circumstances warrant.

Indefinite-lived Intangible Assets:

An indicator of impairment related to the CID Resources indefinite lived intangible assets was identified during the second quarter of 2026 for which a quantitative interim impairment test was performed. 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. The impairment was primarily driven by updated assumptions reflecting lower expected future sales and profitability of the brands.

In determining the fair value of our trade name indefinite lived intangible assets as of June 30, 2026, we used the following key assumptions:

• Royalty rates of 0.5% - 2.5%;

• A tax rate of 27.0%;

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

• Assumed discount rate of 17.0%.

As a result of the impairment assessment, an impairment charge totaling $2.6 million was recognized in the second quarter of 2026 to reduce the carrying value of the trade names to their estimated fair value.

Non-GAAP Financial Measure

Adjusted EBITDA, which is a non-GAAP financial measure, is defined as net income excluding interest expense, net, income tax expense, depreciation and amortization expense and impairment charges. The Company believes Adjusted 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, (iii) asset base (depreciation and amortization) and (iv) impairments. The Company uses Adjusted EBITDA internally to monitor operating results and to evaluate the performance of its business. In addition, the compensation committee has used Adjusted EBITDA in evaluating certain components of executive compensation, including performance-based annual incentive programs.

Adjusted EBITDA is not a measure of financial performance under GAAP. Adjusted 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 Adjusted EBITDA are significant components in understanding and assessing the Company's results of operations. The Company's Adjusted EBITDA may not be comparable to a similarly titled measure of another company because other entities may not calculate Adjusted EBITDA in the same manner.

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

		Three Months Ended June 30,								Six Months Ended June 30,
		2026				2025				2026				2025
Net income		$	1,221			$	1,551			$	2,055			$	793
Interest expense, net			981				1,250				1,893				2,495
Income tax (benefit) expense			(10	)			285				210				137
Segment depreciation and amortization			2,812				2,888				5,597				6,002
Corporate depreciation and amortization			72				90				145				180
Tradename impairment charge			2,600				-				2,600				-
Adjusted EBITDA		$	7,676			$	6,064			$	12,500			$	9,607

Cautionary Note Regarding Forward-Looking Statements

Certain matters discussed in this Form 10-Q are "forward-looking statements" intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified by use of the words "may," "will," "should," "could," "expect," "anticipate," "estimate," "believe," "intend," "project," "potential," or "plan" or the negative of these words or other variations on these words or comparable terminology. Forward-looking statements in this Quarterly Report on Form 10-Q may include, without limitation: (1) projections of revenue, income, and other items relating to our financial position and results of operations, including short term and long term plans for cash, (2) statements of our plans, objectives, strategies, goals and intentions, (3) statements regarding the capabilities, capacities, market position and expected development of our business operations and (4) statements of expected industry and general economic trends.

Such forward-looking statements are subject to certain risks and uncertainties that may materially adversely affect the anticipated results. Such risks and uncertainties include, but are not limited to, the following: the impact of competition; the impact of global conflicts, such as the Russia-Ukraine War and the joint U.S.-Israeli War with Iran in 2026, uncertainties related to tariffs, duties, trade wars and related matters, supply disruptions, inflationary environments (including with respect to shipping costs and the cost of finished goods and raw materials and shipping costs), employment levels (including labor shortages), and general economic and political conditions in the areas of the world in which the Company operates or from which it sources its supplies or the areas of the United States of America ("U.S." or "United States") in which the Company's customers are located; changes in the healthcare, retail chain, food service, transportation and other industries where uniforms and service apparel are worn; our ability to identify suitable acquisition targets, discover liabilities associated with such businesses during the diligence process, successfully integrate any acquired businesses, or successfully manage our expanding operations; the price and availability of raw materials; attracting and retaining senior management and key personnel; the Company's ability to maintain effective internal control over financial reporting; and other factors described in the Company's filings with the Securities and Exchange Commission (the "SEC"), including those risks described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 entitled "Risk Factors" and other disclosures contained therein and in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2026. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements made herein and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date of this Form 10-Q and we disclaim any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances, except as may be required by law.