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, its 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, and 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, and good afternoon everyone. Thank you for joining us to review our fourth quarter and fiscal 2017 results. This quarter, we have 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 have 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 details 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 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…

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% and 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% one 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…

As we talk about our strategy for future growth we are very focused on all areas of our business, where we are not only leveraging synergies across 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 increased cross selling opportunities. We're making solid progress, creating a very broad and deep organization to continue to serve the significantly larger customer base. Now, if you'll refer to slide five, which if you haven't found it, you will be able to find on our Web site 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 the historical performance, which fluctuates up and down with roll-outs, big wins, and potential lost 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 five-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 five-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 this segment as we have said in the past with one to two additional acquisitions each year. Remote Staffing Solutions growth from 2012 to 2017, all organic, was…

We will now begin the question-and-answer session. [Operator Instructions] First question comes from Kevin Steinke with Barrington Research. Please go ahead.

Good afternoon everyone.

Hi, Kevin.

I wanted to start out by asking about -- you've been talking 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. Healthcare 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 go a little crazy. So certainly investors are seeing some uncertainly 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's 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 -- already today, I've met with a couple, as well earlier in the week. And they're also feeling very optimistic. Their pipelines are as strong or stronger than they've ever been. As I said earlier in my remarks, or maybe I didn't say, we're having 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. With us having 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 feel we can offset whatever happens from an inflationary standpoint by using the large organization now to leverage our strength with out suppliers. So I'm not concerned at all. We've got a 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 pretty much handle that, pass on price increases. But at the same time, it makes sense to explore other alternatives, new sourcing relationships, or expanding in Haiti. 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. They frankly spend most of the time travelling 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. The factories, so yes, a factory -- a mill might be having issues with compliance and has had to spend money or shutdown. But we're not just dealing with one mill. We've got so many sources there for textiles and for selling 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. As we continue to use these 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 working really hard to improve that. On the other side, on the gross margin side of product margin, we could see some increases -- we could see some decreases in gross margin. But I'll let Andy -- he's modeled this out 25 different ways, and I'll 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 from an operating margin perspective, you have to be a little bit careful whenever you're looking at 2018 on a percentage basis, something we did do a nice-sized acquisition on the promotional side right at the end of the year, beginning of December. And as you know, our Promotional Products business does -- are run at a lower margin today. 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'll have a tremendous impact on it. I think that we continue to look at it -- really, we're not looking just at the gross margin, we're looking at the operating margin together, and we still expect positive momentum in that area.

All right, fair enough. 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. There was about just under a half million. Obviously that didn't repeat this year. Then in this year's fourth quarter we flagged close to $300,000 of acquisition-related expenses. So those items along 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 was 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., guess both from a cost perspective as well as your ability to sell to the market.

Sure. 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've just, on the Superior I.D. side, worked towards maintaining the business we have. The two businesses operate with two presidents. Once this is combined there'll be one. The two businesses operate on two IT platforms. When this is done they will operate on one. Because of that they operate essentially with two web platforms, we'll be able to operate with one. So a lot of the cost of IT and web development or the redundant costs will go away. And they have to have two marketing departments -- and just about mostly everything else is on a shared service basis. And it will be a much stronger organization and a more efficient organization once they're put together. And that won't be completed -- finished in total. We're expecting in 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. Could you just dig a little bit more into the five-year growth targets that you issued there. Slight tick down in the uniform side and the promotional products side, but as a dramatic increase in the growth target at least on annual revenue added basis for Remote Staffing. So can you just delve a little bit more into thinking behind the tweaks to each of the three segments which obviously is still rolls up and basically the same organic growth on a consolidated basis you were targeting before, but just trying to dig into the three different elements there.

All right. First off, let me clarify it, it's not same target, we were at 8% consolidated before, now we're at 8.5. I think when you look at it, we're a much we first thought to given this guidance probably couple of years ago, we were nearly larger than we are today, so part of the impact is that we are a larger organization. So it takes more dollars to get higher percentage. Also just looking at the uniform sector and kind of where it's been, we really felt more comfortable in that area with the 5% number, I think it still got healthy targets for what we're trying to get to, I'm sure Michael play out 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 basically doubled the size of we are right now to dry and continue to grow that 15% one of things we planned as we buy these companies and we would buy more there will be a little more overlap on the customers that are there. So you won't be able to you may cannibalize that little bit of what would have been your organic growth, we feel very comfortable with that 12% number on a go forward basis. On the Office Gurus business, there we have had tremendous momentum with the changes we made in the sales organization a year ago as well as quite honestly a lot of us is to word of mouth and positive impacts we've had on our existing customers many of our customers have grown tremendously in Warehouse, 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 is the most profitable business for us to handle as we go forward. And we feel again we feel comfortable with the $7 million a year and still giving that one that shows the percentage share but obviously the percentage growth is coming down because of the banks that organization, debt level of growth each years making that $7 million of smaller percentage, so if I get down to that 23% over time.

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

Yes, their primary customers other busy are looking for point of sale display for signage for their businesses and just got back from the PPA show not very longer but a month ago where we had all of our through companies out there from the largest groups out there and I can tell you that their reputation is stellar when it comes to what they do and you said earlier even thought leader and able to see the largest sphere, companies in the country. Much of their point of sale work and still had a pretty diversified portfolio or even below that or the SPIRIT is definite mission there and as high point of sale is definition initiative. Even though they do sell some of the same traditional work that makes up small part of what Dampco, the company we bought about a year ago guards as well. And probably every acquisition, we do will have some niche or some strength but will also sell 20% to 30% of their business will still be in the traditional Ad specialty work, we really created Jim if I can explain it.

If I can explain it, I wouldn't like to say we're fringe player in the promotion prospects, 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 and developing the unique promotional production present 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 commercial products world and what we are finding is that. As we are looking at other companies given from an acquisition standpoint just from a competitive standpoint is that it really is a very strong selling point because not everybody wants what everybody else has and we are finding their customization capabilities are even greater than they had imagined compared to other people when we look at other acquisitions and that everybody would love to have the same capabilities that we have. Look at the end of the day, the standard mugs and cups and pens and drink ware and all that. My own senses that with a lot of these smaller promotional companies were invited 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. But that's not really our business, but 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 are in front of our customer and I can tell you from the look at our customer was in that area, they think that we are unique as well. So did that answer your question?

Yes, it does. So it's helpful. I will just, just a couple of more here. But you mentioned some pressure in direct healthcare channel and some new strategies that you try to implement there. Could you maybe deal 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 had to leave it that we some, we have both in sales and marketing strategies as well as product strategies that will help us reach the ultimate decision made to us sooner and with our strategies we believe that they will not be able to walk away from a conversation with us because they are going to buy from us but they are going to at least be a lot more interested in what we have to say.

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

I don't believe we put it into our filings. I believe it was about $2.5 million, but they will get, they are only even lessen to really just one month and December results is not typically one of your bigger month of the year, so you – and we do have some pro forma information in the financial surely what they would have been for the full-year and I think…

Right.

And that's 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 fairer approximation for where your tax rate might average out post tax reform?

Sure, if you look into this year's rate then we were at 39.4. If you pulled out the tax act and then also let's pullout our excess benefit we get on our options and so as we 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 one that we have no way of controlling as our timing of when before exercise options and SARS and to just qualify these positions and we get a benefit from that. So when I look at it without that number and when you look at next year's rate, that 30% number will probably be between 22 and 24 and they will get some benefit from the [Technical Difficulty]. Does that make sense?

Yes, that's very helpful. Okay, all right, perfect. Well, thanks for taking all the questions.

Thank you.

[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, and thanks for your questions. We look forward to updating you on our first quarter results in April.

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