Q4 2020 Acme United Corp Earnings Call

Good day and welcome to the Acme, United Corporation fourth quarter, 2020 earnings conference call at the.

This time I'll, let the teleconference over to Walter Johnsen Pease go ahead.

Good morning, welcome to the fourth quarter and year end 2020 earnings conference call for correct and the United Corporation.

And Walter C Johnsen, chairman and CEO.

With me is Paul Driscoll, our Chief Financial Officer for the first read the Safe Harbor statement Paul.

Forward looking statements on this conference call, including without limitation statements related to the Companys plans strategies objectives expectations intentions and adequacy of resources are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of bikes.

Alright.

Investors are cautioned that such forward looking statements involve risks and uncertainties such as the among others those of rising as the result of the effects.

All of the COVID-19, pandemic, including the ongoing economic downturn and the other risks and uncertainties described and I P O.

The out of filings with the Securities mix.

The change commission and our.

The current guidance.

Thank you Paul.

And the United has had a record fourth quarter and year and 2020.

Net sales and the fourth quarter were $49 million and increase of 21% of over 2019.

Our net income for the fourth quarter was $2 million.

And increase of 109% we.

And we had similar strong performance for the entire year.

Net sales for 2020 $164 million and increase of 15% over last year and net income increased 47 per cent.

Our earnings per share for 2020.

And $2.31 compared to the $1 60 last year and increase of 44 per cent.

We have been investing and our e-commerce teams and platforms for many years and.

And by 2019 online sales represented 16% of revenues.

Also been actively building our mass market presence with retailers, such as Walmart home depot and Costco.

And we have made acquisitions of Pac kit first aid only DMT spill magic first aid central and bad debt.

All of U S and Canadian based manufacturers.

And the COVID-19 epidemic of occurred we were positioned to quickly shift out of sales focus for ecommerce and mass market retailers that we believe would be heavily shopped.

And use our sourcing team and Asia to procure of large quantities of the three acquired masks accrual of nitrile gloves, and disposable personal protection and gallons to be used and our first aid kits followed the bodily fluid kits and personal protection of chips, we built large quantities of westcott craft scissors and <unk>.

And those hunting knives, and cuda fishing tools, not knowing whether the supply chains with upwards or what demands of the big.

We kept our entire team focused on growing or.

Are the business selling of our products and responding to market shifts.

As you may recall.

Increased out of our inventory by approximately $10 million starting in July.

This proved to be a good move because it helped us with one of them to supply chain disruptions and customer demand well in excess of forecasts.

The results of these actions of a pair of.

We had outstanding performance and every one of our subsidiaries and business units during 2020.

Behind the scenes of court and we were trying the best we could the operate remotely with the operations in Europe, Canada, and the U S, China and Hong Kong.

Our supply chains were damaged with COVID-19, creating shortage of the workers at the factories salary.

Salaries to movement of goods to the ports.

For congestion container shortages and shipping delays and the U S.

We closed our warehouses in the U S factories for deep cleaned and multiple times and overtime hazard and weekend day.

And then current many other inefficiencies related to the pandemic.

We made two acquisitions during 2020.

And January 2020, we purchased first aid central and the Bell Canada.

During the year, we succeeded and increasing their ecommerce first aid sales, we began selling health, Canada registered and first aid products to our traditional mass market industrial and office products customers and expanded sales to current multinational customers in Canada.

The team at the first aid Central has done an outstanding job and the.

We are accomplishing the growth and planned.

In December 2020, we completed the acquisition of bed Bath L. L C, which is the U S based supplier of the alcohol wipes alcohol prep pads D. The K whites and other items that are used and our first aid kits and and health care.

And these products also have broad use of just infecting whites and the homes, the restaurants offices and factories.

And that's not the had revenues of approximately four four and $8 million and 2020 with EBITDA of $1 million.

Planning to purchase.

$2.6 million of additional equipment to increase production and 2021 and look forward to substantial expansion in the coming years.

At year end, we terminated our defined benefit pension plan and try and had been frozen two employees since 1996, and its participants and obligations had graduated declined over the years.

We had about 25 retirees and the plan of closure with all of the costs audits paperwork and oversight that are required.

The charge to close the plan, which was mostly non cash was approximately $750000, resulting from the recognition of the accumulated losses, which normally would have been amortized over the remaining years.

Our past employees now have annuities from a major insurance company, well Acme United is transfer of the pension risk and will save approximately $75000 annually.

We released the new headquarters in January 2021, and Shelton, Connecticut to accommodate growth and provide social distance and the <unk>.

Office has 35000 square feet.

Which is approximately double our current space with numerous offices meeting rooms, and cubicles or.

Associates will each have individual workspaces and all.

Large modern facility as we return to the office with a flexible work schedule the.

Crocs is comparable to our former space.

We continue to see strength and sales and earnings growth so far in the first quarter of 2021.

And the businesses continue to gain market share.

And we of new production capacity coming on stream of DMT and net debt.

We will not be providing guidance at the start.

We're very optimistic about another strong year.

And now I'll turn the call for Paul.

<unk> net sales for the fourth quarter were $49 million.

Compared to $33 $9 million and 2019 and <unk>.

The increase of 21% sales for the year ended December 31st 2020 over $164 million.

Compared to 142.5 million in 2019, and an increase of 15% net sales and the U S segment increased 14% on the quarter and $12.

Per cent for the year on December 31st cause sales increase mainly came from first day and safety products, primarily and market share gains and to a lesser extent gains from COVID-19 related surge demand.

Net sales for Europe increased 55 per cent of local currency for the quarter and 25 per cent for the year ended December 31st the.

The sales increase for both periods was primarily due to increased sales of Westcott Camillus products and the E Commerce channel as well as higher sales of the DMT sharpening products net sales in local currency for Canada.

Excluding the first aid central increased 23% of on the quarter GDP growth and Cumulus include the products. The other day sales declined 3% on local currency.

Mainly due to COVID-19 related office same store closings earlier and the year, including the first aid central sales increased 56 per cent for the year.

The gross margin was $36 seven per cent of the fourth quarter of 2020 compared to 36, 3% and 2019. The gross margin for the year ended December 31st 2020 was $36 three per cent compared to $36 five per cent.

For 2019, the major contributor to the decline in gross margin percentage was COVID-19 related expenses SG&A expenses for the fourth quarter of 2020 with $12 $2 million or <unk> 30 per cent of sales compared with $10 $9 million for 32 per cent of sales for the same period.

Of 2019 SG&A expenses for the year ended December 31, 2020 were $48 $2 million or 29% of the sales compared with $43 $6 million 31 per cent of sales and 2019.

Net income for the fourth quarter of 2020 was $2 million of 54 cents per diluted share compared to the net income of $1 million of 28 cents per diluted share for the same period of 2019 and increase of 109% of the net income of 93 per cent and earnings per share net income for the year and.

On the December 31, 2020 was $8 $1 million or two $2.31 per diluted share.

Parents of $5 $5 million of.

Net income or $1 60 per diluted share because the comparable per period last year and increase of 47 per cent of net income and 44 per cent of the earnings per share income.

And the bank debt less cash on December 31, and 2020 was $41.3 million and importantly.

The $30 million on December 31, and 2019 during the 12 month period, we paid $11 $4 million for the first aid central and led Napa acquisitions spend of $1.6 million and dividends and generated $3.2 million and free cash growth.

Thank you Paul and I will now open the call to questions.

Absolutely. So of you would like to ask the question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure your mute function and it turned off the lot of speed and that's really tired equipment and then let star one to ask the question I'll pause for just a moment to allow everyone the opportunity.

And it does look like we've had a question come on the lines kind of Tim call with capital and Capital Management Corporation. Please go ahead.

Congratulations on another strong quarter and a strong here all of that.

Thank you very much Jim yeah. Thank you.

Yeah.

That's real and cutting tool business and sensor business.

And it industry and for closed and school for closed and the offices are closed.

And then you keep picking up new distribution and one of the new accounts.

And there are some reactions are you going to be able to supply and not cutting so inventories too.

The expanded distribution.

Well that's the.

And that's a very good question and it's hard to forecast demand.

But we.

Have.

A good quantity of inventory in the U S right now.

And specifically focused for.

For one thing.

Reopened.

And we'll see and strength with some of the office superstores and the distributors.

As we speak and of course, that's in addition to the <unk> the mass market, which has been strong.

So.

And.

I would anticipate that we will have the.

The strong demand as people go back into the office, we will see but we feel we are prepared.

Sales rebound there and.

Ongoing growth and health care.

And it was because of the economy of scale.

The margins might expand over time.

Yeah.

Well I don't think it will come from our growth margins have been impacted because we've been very inefficient.

With our production due to Covid and the.

Cost of shipping.

And the extra handle on and it's.

And extra people and social distancing and working weekends all of these things are going into and plant closures.

That's all showing up and our across the cells and despite that the at the gross margins for the year about comparable with last year.

When these things are removed.

It's possible that we would see some improvement and margin based on the.

And no longer having these kinds of costs.

Congratulations again on it.

The strong yeah, all of your hard work and.

And then probably net net.

That's all great news.

Yes.

And thank you for your support.

And again, that's star one to ask the question. If you find your question has been answered you may remove yourself from the queue by pressing star two well take our next question for Peter and Mark with more capital management. Please go ahead.

Hey, Walter.

Just first off obviously, great year of what I mean, and now great job navigating the are a really difficult year and just outstanding results.

You know just the kind of a quick follow up on the on the inventory and you know you talked about and your comments.

This past July it's about $10 million above where where it would normally be.

You know as we look at the the year and number of of the 50 million of is that.

You know still reflective of the of the buildup that you preemptively did you know anticipating and some of these are the supply.

Supply chain disruptions or is it is this the new level just with the sales and the acquisitions, how should we think about that and is there some working capital that can be freed up there.

I believe there is and our internal models, we're assuming that the inventory holds and.

Hopefully, we grow and but as we speak if it was the static inventory and the static sales would certainly work off of some of that inventory Oh. There was the question earlier from Tim call about peoples of turning back to work and we'll let stimulate demand we think it will.

And we think we're prepared to supply into that of that.

Growth.

If.

The wind up.

Growing at the pace that I hope we do then we'll have lots of inventory reduction and more of the will be into working capital, but if it was just static and the revenues would clearly be driving down the bulk of that $7 million.

Alright, it sounds good and then you just kind of like the higher level question on the you also mentioned the the capacity expansion.

Both of the Med Nap and then the D. M T. How how in terms of the D. M T where you aren't just in terms of being supply constrained there and you know how and if any of them.

Additional color you could.

Give on that product.

It would be appreciated.

Yeah, so what's the D&C product one we of.

And then the capacity constrained for the past.

Past couple of years and.

But it doesn't seem to.

Get more capacity and sell it.

Which of the terrific thing because it's high margin and it's getting better and better utilization of the plants.

So we went through a another.

The expansion starting around September of.

Last year of 2020 and that ends.

Most of the installed now and we're seeing benefits from increased production. What are you going to be doing some re layouts of the facility.

And so that would like to be able to increase capacity by about 50 per cent.

But.

What we're finding is.

Our customers want more and more and it sort of it's a good problem.

And the case of Mednet, and it's a little bit different.

Because.

There's.

A lot of.

Potential volume that we could generate through Acme sales efforts, so I think the way.

Customer and the.

But the important customer to net that we can be a far bigger customer.

By opening up our industrial distribution of our distribution and through retail and into the mass market and into Amazon.

And there we've added and <unk>.

Free machines that didnt time generate about a $2 million or more in revenues each of them. So that'd be coming on stream between now and the August.

And I really.

Don't know what we're gonna do after that you'll probably be evaluating the sales levels for PAH.

Possibly investing again, a year and to continue to grow it.

That's great.

Well congrats again on the great here and the best of luck and 2021.

Thank you so much Peter.

And again I'll pass on my time with other star one to ask the question I'll pause for another moment to give anyone the opportunity to ask the question.

And it would appear at this time there are no further questions on the phone zone.

Well for no further questions. This call is complete I would like to thank you for joining us and we look forward to sharing of our first quarter results in April.

Goodbye.

And this concludes today's call. Thank you for your participation you may now disconnect.

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