Q2 2021 Acme United Corp Earnings Call

Good day, and welcome to the Acme United Corporation.

Second quarter 2021 earnings conference call at this time I'd like to turn the call over to Walter Johnsen. Please go ahead.

Good morning, welcome to the second quarter 2021 earnings conference call for Acme United Corporation.

And I'm Walter C Johnsen, Chairman and CEO with me is Paul Driscoll, Our Chief Financial Officer, who will first read a safe Harbor statement Paul.

Forward looking.

Looking statements on this conference call, including without limitation statements relating to the company's plans.

<unk> objectives expectations intentions, and adequacy of resources are made pursuant to the safe Harbor provisions of the private Securities litigation.

Reform Act of 1995 investors are cautioned that such forward looking statements involve risks and uncertainties such as among others. Those arising as a result of the effects of the COVID-19 pandemic.

Including the ongoing economic downturn and the other risks and uncertainties described and our periodic filings with the Securities and Exchange Commission and in our current earnings release.

Thank you Paul Acme.

Acme United had a solid second quarter of 2021.

Our net sales were $44.8 million a record high for the company with growth of 2% and wasn't.

Net income from operations was $3.7 million and increase of 16% and earnings per share were 94 cents compared to 92 cents last year.

The Companys Paycheck protection program loan of $3.5 million was forgiven during the quarter and added to the net income for the quarter.

And it is nonrecurring and was broken out separately and our financials.

The loan was instrumental and avoiding layoffs in our United.

And it states operations and we are grateful for the support.

In April we completed the installation of a new warehouse management system, and our largest distribution center and the United States.

We did not ship anything from the facility for 10 days during the conversion as planned but the early productivity. After shipping began again was below what we expected and normal times would we.

Would've just shipped more and the following days, but we could not hire enough workers and we fell behind on shipped orders at the end of June were approximately $5 million.

We are now shipping at normal levels, and the United States, but we continue to have a large backwater and addition, new orders are strong we are hiring additional associates and the North Carolina distribution site to bring our customer service levels and fill rates to much higher levels quickly and to ship the unfilled orders.

Our performance.

Performance during the second quarter of 2021, and Canada was excellent with sales increasing 68%.

Due to strong back to the office sales and the impact of first aid central.

And Europe sale.

During the second quarter were also strong with growth of 26%.

We have the staff have experienced strong back to school back to the office and crafts demand for our westcott cutting tools and see that continuing.

Our first aid group has been gaining new business and the retail and industrial markets and has been benefiting as workers return to offices factories hotels, and food service establishments and they purchase fresh safety supplies.

The capacity expansion at DMT will be completed in July as you may remember DMT manufactures high quality diamond sharpening tools, which have had strong demand.

The latest expansion has already had a positive impact on sales growth. This year and we are now positioned to expand in the e-commerce market and the United States and and industrial accounts in Europe.

We continue to invest and new equipment at med depth, which we acquired in December 2020.

As you May recall led that is 1 of the few manufacturers of alcohol wipes and antiseptic pads and the United States.

And we've met that business will have 3 new lines and operations by the end of August and we will be positioned to fulfill new supply agreements as they develop.

Although we will not be providing guidance, we anticipate strong performance for the year.

And we continue to seek acquisitions that I would expect that expand our product line and customer reach.

I'll now turn the call to Paul.

Acme's net sales for the second quarter were $44.8 million compared to $44 million and 2020 and increase from 2% sales for the 6 months ended June 32021 were $88.4 million compared to $79.8 million from the same period and 2020.

And increase of 11% net sales and the U S segment increased or decreased 4% on the second quarter due to delays caused by the implementation of the new warehouse management system.

Sales increased 6% for the 6 months and the June 30th mainly due to market share gains and first aid and safety products net sales for Europe increased 16%.

In local currency for the quarter and 22% from the 6 months ended June 30th.

The sales increase for both periods was mainly due to increased e-commerce sales and continued growth and DMT sharpening products.

The second quarter was also helped by reopening of offices.

Net sales in local currency from Canada increased 49% and a quarter and 40% from the year to date sales of office products increased due to a lifting of COVID-19 restrictions for offices and stores also sales of first aid products grew mainly in the online business.

Gross margin was 36% and the second quarter of 2021 compared to 36, 5% and 2020 the year to date gross margin was 36% compared to 37% and 2020. The decline in gross margin was mainly due to increased labor and transportation costs SG&A expenses for the <unk>.

Second quarter of 2021 or $12.4 million or 28% of sales compared with $11.7 million.

And we're 27% on sales from the same period of 2020 SG&A expenses for the first 6 months of 2020, 1 were $25 million by 28 percentage of sales compared to $23.2 million or 29% of sales and 2022nd.

And second quarter tax expense included a $900000 tax credit for stock based compensation.

Net income excluding the impact of the P. P. P loan forgiveness for the second quarter was $3.7 million and 90 force cents per diluted share compared to net income of $3.2 million or <unk> 92 per diluted share for the same period of 2020 and increase of 16% and net income.

And 2% and EPS net income excluding the impact of the P. P. P loan forgiveness for the first 6 months ended June 30 was $5.8 million or $1.46 per diluted share compared to.

And $4.5 million or $1.28 per diluted share in the comparable period last year increases of 29% and 14%.

Companies.

Debt less cash on June 32021 was $39.5 million compared to $37.3 million.

Dollars on June 32020 during a 12 month period, we paid $9.3 million from the Mednet acquisition and.

And $1.7 million on dividends received full forgiveness on the 3.5 million P. P P loans, and and generated approximately $4 million and free cash flow.

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

Thank you.

And he would like to ask a question. Please signal by pressing star 1 on your telephone keypad.

If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.

Again.

1 to ask a question we will pause for just a moment to allow everyone the opportunity to signal.

Our first question comes from Jim Marrone with singular research. Please go ahead.

Great. Thank you good afternoon, gentlemen, I have 2 questions the first.

Isn't short white and John.

On involves the warehouse and the backlog that the warehouses hearings design.

For the cutting tools segment of the business on the.

Meanwhile, first aid are quite into business and.

And the second question is in regards to the loan forgiveness.

And the impact on the fourth quarter. So is amped up and that's going to continue to impact in later quarters or and then.

As I just impacted the first quarter alone and and we won't have that route and Joel Fucked anymore.

Jim I'll start, it's Walter Johnson and the.

House and handles both the production of some of our first aid business because it's a very large facility. It's a 333 acre facility with 345000 square feet. So a portion of it does our first aid production and after that is produced.

Some of it goes into the warehouse for shipments and that was delayed.

We also have a Vancouver, Washington facility.

Net makes first aid kits and that was able to be operating independently.

And the cutting tools.

Pretty much are all going through a rocky Mount facility.

So that would be in particular, the westcott cutting tools and the cuda and camillus fishing tools.

Net back order, we're addressing right now and orders continue to be very strong. So as we continue to add people and the productivity continues to improve we're gradually digging into the backwaters.

Regarding the paycheck protection loans, I'll turn that 1 to Paul.

Oh, yes, the impact of the the P. P P forgiveness on the financial statements impacted.

The second quarter, and the and the year to date numbers it will not.

Effect and will not impact the third quarter or fourth quarter, but it will continue to be reflected and the the year to day income statement.

Okay, great. Thank you I, just going back to the warehouse on a wall.

And Walter So how are you dressing that short fall as far as on shortage of labor Saar are you, increasing wages and job putting pressure on cost.

Or.

And how is it just the fact that.

People are reluctant to pull back to work as a result of.

Government subsidies can you comment on on that labor shortage, and and how it's being addressed and what is the impact to our financial results.

Surely.

The environment and Rocky Mount North Carolina for a labor is very competitive.

And it has been because it's a and excellent place to do business.

We've increased the wages consistently during the past 12 months and as an example people running machinery typically make 16 to $17 an hour now starting and that's up about.

About $2 an hour from a year ago.

The.

Other areas you can address include things like stay bonuses.

And incentives for our good attendance and we have those in place which are also helping.

We had a job fair this past Wednesday, and hard 10, new people. So addressing it is certainly possible and we're doing it on.

It is costing us more.

But if you take a broader look it's not just the labor and Rocky Mountain North Carolina, the labor costs.

Our our company are increasing and certainly the products that we're bringing in from Asia or also increasing so we have pass through and will continue to pass through a commensurate price.

Price increases to them to our customers.

Okay, great. Thank you Walter.

Thank you.

Once again as a reminder, you may ask a question by pressing star 1.

Our next question comes from Tim call with Capital Management Corp. Please go ahead.

I was wondering what the installed base of health care units, increasing greatly over the last year.

Those started as a result and refill sales.

Oh, Tim absolutely the refill businesses are within our first aid business 1 of the first and fastest growing segments and as you can imagine when you have and increasing installed base of industrial first aid kits.

And that or are currently on site.

Our consuming components and they were expired and so the replacement orders and then the new ones are doing the same thing.

So it is the 1 on the real growth engines within first aid.

Our automatic replenishment programs safety hub.

Enhances the ability to capture those refills and makes it very easy for our customers too.

Automatically replenish the kits to make them occur and at all times. So it's a it's an important part of the business and I'm happy to say that it's a 1 of the fastest growing portions of that business.

Earnings per share growth has been held back by on that.

Diluted share count going up.

Does the stock options moving it into the money.

And the past Acme and settled those stock options with cash should we expect that going forward eventually.

The diluted share count, which is 18% higher than the basic share count on it.

Should that decline over time toward the more stable and basic share count.

I'll, let Paul Driscoll address that 1 and I'll add to it as well.

And if it is important and Paul.

I think and in the future things will for comparative purposes things will start to normalize, but we were we're not doing the cash settlements at the moment because it's it's more beneficial to the company to allow option he's 2 extra.

Size and the market and it brings in cash and instead of the cash going out and so there's a there's and there's a big net benefit and doing this and there's enough liquidity.

In our stock now.

And you can see so we will there's no plans on going back to cash settlements.

Tim there's a little bit more to that to the.

The stock appreciated.

A lot and the past 12 months and because of that.

All of the options are now accounted and the fully diluted shares whereas before some were issued but were not counted because we were below the exercise prices.

We may from time to time also buy those shares and depending on the cash flow.

And the cash settlements, so I wouldn't say, we won't do that but as Paul pointed out in the past year, it's been very beneficial for the company to bring and that that equity.

Although not many companies that can grow through Oh, when their warehouse is closed so congratulations on on growing through that.

And look forward to well thank you it's wrong here.

It's a was an important step and so many ways for the company.

We have and older system that was not fully documented.

It was a smaller.

Provider that.

It didn't have the depth to continue to stay abreast with the current environment.

This positions us to be able to move into robotics and that warehouse.

Truly.

Handle the the upgrades that have happened in the past 3 to 4 years as we've made.

Amazon and other 1 on sales a major part of the business.

And while it was painful for a quarter aver.

Eventually the productivity and the customer service that comes out of that I think will be a remarkable. So we're over the implementation now we'd have to just catch up on some of the backwater, which we're working on as we speak.

Perfect. Thank you.

Thank you and gentlemen at this time there are no additional questions on queue.

If there are no further questions and I would like to and the call and we look forward to sharing with you the.

Continued development of the business and the coming quarters and.

Look forward to speaking to you soon thank you very much.

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

Okay.

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