Superior Group of Companies Inc (SGC) 2017 Q4 法說會逐字稿

Good afternoon, everyone. Welcome to Superior Uniform Group's 2017 Fourth Quarter and Year-end Earnings Conference Call. With us today are Michael Benstock, the company's Chief Executive Officer; and Andy Demott, the Chief Operating Officer and CFO.

(Operator Instructions) This call is being recorded and your participation implies that you agree to this. If you don't, then simply drop off the line. Now I will turn the call over to Hala Elsherbini, Senior Vice President of Halliburton Investor Relations, who will read the safe harbor statement. Please go ahead.

Thank you, Phil. This conference call may contain forward-looking statements about Superior Uniform Group's business opportunities and its anticipated results of operations. Please bear in mind that forward-looking information is subject to risks and uncertainties, and actual results may differ from what you hear today. Many of these risks and uncertainties are described in Superior Uniform Group's annual report on Form 10-K for fiscal 2017 in this morning's news release and in the company's other filings with the SEC.

Forward-looking statements in this conference call are based on our current expectations and beliefs. Management does not undertake any duty to update the forward-looking statements made during this conference call or elsewhere. Please note that all growth comparisons that management makes today will relate to the corresponding period in 2016, unless otherwise noted.

With that, I'll turn the call over to Michael.

Thank you, Hala. Good afternoon, everyone. Thank you for joining us to review our fourth quarter and fiscal 2017 results. This quarter, we've provided a few supplemental slides to augment our remarks to better explain the impact of the U.S. Tax Cuts and Jobs Act, which Andy will specifically address during his remarks. We've also included a slide that outlines our updated expectations for our long-term top line growth guidance. These slides can be found on the Investor Relations section of our website.

As usual, I will begin by discussing key highlights for Q4 and 2017 and provide our thoughts on market trends. Next, Andy will provide more detail about our financial performance, tax reform impact and accounting changes. Afterwards, I'll review our outlook and offer some general thoughts on the future. We will then be happy to take your questions.

We had a strong finish to fiscal 2017 with the fourth quarter marking our 21st consecutive quarter of increasing year-over-year revenue. Fourth quarter consolidated net sales in 2017 increased 12% over the same quarter in 2016. For the entire year, consolidated sales were up 5.6%.

Our net sales growth was highlighted by double-digit growth in Promotional Products, and The Office Gurus, our remote staffing segment, had record growth. Our uniform segment had mixed results from channel to channel and posted a decline of 1.5% in the fourth quarter.

Overall, we achieved solid profitability with a great boost from our sourcing strategies and further streamlining of operations. Throughout the year, we saw a margin improvement and into the fourth quarter as well with an operating margin of 9.7% compared to 9.3% in the 2016 fourth quarter. For the full year, our operating margin grew to 9.2% compared to 8.6% in 2016.

Now let's review fourth quarter segment performance. In our core uniform segment, revenue declined 1.5% for the fourth quarter and 2.7% for the year. For the quarter, we saw positive signs in our employee ID business led by HPI Direct, which delivered solid performance. For the full year, however, sales on the employee ID side of the business declined and were impacted by the loss of one of our large legacy customers we described during our first quarter call as well as the elimination of 2 recurring promotional uniform programs. Andy will detail this further in his remarks.

In the latter part of 2017, we kicked off strategic initiatives to integrate Superior I.D. and HPI, leveraging the strengths of each group to create a strong and more efficient organization. We are already seeing some benefits from the utilization of our administrative and operational shared services and expect to continue to benefit as we aggressively create one even stronger entity from these 2 solid, well-managed organizations. We will continue to fully integrate the groups over the next year or so, taking our time to make sure that we enhance our customer's experience at every step.

For the full year, we were disappointed in the performance of our health care indirect channel, which is our legacy uniform business selling primarily to laundries and dealers. This business has experienced a lot of consolidation in the past 2 years. It is also an extremely competitive environment, in fact, our most challenging environment from a pricing standpoint. Particularly during the second half of the year, pricing pressure in the marketplace pushed some prices so low that we chose simply not to chase certain opportunities that would not have met our profit goals. In the end, this sector was up in Q4, making up for most of the decline earlier in the year, and we have implemented some new strategies that are already yielding positive results.

Our direct health care business continues to perform well. We continue to diversify in this market, expanding opportunities in the medical college sector and further deepening our relationships with key integrated delivery networks. We are recovering more opportunities in long-term care and in other direct channel areas that don't have the same pressure as the indirect channel. While the direct channel is not the largest portion of our health care business, it certainly is the fastest growing.

Looking ahead, we do expect to see some margin pressure from several sources. In some of the regions that we operate, we have seen significant mandated wage increases. We are also seeing increases in the prices in many of the components of fabric and trends, particularly from China, where the government is forcing many textile plants to spend heavily on environmental compliance. Their increased costs in turn drive up our prices. Fortunately, our broad footprint and operating scale helped to somewhat mitigate the impact of those pressures.

We have explored expanding our factory in Haiti beyond the 300 operators currently in place to ultimately accommodate as many as 450 operators producing multiple product lines. We are in the process of moving forward with some of this capacity expansion, which will increase our production capability beyond what it currently is.

In the fourth quarter, we finished the build-out of our start-up remote distribution facility in Sparks, Nevada that will allow us to provide shorter delivery times to customers in the Western U.S. The small investment and more nearby distribution is meant to create higher satisfaction from current customers, but also to help gain new customers we can serve on a more timely basis. We will call this experimental at this point and look forward to reporting more after we have had more time to judge its impact.

Looking at BAMKO, our branded merchandise segment. Net sales increased a remarkable 79.6% in the fourth quarter compared to 2016 and 54.2% for the year. This included one month of sales from the December 1 acquisition of Tangerine Promotions, a promotional products and branded merchandise agency that serves some of the best-known brands in the world. Tangerine is one of the leading providers of point of purchase and point of sale merchandise in the country.

Additionally, earlier in the year, we acquired Public Identity, a small yet niche-oriented company, which provides us with an entrée in collegiate license products. Both of these acquisitions are expected to be accretive to results in 2018.

Tangerine and Public Identity have become true partners in supporting the BAMKO mission. Our Promotional Products segment has gained a larger geographic footprint, new market segment penetration, new product lines, expanded channel distribution and new customers. The management teams of all of our companies have been meeting regularly to strategize and capitalize on cross-selling opportunities in other segments and using the benefits of our larger share organization.

To give a couple of examples of where we have worked together to try to take care of all the synergistic benefits of our large organization, BAMKO, for instance, has been able to take advantage of our Arkansas warehousing facilities for their customers who want their products stored, staged and distributed. As a result of having this capacity and capability, BAMKO and Tangerine are able to take on more business that would have been out of their reach prior to being acquired by us.

Public Identity has partnered with The Office Gurus using El Salvador outreach team to drive additional sales opportunities. BAMKO in India is good doing a good share of our customized Web development, which has already been rolled out for some of HPI's customers and has received very favorable results. This is just a few of the dozens of synergistic benefits that we're realizing from our current structure.

Let's speak about The Office Gurus. The Office Gurus had an exceptionally strong quarter with revenues up 51.2% and reported a 61.2% increase in net sales to outside customers. The Office Gurus continues to broaden its footprint. And as we grow, we will expand the infrastructure ahead of anticipated strong demand.

In 2017, our call center in Belize added 150 seats. We have signed a lease on another facility in Belize, where our target is to add another 250 to 300 agents. Because of our success at accelerating ourselves, we are also currently exploring the Caribbean, Central and South America to determine where to best place our next call center. By the end of the fiscal 2017, the total employee headcount in this segment was nearly 1,200.

Segment growth has come from new customers as well as gaining deeper penetration into our existing base. The Office Gurus services our entire organization as well, and we continue to leverage SG&A across segments and capitalize as much as we can on synergies and cross-selling opportunities.

Shifting a little bit now to the macro environment. From our perspective and what many economists are saying, we can expect more inflation driven by full employment, which will result in wage increases. And with that, we can expect to see higher employee turnover. Unemployment has been at or below 5% for more than a year as more people have returned to the job market and hiring has maintained momentum. The unemployment rate is currently 4.1%. Some might call that full employment.

Additionally, we believe uncertainty around health care should be behind us at this point as fully formed have not seen to be within reach and we're seeing some uptick in activity. We also believe that with the tax benefits many companies were given, not only have bonuses been given out, but we expect that there will be rebranding, upgrading of uniforms and more acquisitive activity. These all spell an increase in demand for uniforms and promotional products.

As it gets harder to hire for entry-level call center positions in the U.S., we also see our call centers abroad benefiting greatly from the higher wages and shortages here. To sum it up, we see the employment wage picture in the U.S. being very positive influence on our near future.

I'll now turn the call over to Andy to review our financial highlights.

Thank you, Michael, and good afternoon, everyone. We filed our Form 10-K for the year ended December 31, 2017 this morning. So I'll limit my review to key income statement highlights for the quarter and fiscal year period. Let's begin by looking at fourth quarter highlights.

As Michael mentioned, net sales for the quarter improved 12% to $72.4 million versus $64.7 million in the fourth quarter of 2016. Segment contributions include Remote Staffing Solutions accounting for 3.4% as Promotional Products segment contributed 9.8% of the net sales gain. Our uniform segment partially offset these gains with a decrease of 1.2%.

We had another strong quarter of gross margin improvement with consolidated gross margins up to 35.8% compared to 34.1% 1 year ago. Our margin performance speaks to our methodical efforts to improve operational efficiencies and diversify revenue while gaining economies of scale across our segments.

SG&A expenses increased 18.2% to $18.9 million. As a percent of net sales, SG&A was 26.1% compared with 24.8% in the same quarter of last year. Income from operations increased 16.5% to $7 million. This gave us a 9.7% operating margin compared with 9.3% for last year's fourth quarter. In our view, operating margins offer the best clarity as related to our overall profitability.

Earnings before taxes on income increased by 16% in the fourth quarter. However, our quarterly net income results decreased 57.6% to $1.8 million as a result of accounting for the tax reform act. The net impact of the tax act was an increase in our tax provision in the fourth quarter of 2017 of approximately $4 million or $0.26 per diluted share. After we review the full year results, I will go through the impact of the tax reform act in more detail.

On a diluted per share basis, earnings for the quarter were $0.12 per share compared with $0.30 a year ago. We also paid a regular quarterly dividend of $0.095 per share.

On a year-over-year basis, for the full year, net sales were up 5.6% to $266.8 million versus $252.6 million in the prior year. The increase in net sales was driven by our March 1, 2016, acquisition of BAMKO and our 2017 acquisitions of Public Identity and Tangerine Promotions contributing 6%. The Remote Staffing Solutions segment contributed 1.9%, and this was partially offset by a decline of 2.3% contributed by the uniform segment.

Sales for the uniforms or related product segment declined by 2.7% when compared to the prior year, primarily due to the loss of the large customer in 2016 discussed earlier. The net sales impact from this customer was a total of $4.6 million, which includes the partial offset from the sale of their remaining inventory commitment in the second quarter. We also experienced a negative sales impact of approximately $2.9 million from the elimination of 2 large promotional uniform programs from a customer that elected not to repeat that part of their business.

Remote Staffing Solutions revenues increased 28.2% with net sales to outside customers increasing by 33.7%. Significant market penetration in 2017 accounted for the continued sales improvement. Promotional Products sales increased 54.2% in 2017, totaling $42.9 million and represented 16% of total sales. Organic growth in this segment was just over 15% in 2017.

Consolidated SG&A as a percentage of net sales was up slightly at 26.9% of sales for 2017 versus 26.2% in 2016. Of note, in the Promotional Products segment, SG&A expenses included approximately $1.1 million of acquisition-related expenses in 2016 and approximately $0.3 million for 2017.

During 2017, we sold our original call center building in San Salvador. The sale generated net proceeds of approximately $2.8 million and resulted in a pretax gain of approximately $1 million. Operating income exclusively gained on the sale of the call center building increased by 19.2% to $24.5 million and came in very strong at 9.2% for 2017 versus 8.1% for 2016. Excluding acquisition-related expenses, our operating margin would have been 9.3% in 2017 and 8.6% in 2016.

Now let's take a look at the slides, which will elaborate on the tax impact as there are several components. As you're well aware, on December 22, 2017, the Tax Cuts and Jobs Act was signed into law and among other things, reduces the U.S. corporate tax rate to 21% from a previous maximum rate of 35%, creates a hybrid territorial tax system with a onetime mandatory tax on previously differed foreign earnings, requires companies to pay minimum taxes on foreign earnings in excess of specified amounts and subject certain payments from U.S. corporations to foreign-related parties through additional taxes.

First, as a result of the change in the U.S. tax rate, we were required to remeasure our net deferred tax asset. This resulted in a reduction of our net deferred tax assets and a corresponding increase to our provision for income taxes of approximately $1.8 million in the fourth quarter.

Next, we've recorded a reasonable estimation of our tax liability related to repatriation tax and the corresponding increase in our tax provision in the fourth quarter in the amount of $1.4 million, which we actually -- which will actually be paid over the next 8 years.

Additionally, as a result of a change in taxation on earnings of foreign subsidiaries, we now anticipate repatriating previous and future earnings from our El Salvador operation where historically, we consider that income to be permanently reinvested. We are subject to certain withholding taxes in El Salvador when we dividend income out of the country.

Based upon our intention in the past, the way these earnings in El Salvador, we have not previously recognize any tax liabilities associated with those earnings. This change has resulted in the increase on our deferred tax liability and the corresponding increase in our tax provision in the fourth quarter of approximately $0.7 million. The net impact to the Tax Act was an increase in our tax provision in the fourth quarter of approximately $4 million or $0.26 per diluted share.

Overall, the company's effective income tax rate in 2017 increased to 39.4% versus 26.4% in 2016. The Tax Cuts and Jobs Act increases or partially offset by an increase in the benefit of foreign sourced income of 1.4% and an increase in the excess tax benefit associated with share-based compensation totaling 2.8%.

Moving forward on a consolidated basis, we do believe the act will have a positive impact on our effective tax rate from the lower U.S. federal rate. However, this benefit will be partially offset by the GILTI tax on global intangible low tax income on our foreign earnings.

Additionally, we have the ongoing 5% withholding tax that will accrue as we now intend to dividend earnings out of El Salvador in the future. Our El Salvador operations had a previous tax rate of almost 0 and will now have an effective rate close to 15%. Our Belize location, which also previously had an effective rate of 0, should now have an effect of rate close to 10%.

Finally, net income for the year rose 2.6% to $15 million in spite of the $4 million charge associated with the tax act. Diluted earnings per share were $0.99 versus $0.98 in the previous year with 2017 diluted earnings shares have been reduced by 26% -- by $0.26 per share by the tax act.

In order to take advantage of the higher tax rate in 2017, we made $4 million in additional contributions to our defined benefit pension plans in December. As a result, we do not expect to have to make any significant payments to fund these plans over the next several years. Our financial condition remains very healthy supported by free cash flow and ample liquidity to fund our future growth, and we are well fortified with our capital structure as we continue to execute against our long-term growth plan.

Before turning the call back to Michael, I want to touch on the anticipated financial impact of adopting the new revenue recognition standard, ASC 606. A significant portion of our net sales come from the sale of customized products to our customers. Due to the long lead times associated with our supply chain, we also carry a significant amount of this customized product in our inventories for our uniform segment and to a lesser extent, our Promotional Products segment. Much of this customized inventory qualifies as specialized inventory with no alternative use and is covered by our customer's contractual obligations to purchase this merchandise on an ongoing basis and to ultimately take all of this inventory at the end of the related contract.

Historically, the company has recognized revenue for these products when they were shipped to the customer and title had passed. As a result of the new accounting standards, any such product that is in our inventory at the end of each accounting period will be recognized in net sales and a contract receivable will be recorded. The initial adoption of this standard, which will be recorded effective January 1, 2018, will result in an increase in our retained earnings on that date in the range of $10 million to $15 million.

On an ongoing basis, we don't expect that the new standard will have a significant impact on our operating results as we would expect to record a similar amount of contract receivables for products on hand at the end of each quarter in the future. However, given the nature of our business, this new accounting standard could have significant impact relative to the timing of recognition of sales on new uniform rollouts and significant promotional product orders in the future. Essentially, it will be expected that certain new large rollouts could be recognized in revenues 1 to 2 quarters earlier once the new inventory is actually received.

I'll now turn the call back to Michael for his closing remarks and a general outlook for the remainder of the year.

As we talk about our strategy from future growth, we are very focused on all areas of our business, where we are not only leveraging synergies to segment operations, but also strengthening our brand and marketing capabilities to create more integration where appropriate, with the ability to leverage our installed customer base and capture increase cross-selling opportunities. We're making solid progress, creating a very broad and deep organization that continues to serve a significantly larger customer base. Now if you'll refer to Slide 5, which, if you haven't found it, you will be able to find it on our website under Investor Information.

First, we'll discuss our uniform business and our updated long-term growth targets. In the past, we've provided revenue guidance for our uniform business based on historical performance, which fluctuates up and down with rollouts, big wins and potential loss customers. This is the nature of our business, and we do not believe the future will be much different from our history.

From an organic standpoint, our compounded annual organic growth rate for the past 5-year period has been 8.1%. Our long-term target for our uniform business is that we will grow organically at an average annual rate of 5%.

Next, in our Promotional Products segment, 2017 is the first full year of net sales for this segment. In 2017, the segment generated organic growth of 15%. We have a target of average organic growth over the next 5-year period of approximately 12%. This reflects potential for customer overlap that will happen as we continue to do additional acquisitions in this segment. Additionally, we will supplement organic growth in the segment as we have said in the past with 1 to 2 additional acquisitions each year.

Remote Staffing Solutions growth from 2012 to 2017, all organic, was a CAGR of 41%. We expect this segment to add approximately $7 million per year on average for the next 5 years, yielding an average annual growth rate of approximately 23%.

Lastly, on a consolidated basis, this should give us company-wide average organic sales growth of approximately 8.5% over the next 5 years. Of course, we also intend to supplement this growth as we have said time and time again with additional acquisitions as they play a large part in our strategic growth.

As I mentioned earlier, we expect BAMKO to continue to seek out strategic and accretive acquisitions. On the uniform side, we continue to nurture our pipeline of acquisition candidates. As we have described in the past, they will likely be more sporadic than the promotional segment.

In conclusion, we've had a strong year that positions us well for the future. A solid balance sheet and expected cash flows from operations enables us to continue to preserve growth through acquisitions and other investments that leverage our strengths and are strategically aligned with our core business vision.

We are executing well against our strategic plan that combines diversification and integration. Through acquisitions and organic growth, we are a much broader, deeper and certainly, more valuable organization than we were just a few years ago. We will now open up the call for questions.

(Operator Instructions) First question comes from Kevin Steinke with the Barrington Research.

I wanted to start out by asking about -- you've been talking in the last couple of quarters about uncertainty in the political environment, regulatory environment, causing customers to hold back on spending a bit. And as you mentioned though, we've gotten clarity on tax reform, health care reform seems to be kind of in the rearview mirror or unlikely to change anytime soon. So are you starting to hear from your customers a greater willingness to spend? You mentioned seeing a bit of a pickup in activity, but I'd be interested in any more anecdotal evidence you're seeing out in the marketplace on perhaps some increased spending plans.

The sense I get is this, that, yes, tax and health, those aren't questions. But we saw the market a couple of weeks ago a little crazy. So certainly, investors look to -- are seeing some uncertainty out there. I don't see it. I think our customer base is extremely optimistic. Everybody realizes that there will be some wage inflation. So there is a lot of efforts being made from a technology standpoint to stem the need to have -- to hire a lot of additional people. But additional people isn't -- will drive us more than turnover will. And there will be turnover and higher wages will definitely create that. The full employment picture helps with that as well at this point. I'm feeling very good, and I think our customers are. I meet with each of our presidents every single week. We have -- or today, I've met with a couple as well earlier in the week. And they're all feeling very optimistic. Their pipelines are as strong or stronger than they've ever been. As I said earlier in my remarks, maybe I didn't say it, we're having only bigger -- more opportunities and bigger opportunities are coming our way. And when I say are coming our way, we're seeing RFPs. We're seeing -- people asking us to bid on certain things or just give them pricing, existing customers and new customers than we've seen in a long, long time. More customers and bigger opportunity. We're a bigger company now, so maybe our view is that we can handle bigger opportunities as well now and we're more open to that. So I think the future looks pretty good. I'm not concerned about inflation. Inflation, that will tend to work its way through any organization without setting higher wages or suppliers having higher wages. Therefore, we're going to have to be passing price increases on to customers ultimately. A lot of our contracts, most of them allow us some latitude in that respect. And we've done a great job on the sourcing side of our business. So I'm not -- I feel we can offset whatever happens from an employee share standpoint by using the large organization now to leverage our strength with our suppliers. So I'm not concerned at all. It's been a very -- pretty robust economy going on finally, and I see it only getting better.

Okay, great. And just following up on that line of thought there, you had talked about in your prepared comments potential margin pressure from wages, fabric, et cetera. But from what you're saying, it sounds like you can -- and pretty much handle that, pass on price increases. But at the same time, it makes sense to explore other alternatives, new sourcing relationship or expanding in Haiti. I mean, so I guess, you're not feeling like, "Hey, we can't handle the inflation out there, and we're going to continue forward kind of as we have been." I mean, is that fair to say?

That's a very fair statement, yes. And you also have to keep in mind, what we have that most of our competition doesn't have is we have quite a large office in China with over 75 people who are managing relationships for BAMKO and now for Superior in many, many factories. We've got a terrific sourcing group here in Florida that doesn't spend much time in Florida, that's -- quite frankly, who spend most of the time traveling the world. But the kind of hands-on sourcing that we do versus what other people does is a very, very different animal. And because we're there, I mean, we're not locked into a particular situation. In fact, I'd say, yes, a factory -- a mill might be having issues with compliance and it's have to spend money or shut down. But we're not just dealing with one mill. We've got so many sources there for textiles and for sewing our uniform products and for BAMKO producing their products. I worry less and less for us. I think it puts us to an advantage to our competition as opposed to otherwise.

All right. If I could just boil it down here. In terms of your business model as it is today and the improvements you're going to continue to make, the initiatives you have in place, do you feel like the business is well positioned to continue achieving some margin expansion in 2018 and growing the operating income line faster than your sales?

I'll take a stab at that and then I'll throw it over to Andy. The -- as we continue to use the synergistic benefits of all of our shared services within the organization and cross-selling and everything else, from an operating margin standpoint, I'm fairly confident that we will be working really hard to improve that. On the other side, on the gross margin side of product margin, we could see some increase -- we could see some decreases in our gross margin. But I'll let Andy -- he's modeled this out 25 different ways, and I'll let him jump in at this point.

Yes. I mean, generally, we don't give a lot of guidance going forward. But what I will say on our -- from an operating margin perspective, you have to be a little bit careful whenever you look in 2018 on a percentage basis, something we did do a nice acquisition on the promotional side right at the end of the year, beginning of December. And as you know, our Promotional Products business does outrun at a lower operating margin to date. They are -- we do expect that margin will continue to improve as they grow. But with them being a larger portion of the mix, that could weigh on the overall operating margin just a little bit. I don't think it will have a tremendous impact on it. I think that we continue to look at -- really, we're not looking just at the gross margin. We're look at the operating margin together, and we still expect positive momentum in that area.

All right, fair enough. The -- can you talk about -- in the quarter, specifically, I mean, gross margin was up, but also SG&A was up as a percentage of sales. Was that due to business mix as you generally talk about some business can have higher gross margin but also higher SG&A? Or what was the dynamic going on there in the quarter?

Sure, on a consolidated basis, there were a couple of things. In last year's fourth quarter, we had a gain on a settlement. It was about just under $0.5 million. Obviously, that didn't repeat this year. And then in this year's fourth quarter, we're probably close to $300,000 of acquisition-related expenses. So those items alone are about $800,000 of SG&A in the quarter. The other side of it is really just tied to a mix of customers. You saw the significant increase in the gross. There were some offsetting increase in the SG&A associated with servicing those accounts.

All right, perfect. Could you just touch on the benefits you expect to see from integrating HPI and Superior I.D., I guess, both from a cost perspective as well as your ability to sell to the market?

Sure. We've -- HPI has been driving our sales now for a couple of years. But since we purchased them, actually, for the markets that they serve -- and we let our -- we just, on the Superior I.D. side, work towards maintaining the business we have. They -- 2 business operate with 2 presidents. They -- once that's combined, they'll be one. The 2 business operate on 2 IT platforms. When this is done, they will operate on one. Because of that, they operate essentially with 2 web platforms. We'll be able to operate with one. So a lot of the cost of IT and web development or the redundant cost will go away. And they operated 2 marketing departments. And just about -- mostly everything else is on a shared service basis. It will be a much strong organization and a more efficient organization once they're put together. And that won't be completed -- finished in total, we're expecting, the end of first quarter 2019. Most of the work will get done this year, and a lot of the benefit we should see towards the end of the year.

Okay, great. Just -- could you just dig a little bit more into the 5-year growth targets that you issued there. Slight, slight tick down in the uniform side and the Promotional Products side, but a dramatic increase in the growth target, at least on an annual revenue added basis, for Remote Staffing. So can you just delve a little bit more into the thinking behind the tweaks to each of the 3 segments, which -- obviously, it still rolls up into basically the same organic growth on a consolidated basis you were targeting before, but just trying to dig into the 3 different elements there.

Sure. I mean, first off, and let me clarify. It's not quite the same target. We were at 8% consolidated before. Now we're at 8.5%. I think when we look at it, we're a much -- when we first started giving this guidance probably a couple of years ago, we weren't nearly as large as are today. So part of the impact is that we're a large organization, so it takes more dollars to get a higher percentage. Also, just looking at the uniform segment and kind of where it's been, we really felt more comfortable in that arena with the 5% number. I think it still got healthy target for what we're trying to get to. And I'll make sure -- Michael will probably add a little more color on that when I'm done. But on the promotional side, there, we -- again, we're, on a pro forma basis, at the end of this year, we're basically double the size we are right now. To try and continue to grow that at 15%, one of the things we find as we buy these companies and we buy more. There will be a little more overlap on the customers that are there. So you won't be able to -- you may be cannibalizing a little bit of what would have been the organic growth. We feel very comfortable with that 12% number on a go-forward basis. On The Office Gurus business there, I mean, we have had tremendous momentum with the change we made at the sales organization a year ago as well as the -- quite honestly, a lot of us, the word-of-mouth and the positive impacts we've had on our existing customers. Many of our customers have grown tremendously with us. We're capable at this stage of being able to handle a lot more business in that area. And we're, quite honestly, we're turning some business away just to make sure that we're taking the right business and being -- what's the most profitable business for us to handle as we go forward. And I mean, we feel -- again, we feel comfortable with that $7 million a year. And we're still giving that one. I mean, that shows a percentage there. But obviously, the percentage growth is coming down because of the fact that, that organization -- that level of growth each year is making that $7 million a smaller percentage. That's when you get down to that 23% over time.

Okay. All right, that's helpful. So just want to ask a little bit about Tangerine. And how would you characterize their customer base in terms of the industries they serve? I mean, is it -- do they have a strong mix of retail, consumer products? What's really the areas that they're strong in, in terms of that kind of POS and point-of-purchase offering that they have?

Yes. Their primary customer are other businesses who are looking for point-of-sale display, the signage, for their businesses. And I just got back from the PPAI show not very long ago, about a month ago, where we had all of our different companies out there, probably one of the largest groups out there. And I could tell you that their reputation is stellar when it comes to what they do and that they're considered a thought leader and deal with some of the largest spirits companies in the country, doing much of their point-of-sale work. They still have a pretty diversified portfolio in -- below that or below the spirits is definitely an (inaudible) and a signage of point-of-sale is definitely an issue. Even though -- they do some of the same traditional work that makes up a small part of what BAMKO, the company we bought about a year ago, does as well. And as they all -- probably every acquisition we do, we'll have some niche or some strength that will also still -- 20% to 30% of their business will still be in the traditional ad specialty work. We really created -- get for ourselves, if I can explain it. I wouldn't like to say we're a French player in the promotional products that's going to (inaudible) we are one of the few companies who has the ability to customize and actually work with some of the best brands in the world on developing the unique promotional product for them and -- which makes us different. And that's what made BAMKO different and that's what makes Tangerine different from the other 22,000 companies out there who are in the promotional products world. And what we're finding is that as we're looking at other companies, even from an acquisition standpoint and just from a competitive standpoint is that it really is a very strong selling point. There's not -- everybody wants what everybody else has. And we're finding that our customization capabilities are even greater than we can imagine compared to other people when we look at other acquisitions. And that everybody we look at would love to have the same capabilities that we had. Look, at the end of the day, the standard mugs and cups and pens and drinkware and all that, my own sense is that and what -- a lot of the smaller promotional companies were embedded to the Amazon effect because Amazon ultimately could figure out how to do that and how to screen print that and how to logo that and everything else. And -- but that's not really our business. That's the -- our business is much more towards the customized side. And that's the side we prefer to stay on. A lot less risk, much higher barrier to entry, makes us much more unique when we're in front of a customer. And I can tell you, from a -- if you look at our customer list in that area, they think that we're unique as well. So does that answer your question?

Yes, it does. That's helpful. Just a couple more here. But you mentioned some pressure on the indirect health care channel and some new strategies that you're going to try to implement there. Could you maybe delve into a little bit more what the strategic approach will be going forward?

Well, then I'd be telling all my competition what my strategies are. So no, I'd have to leave it that we have some -- we have both some sales and marketing strategies as well as product strategies that will help us reach the ultimate decision makers sooner. And with our strategies, we believe that we would -- they will not be able to walk away from a conversation with us. Doesn't mean they're going to buy from us, but they're going to at least be a lot more interested in what we have to say.

Got it, got it. Makes sense. Just a couple of housekeeping questions here. Do you have the revenue contribution from Tangerine in the fourth quarter?

We -- I don't believe we put it into our filings. I believe it was about $2.5 million. But again, they're only -- it was less than -- it was really just one month. And December is not typically one of your bigger months of the year. So you -- but we do have some pro forma information and the financial is showing what they would have been for the full year, and that was about $35 million.

Yes, okay. And just lastly then, with all the various puts and takes going into the tax rate, you've been running at kind of this mid to high 20s rate for the last couple of years, excluding what just happened in the fourth quarter. So what do you think is a fair approximation for where your tax rate might average out post tax reform?

Sure. Look at this year's rate and we were at 39.4%. If you pull out the tax act and then also, let's pull out our excess benefit we get on our options and so ours will come back to that in a minute, our rate this year would have been about 30%. The benefit from those options and SARs was about another 7.2%. That 7.2% is the one that we have no way of controlling. It's all timing of when people exercise options and SARs and they disqualify dispositions and we get to benefit from that. So when I look at it, without that number, when you look at next year's rate, that 30% number would probably be between 22% and 24%, and then we'll get some benefit from the effects in options and SARs. Does that make sense?

Yes, yes, yes. That's very helpful.

(Operator Instructions) This concludes our question-and-answer session. I would like to turn the conference back over to Michael Benstock for any closing remarks.

Thank you, everybody, for joining us today. Thanks for your questions. We look forward to updating you on our first quarter results in April. Enjoy the rest of your winter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.