Negative Points

• Healthcare Apparel segment revenue declined 4% year-over-year, with gross margin down 260 basis points due to a $2.6 million non-cash inventory write-down.

• The healthcare apparel segment EBITDA declined by $1 million year-over-year, and the company expects continued margin pressure through the balance of 2026.

• Contact Centers segment revenue was down 4% year-over-year, with gross margin down 170 basis points due to higher human capital costs for onboarding new customers.

• The company recognized a $2.6 million pre-tax non-cash impairment charge related to a trade name in the healthcare apparel segment, impacting reported net income.

• Full-year 2026 guidance remains unchanged, reflecting a back-half-weighted cadence and potential variability from the healthcare apparel transition, which may limit near-term upside.

• Consumer spending in the healthcare apparel market is pressured by inflation, leading to more prudent purchasing behavior among caregivers.

Q & A Highlights

Q: Can you outline the operational changes Chris Hines is making in the healthcare apparel segment and when these initiatives will start producing measurable revenue growth and margin improvement? A: Mike Koempel, President and CFO, explained that Chris Hines, who has been in the role for about three to four months, has focused primarily on the product and assortment architecture, which is the long lead time in the business. The strategy is to move toward a more focused assortment, going "narrow and deeper." This transition is causing short-term margin pressure, which will continue through the balance of the year, though not to the extent seen in Q2, with improvements expected to begin in 2027.

Q: Can you provide more color on the contact center segment's margin improvement and when the segment will return to year-over-year revenue growth? A: Mike Koempel noted that the margin improvement is driven by sustained SG&A cost reductions and lapping a prior-year credit loss reserve. The company expects sequential top-line improvement, which will drive EBITDA margin expansion. While gross margins were down slightly due to one-time onboarding costs for new customers, they expect the gross margin rate to improve in the back half. Revenue growth is expected to continue improving sequentially into Q3 and Q4, driven by seat expansions with existing customers and higher conversion of new business.

Q: What is driving the strong margin improvement in the branded products segment, and how does the growth pipeline look for the rest of the year? A: Jay Kimmelstein, President of Branded Products, attributed the margin improvement to favorable customer mix and improved sourcing on larger programs. The pipeline remains strong across both existing and new customers, with some wins already delivering revenue and more set to roll out through 2026 and into 2027. While RFP decisions are slower, the large pipeline is converting into wins, and the company is replenishing the pipeline with new opportunities. Growth in the current quarter was primarily volume-driven from existing customers.

Q: Given the solid second quarter results, why was the full-year guidance left unchanged? A: Mike Koempel explained that the guidance reflects a back-half weighted cadence, particularly for the healthcare business, which is typically heavier in Q3. The guidance also accounts for the ongoing transition in healthcare apparel, which will bring some margin pressure in the back half. Given the variability associated with these changes, management felt it was appropriate to hold guidance at this point, though they remain optimistic and will revisit it after Q3.

Q: Is the company gaining market share organically in branded products, and are there plans for acquisitions? A: Jay Kimmelstein confirmed the company is gaining share organically and will continue to pursue organic growth aggressively. Michael Benstock, CEO, added that they are looking for acquisitions that are additive, such as expanding capabilities, channels, or customer bases they don't currently serve, particularly in digital or specialized areas. They are not interested in run-of-the-mill promotional companies. The Guardian Products acquisition was cited as a blueprint for the type of deal they seek.

Q: How are inventory replenishment trends evolving in healthcare apparel, and is there a risk of missing out on demand as the assortment is focused? A: Michael Benstock stated that institutional customers have normalized their buying after a period of conserving cash. The bigger impact is on the consumer side, where caregivers have less disposable income due to inflation. However, the company's "good, better, best" product strategy, including the Wink and Carhartt brands, allows them to serve customers at all price points, making it easier for loyal customers to trade down without losing them.

Q: What is the customer sentiment in the branded products segment, and is the economic environment improving? A: Jay Kimmelstein noted that the normalization of the tariff situation has helped reduce buying uncertainty. Beyond improved sentiment, growth is being driven by expanding share of wallet within existing customers by pushing into different departments like marketing, HR, and legal. He emphasized that the best customer is a current customer, as there is significant potential for growth within the existing client base.

Q: Do you expect the contact center segment to continue its sequential improvement throughout the year? A: Mike Koempel confirmed that the guidance reflects continued sequential improvement in the contact center segment. The company is seeing better conversion rates and growth within existing customers. The team is leveraging AI technologies internally to improve customer experience and create efficiencies, which helps keep expenses in check and drops incremental growth to EBITDA.

Q: With inventory down to just over $90 million, is there more room to reduce inventory levels in healthcare apparel? A: Mike Koempel stated that there is still an opportunity to create more efficiency in healthcare inventories and the company remains focused on bringing levels down. However, they are being thoughtful not to reduce too much and negatively impact sales. While some categories will see decreases, they will continue to invest in others based on demand. Overall, inventory reduction is expected to be a continued source of cash flow.

Q: Can we expect any new acquisitions or partnerships for the balance of this year? A: Michael Benstock indicated that there is a sense of urgency in the contact center business. Either an acquisition will be completed this year, or the company will start up a call center in the Philippines this year to begin generating revenue next year. Other than a potential call center acquisition, no other acquisitions are expected this year.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .