Q4 2023 Acme United Corp Earnings Call
[music].
Operator: Good day, and welcome to the Acme United Corporation fourth quarter 2023 earnings call. At this time, I'd like to turn the call over to Walter Johnsen, Chairman and CEO. Please go ahead, sir.
Good day and welcome to the Acme United Corporation fourth quarter 2023 earnings at this time I'd like to turn the call over to Walter Johnsen, Chairman and CEO. Please go ahead Sir.
Walter C. Johnsen: Good morning. Welcome to the fourth quarter and year-end 2023 earnings conference call for Acme United Corporation. I am Walter C. Johnson, Chairman and CEO. With me is Paul Driscoll, our Chief Financial Officer, who will first read a Safe Harbor statement. Paul?
Good morning, welcome to the fourth quarter and year end 2023 earnings conference call for Acme United Corporation.
I am 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 statements in this conference call, including without limitation statements relating to the company's plans strategies objectives expectations intentions, and adequacy of capital and.
Paul G. Driscoll: Forward-looking statements in this conference call, including without limitation statements related to the company's plans, strategies, objectives, expectations, intentions, and adequacy of capital and other 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, including, among others, those arising as a result of a challenging global macroeconomic environment characterized by continued high inflation and high interest rates. In addition, we have experienced supply chain disruptions, and we may experience these disruptions again in the future. We are also subject to additional risks and uncertainties, as described in our periodic filings with the Securities and Exchange Commission and in our current earnings release. Thank you, Paul.
Other resources are made pursuant to the safe Harbor provisions.
Of the private Securities Litigation Reform Act.
1995.
Investors are cautioned that such forward looking statements involve risks and uncertainties, including among others. Those arising as a result of a challenging global macroeconomic environment characterized by continued high inflation and high interest rates.
In addition, we have experienced supply chain disruptions.
They experienced disruptions in the future. We're also subject to additional risks and uncertainties as described in our periodic filings with the securities.
And exchange Commission and in our current earnings release. Thank.
Thank you Paul.
Walter C. Johnsen: Sales in 2023 were $191.5 million, a 1% decrease from 2022. Gross margins were 37.7% vs. 32.8% in 2022. Net income was $8.2 million compared to $3.6 million last year.
In 2023 were $191.5 million, 1% decrease from 2022 gross margins were 37, 7% versus 32, 8% in 2022, net income was $8 $2 million compared to $3 $6 million last year.
Sure.
Walter C. Johnsen: Earnings per share were $2.23 compared to $0.82 in 2022. Highlights of 2023 included new retail distribution of our first aid kit, expansion of our Westcott ceramic cutters, and new craft flanograms in the mass market. Our gross margins increased as we successfully implemented our productivity plans. The productivity improvements and reduction in SG&A expenses resulted in annual savings of approximately $6.5 million. We sold our hunting and fishing business for $19.8 million. We acquired Orch Tree Solutions at a bankruptcy auction for $1 million, providing new customers in the Canadian market.
Earnings per share were $2.23 compared to 82 cents in 2022.
Highlights of 2023 included new retail distribution of our first aid kits expansion of our Westcott ceramic cutters and new craft plan O grams in the mass market.
Oh gross margins increased as we successfully implemented our productivity plans.
Productivity improvements and reduction in SG&A expenses resulted in annual savings of approximately $6 $5 million.
We sold our hunting and fishing business for $19.8 million.
We acquired Oak tree solutions at a bankruptcy auction for $1 million, providing new customers in the Canadian market.
Walter C. Johnsen: We decreased net debt from $55 million a year in 2022 to $19 million. As we enter 2024, we are optimistic. We have won new distribution of first aid kits in one of the largest drug chains in the United States and expanded our Spill Magic cleanup line to a major mass market retailer. We have innovative DMT sharpeners in the kitchen category with significant incremental distribution and new planograms in the craft market.
We decreased net debt from $55 million at year end 2000 $22 million to $19 million.
As we enter 2024, we were optimistic we have one new distribution of first aid kits and one of the largest drug chains in the United States.
And expanded our spill magic clean up line to a major mass market retailer.
We have innovative DMT sharpener as in the kitchen category with significant incremental distribution, a new plan O grams in the craft market.
Walter C. Johnsen: Our Canadian business is expanding from organic growth and the hawk tree acquisition. In Europe, we continue to secure new first aid and Westcott business. We're investing in new products, facilities, and people. The company is developing the next generation of our Safety Hub digital requisition system for first aid refills and was recently awarded new patents for its design. We have broadened our ceramic safety cutters to expand their personal and industrial usage.
The Canadian business is expanding from organic growth and the Hawk tree acquisition.
In Europe, we continue to secure new first aid and Westcott business.
We are investing in new products facilities and people. The company is developing the next generation of our safety hub digital requisition system, but first aid refills and was recently awarded new patents for its design, we have broadened our ceramic safety cutters to expand their personal and industrial uses.
Walter C. Johnsen: We are developing new alcohol and antiseptic wipes and lens cleaners for production at our MEDNAT facility for sale in the United States and Canada. We are upgrading our production and distribution facilities in Rocky Mountain, North Carolina, and at Spill Magic in Smyrna, Georgia, and Santa Ana, California. Our growth plans over the next three years require additional space. We are expanding our first aid production in Vancouver, Washington, doubling our first aid facility in Laval, Canada, and expanding our MedNap plant in Brooksville, Florida. In each case, we believe we have the business to make these acquisitions and these expansions.
We are developing new alcohol and antiseptic wipes and lungs cleaners for production that were at our midnight facility for sale in the United States and Canada.
We are upgrading our production and distribution facilities in Rocky Mount North Carolina, and its spill magic and Smyrna, Georgia, and Santa Ana, California.
Our growth plans over the next three years requires additional space.
We are expanding our first aid production in Vancouver, Washington.
Doubling our first aid facility in Laval, Canada, and expanding our med that plant in Brooksville, Florida in each case, we believe we have the business to make these acquisitions accretive. These are expansions accretive we continue to build the entire organization.
Walter C. Johnsen: We continue to build the entire organization. The company has talented new sales executives, logistics specialists, plant managers, distribution heads, and shift supervisors. We are promoting from within and hiring from without. The team is the best we have ever had.
The company has a talented new sales executives logistics specialists plant managers distribution hubs.
And shift supervisors, we're promoting from within and hiring from without the team is the best we have ever had.
Paul G. Driscoll: I will now turn the call to Paul. Acme's net sales for the fourth quarter were $41.9 million compared to $44.1 million in 2022, a decrease of 5 percent, excluding the impact of the Camillus Included product line sold in November. First 2023 sales for the fourth quarter of 2023 declined 1% compared to 2022. Sales for the year ended December 31, 2023 were $192 million compared to $194 million in 2022. However, net sales excluding Camillus included in the U.S. segment declined 2% in the fourth quarter. Sales were constant for the year ended December 31st.
Now I'll turn the call to Paul Acme's net sales for the fourth quarter were $41 $9 million compared to $44.1 million in 2022 a decrease of 5% excluding the impact of the Camillus and cuda product lines sold on November.
First 2023 sales for the fourth quarter of 2023 and declined 1% compared to 2022.
It was for the year ended December 31, 2022 were $192 million compared to 190 $194 million in 2022.
Net sales, excluding camillus and cuda and the U S segment declined 2% in the fourth quarter sales were constant for the year ended December 31st sales I've heard of school and office products for the year were impacted by customer reductions of inventory in the first half of 'twenty twenty-three sale.
Paul G. Driscoll: Sales of school and office products for the year were impacted by customer reductions in inventory in the first half of 2023, while sales of first aid products were strong. Net sales for Europe decreased 13% in local currency for the quarter and 6% for the year ended December 31st.
Sales of first aid products with strong net sales for Europe decreased 13% in local currency for the quarter and 6% for the year ended December 31st the sales decrease for both periods.
Paul G. Driscoll: The sales decreased for both periods, mainly due to the economic recession in Canada. However, net sales in local currency for Canada increased 12% in the quarter and 5% for the year due to growth in first aid products. The gross margin was 39.1% in the fourth quarter of 2023 compared to 31.9% in 2022. The gross margin for the year was 37.7% compared to 32.8% in 2022. The higher gross margin was mainly due to productivity improvement initiatives that began in Q4 of 2022, as well as lower inbound transportation costs.
It was mainly due to the economic recession in Canada net sales in local currency for Canada increased 12% in the quarter and 5% for the year due to growth in first aid products. The gross margin was 39, 1% in the fourth quarter of 2023 compared to 31, 9% in 2020 two.
Gross margin for the year was 37, 7% compared to 32, 8% in 2020 to the higher gross margin was mainly due to the productivity improvement initiatives that began in Q4 of 2022 as well as lower inbound transportation costs.
SG&A expenses for the fourth quarter of 2023 were $14 3 million or so.
Paul G. Driscoll: SG&A expenses for the fourth quarter of 2023 were $14.3 million, or 34% of sales, compared to $14.1 million, or 32% of sales, for the same period of 2022. SG&A expenses for the 12 months of 2023 were $59 million, or 31% of sales, compared with $58 million, or 30% of sales, in 2022. Phyllis and Kuda hunting and fishing product lines were sold to GSM Holdings on November 1, 2023 for $19.8 million.
44% of sales compared to $14.1 million or 30% to 32% of sales for.
For the same period of 2022.
G&A expenses for the 12 months of 2023 were $59 million or 31% 31% of sales.
Compared with $58 million or 30% of sales in 2022.
The only thing cuda hunting and fishing product lines was sold to G. S M Holdings.
On November one 2023 for $19.8 million the sale resulted in a gain of $12 $6 million. This was recorded in other income the gain net of tax was approximately $9.6 million.
Interest expense for the fourth quarter of 2023 was $500000 compared to 940000 in the fourth quarter.
'twenty two.
The decrease was due to lower average debt of approximately $32 million, partially offset by higher interest rates interest expense for the year went from $2 $4 million in 'twenty 'twenty $2 million to $3 million in 2023 average check declined by 12 million. However, the weighted average interest rate went from 4% in 2020 two.
Paul G. Driscoll: The sale resulted in a gain of $12.6 million. This was recorded in other income. The gain net of tax was approximately $9.6 million. Interest expense for the fourth quarter of 2023 was $500,000 compared to $940,000 in the fourth quarter of 2022. The decrease was due to lower average debt of approximately $32 million, partially offset by higher interest rates.
The six 5% in 2023.
Today, our average interest rate is approximately five 6% due to the mortgage being fixed at 3.8%.
Net income for the fourth quarter, excluding the gain on the sale of the Camillus and Cuda product lines was $1.6 million or 40 cents per diluted share to compare compared to a net loss of $600000 for the same period of 2022.
Paul G. Driscoll: Interest expense for the year went from $2.4 million in 2022 to $3 million in 2023. Average debt declined by $12 million. However, the weighted average interest rate went from 4% in 2022 to 6.5% in 2023. Today, our average interest rate is approximately 5.6% due to the mortgage being fixed at 3.8%.
Including the gain net income was $11 $2 million net income excluding the cumulus into the cell.
The year ended December 31, 2023 was $8 $1 million or $2.23 per diluted share compared to $3 million or 82 cents per diluted share last year, including the gain on the sale net income was $17.8 million of the company's bank debt less cash.
On December 31, 2023 was $19 million compared to $50 million to $55 million on December 31, 2022. During the 12 month period, the company paid $2 million in dividends and generated $24 million free cash flow, including an inventory reduction of five.
Paul G. Driscoll: Net income for the fourth quarter, excluding the gain in the sale of the Camils and Cuda product lines, was $1.6 million, or $0.40 per diluted share. Compared to a net loss of $600,000 for the same period of 2022, including the gain, net income was $11.2 million. Net income excluding the Camillus and Kuda sale for the year ended December 31, 2023 was $8.1 million or $2.23 per diluted share compared to $3 million or 82 cents per diluted share last year. Including the gain on the sale, net income was $17.8 million.
Dollars.
Additionally, the $30 million of net proceeds from the sale of the Camillus and Cuda product lines was used to reduce debt.
Thank you Paul I will now open the call for questions.
Thank you, ladies and gentlemen at this time well be conducting a question and answer session.
If you'd like to ask a question you May press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue.
You May press star two if he would like to remove your question from the Q.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the starkey.
Our first question comes from the line of Jim Marrone with singular research. Please proceed with your question.
Paul G. Driscoll: The company's bank debt, less cash, on December 31, 2023 was $19 million compared to $55 million on December 31, 2022. During the 12-month period, the company paid $2 million in dividends and generated $24 million in free cash flow, including an inventory reduction of $5 million. Additionally, the $13 million of net proceeds from the sale of the Camelos and Cuda product lines was used to reduce debt. Thank you, Paul.
Yeah. Good afternoon. My question deals with what you would anticipate going forward how are.
Are you going to continue looking at making the business smaller by selling further product lines or are you looking at acquisitions.
I'm just looking to get your thoughts on that.
Well, Jim we have growth plans. So we see very clearly and in my mind I'm looking at over the next three years somewhere around $100 million of growth.
And we're doing that from organic growth as well as acquisitions.
The focusing of our business by selling our Camillus line for 100 times our investment.
Operator: I will now open the call for questions. Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you'd like to ask a question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
So all the shareholders benefited from that.
As an example, if we get it opportunistic sale will take it but where we're going is building that's why as we're doing things like expanding in Canada, because we did an acquisition and there's a heck of a lot of business sitting behind that and we need a bigger boat.
Jim Marrone: You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Jim Marrone with Singular Research. Please proceed with your question. Good afternoon.
Similarly, it spill magic, where lending major new business, that's coming in this year.
And we need facilities for it.
Met up we're working good time on the.
Expansion there.
Because we use the products ourselves we're growing our top line in the first aid area and.
And we're gaining business from outside customers.
So no.
Not shrinking the business is an aggressive growth plan.
Walter C. Johnsen: My question deals with what you anticipate going forward. Are you going to continue looking to make the business smaller by selling further product lines, or are you looking at acquisitions? I'm just looking to get your thoughts.
Okay.
Okay. So then is it safe to say that and.
And you're looking at more a geographical expansion as opposed to adding product lines is that the focus going no no. There's two ways in the first aid area. We're looking at acquiring companies that are competitors.
Walter C. Johnsen: Well, Jim, we have growth plans that we see very clearly. And in my mind, I'm looking at somewhere around $100 million of growth over the next three years. And we're doing that from organic growth as well as acquisitions in America and the focus of our business by selling a Camillus line for 100 times our investment. Now all the shareholders benefited from that. It is an example of if we get an opportunity to excel, we'll take it, but where we're going is building. That's why as we're doing things like expanding in Canada, it's because we did an acquisition, and there's a heck of a lot of business sitting behind that, and we need a bigger boat. Similarly, at Spill Magic, we're landing major new business that's coming in this year, and we need facilities for it. MedNap, we're working big time on the expansions there because we use the products ourselves, we're growing our top line in the first aid area, and we're gaining business from outside customers. , and Gwyneth Paltrow.
In the space or a half step away as well as vertically integrating the products that go into the first aid and safety markets.
So it's a horizontal expansion, mostly in the U S and Canada.
As well as vertical integration.
Okay.
Okay. Thank you for taking my questions.
Sure.
Our next question comes from the line of Tim call with the Capital Management Corporation. Please proceed with your question.
Well congratulations getting through a.
A year with many challenges and hopefully on the upcoming years are much easier.
Post pandemic Cuda and Camillus.
Had negative sales growth.
And we're holding you back and so you sold them shall we think now overall sales growth could accelerate with.
Health care.
Being the largest part of the company and replenishment sales.
And health care, possibly being the fastest growing area of Acme.
Yeah, I think that's a pretty perceptive question.
Walter C. Johnsen: Shrinking the business is an aggressive growth plan. Okay, so then is it safe to say that you're looking at more geographical expansion as opposed to adding product lines? Is that the focus going forward? No, no. There are two ways.
The the Cuda and Camillus business were about flat, maybe a little bit of decline.
After the a very strong period with.
Covid, but really the the sale was because we got a good price and because we focus the business and now we've got.
Walter C. Johnsen: In the first aid area, we're looking at acquiring companies that are competitors in the space or a half step away, as well as vertically integrating the products that go into the first aid and safety markets. So it's a horizontal expansion, mostly in the U.S. and Canada, as well as vertical integration. Okay, thank you for taking my... Okay.
A much stronger balance sheet to be working on acquisitions, mostly in the first aid area.
Organic growth in the first aid is substantially better than what cuda and camillus have been in the past couple of years. So your question holding us back in the top line I guess it would've because it was flat for two years.
Timothy Colin Call: Our next question comes from the line of Tim Call with the Capital Management Corporation. Please proceed with your question. Well, congratulations on getting through a year with many challenges, and hopefully, the upcoming years are much easier.
The other piece of that.
As Westcott has gained this year new business in the cutting area and didn't plan O grams.
And so we're feeling.
Pretty positive about growth there over and above what it normally has grown so yeah I am I'm looking for meaningful growth and frankly orders are good right now in the first quarter.
Walter C. Johnsen: But post-pandemic, Kuda and Camilla..., and others, had negative sales growth, and we're holding you back, sold them. Should we think now that overall sales growth could accelerate with Healthcare being the largest part of the company and replenishment sales, and Healthcare possibly being the fastest growing area of Acme? Tim, I think that's a pretty perceptive question. The Kudev and Camillus businesses were about flat, maybe a little bit of decline after the very strong period with... COVID. But really, the sale was because we got a good price and because we focused the business, and now we have a much stronger balance sheet to be working on acquisitions, mostly in the first aid area. The organic growth in first aid is substantially better than what CUDA and Kumulos have been in the past couple of years.
And so the first half of 'twenty three.
So.
Software sales as retailers and wholesalers cut inventory levels.
You don't see that repeating in 2024 necessarily.
No. We we we believe we're beyond that.
And then when we look at our gross margins and profit margins.
Again health care.
It seems to have higher margins and replenishment sales in health care might even have higher margins.
As your <unk>.
Overall sales mix skews toward health care and towards replenishment sales.
Do we expect our overall.
Overall, corporate faster sales growth and margin expansion.
Well the margin expansion.
And let me just.
Walter C. Johnsen: So, your question holding us back on the top line, I guess it would because, The other piece of that is Westcott has gained new business this year in the cutting area and in planograms, and so we're feeling pretty positive about growth there, over and above what it normally grows. So yeah, I'm looking for meaningful growth, and frankly, orders are good right now in the first quarter. We'll see what happens. And so the first half of 23...
Say on that.
Theres also inflationary pressure and we have.
A lot of uncertainty in the.
Global World and that generally means more cost not like we'd had in the past, but that's sort of a headwind on some margin expansion from the levels. We finished in the fourth quarter, but certainly on the growth side.
Some of that for example, the refills on first aid kits.
Do have higher margins than yes.
Some of them some of the other products and that is the fastest growing part of our business as we look to make acquisitions with competitors.
Walter C. Johnsen: .. Software Sales as Retailers and Wholesalers Cut Inventory Levels. You don't see that repeating in 2024, necessarily. No, we believe we're beyond that.
Also expanding the base.
Walter C. Johnsen: And then when we look at gross margins and profit margins. Again, health care tends to have higher margins. Vice Chairman
The refills, so that helps on margin improvement.
As we're looking at it.
Walter C. Johnsen: Thank you all, as your overall sales use toward health care and toward replenishment, do we expect overall corporate faster sales growth and margin? Well, the margin expansion, let me just say on that. There's also inflationary pressure, and we have a lot of uncertainty in the... Global World.
I think for sure the first de emphasis and the growth there is faster than the rest of the business normally and that's pulling organic growth going forward and on margins I, probably wouldn't model much more over the fourth quarter and if we do better then that's.
That's a pick up.
Yeah.
So organic sales growth.
Walter C. Johnsen: And that generally means more cost, not like we've had in the past, but that's sort of a headwind on some margin expansion from the levels we finished in the fourth quarter. But certainly on the growth side, some of that, for example, the refills on first aid kits do have higher margins than some of the other products, and that is the fastest growing part of our business. As we look to make acquisitions with competitors, we're also expanding the base of refills, so that helps with margin improvement. So as we're looking at it now...
Growing margins.
Probably much lower interest expense.
And possibility of accretive acquisitions.
Yes.
Well it sounds wonderful. Thank you for all your hard work in getting us to this point well, Tim Thank you and for everybody on the call. Thank you for your support because you know, we we focus on growing and there's a lot of people supporting us in the background.
Thank you thank you Walter.
Our next question comes from the line of Richard Dearnley with long Port Partners. Please proceed with your question.
Good morning.
Walter C. Johnsen: I think, for sure, the first aid emphasis and the growth there is faster than the rest of the business normally, and that's pulling organic growth going forward. And on margins, I probably wouldn't... model much more over the fourth quarter. And if we do better, then that's a pickup.
He well what is the what's the head count.
At year end versus last.
Last year's head count.
Your comment about best ever.
It's interesting.
Well, Paul we'll try to answer those numbers, but we have somewhere around 650 people today.
And what I know is that our rocky Mount leadership is.
Walter C. Johnsen: So, organic sales growth, strong margins, probably much lower interest expense, and the possibility of a Creative Acquisition. Yes. It sounds wonderful.
Much stronger than it's ever been.
Our leadership in Santa Ana and both plants.
Or accelerant, we've had some new people join us that.
Walter C. Johnsen: Thank you for all your hard work in getting us to this point. There are a lot of people supporting us in the background. Thank you. Our next question comes from the line of Richard Dearnley with Longport Partners. Please proceed with your question. Good morning.
Med nap.
And that's helping us expand their and we've started off very strong it met up which I'm I'm cheering about.
Richard Dearnley: What's the headcount at year-end versus last year's headcount? Your comment about the best ever is interesting. Well, Paul will try to answer the numbers, but we have somewhere around 650 people today. And what I know is that our Rocky Mount leadership is much stronger than it's ever been. Our leadership at Santa Ana in both plants is excelling. We've had some new people join us. MedNap, and that's helping us expand there, and we've started off very strong at MedNap, which I'm cheering about. Go to Beadaholique.com for all of your beading supplies needs!
We're also strengthening some of the people in our.
Counting in our I T area.
So those are the kinds of people that are really making a difference.
Right right.
Do you have a feel.
Feel for what where the head count was at the end of 'twenty two.
What are your 'twenty, two or 2022 you mean no.
No.
Well anyway, the 'twenty to.
'twenty six 'twenty than where it was about 22.
Well I think we're at about $6 50, right now.
Walter C. Johnsen: We're also strengthening some of the people in our accounting and in our IT area. So those are the kinds of people that are really making a difference. Right, right. Do you have a feel for where the head count was at the end, at 22? 2022 or 2023?
Something like that right, yeah, that's close enough.
Now on the.
The sale of our Cuda and Camillus was $19 8 million and in the taxes were 2.9.
Paul G. Driscoll: No, 22. 22? It was 620. 620, and we're at waterbound 22. I think we're at about $6.50 right now, or something like that. That's close enough. Now, if the sale of Cuda and Camillus was $19.8 million, and the taxes were $2.9, that suggests a total of $16.9 million, but you said the net proceeds were $13.0 million. Where did the other $3.9 million go, or is my math all wrong? The taxes were $3 million.
That suggests proceeds of 16.9, but you said the net proceeds were 13 O where whereas the other $3 9 million go where is my nacco.
The taxes, where what is the taxes were $3 million.
Yeah.
But when Theres, a hold back of a million and a half.
We haven't received yet they will receive at the end of this year, but for November 1st.
Alright, but they would still be another million of happiness.
Hmm.
No I don't think so, but what sorry, what was that again.
Paul G. Driscoll: Yeah. There's a holdback of a million and a half that we haven't received yet, that we'll receive at the end of this year, November 1st. All right, but there would still be another million and a half missing. Um, No, I don't think so. But what, sorry, what was that math again? Could that be, well, the $19.8 was the sale tax?
Could that be a well with 19.8 wisdom sale.
Yeah, well, we had the expenses associated with the Oh, okay.
So okay. That's the.
That would that would account for that alrighty right now.
And then the sales mix.
Paul G. Driscoll: Yeah, well, we had the expenses associated with the sale. OK. So, okay, that would account for that. All right.
Between what Scott and first aid.
And.
But you might want to break down the pro forma.
Paul G. Driscoll: Great. And then the sales mix between Whatscot and First Aid and, you might want to break down the pro forma, you know, as you leave 23rd Street in the United States, it's it's significantly different, but for the fourth quarter and the year. Are you asking what the percentage of the first aid business was? Yeah, first aid, yeah, the mix, the sales mix between the two pieces. It was 60% for the year. Mm-hmm, and it was 54%. 54% last year. For the fourth quarter, I'm not sure.
You know what as you need 23.
<unk>.
Yes.
Significantly different.
But for the fourth quarter and the year.
Are you asking what the percentage of the the first aid.
First aid yeah, the mix sales mix between the two it.
It was 60% for the year.
Mhm.
Uh huh.
It was 54% last year the fourth quarter.
I'm I'm not sure I would think it would be like 62% maybe.
Paul G. Driscoll: I would think it would be like 62%, maybe, okay, and X, you know without Kootenai, Camillus, we can just adjust the math for one month in the fourth quarter. Yeah, two months, two months, right. Right. The share count, is the bump in the share count from the third quarter to the fourth quarter fully diluted, is that because you closed the year at a high? Absolutely, it's the stock price. Yeah, and others.
Okay.
Oh, Okay, and and X you know without.
Cuda and Camillus, we we can just adjusts the math for one one month in the fourth quarter and two.
Yeah right.
Right.
D O the share count.
Is is this the bump in the share count from the third quarter and fourth quarter fully diluted is that because.
You closed the year at a high.
Absolutely, it's the stock price.
Hum.
And.
Richard Dearnley: Okay. Oh, and then in October, you mentioned that the sales had started strong in January, and so it looks like the fourth quarter tailed off. Am I reading that correctly? Well, we sold 6% of the company. And the sails were a little softer in November and December, but, I mean, I guess there are waves in the ocean, too.
Okay.
And then.
In October.
You mentioned that the sales have started strong generally.
And so it looks like the fourth quarter tailed off and am I reading that correctly.
Well, we sold 6% of the company.
And sales were a little softer in the November and December, but I mean, I guess, there's waves in an ocean to January and February were really strong.
Walter C. Johnsen: January and February were really strong. Yeah, and do you have a feeling... Some folks said they were expecting back-to-school to be down in 24. Do you have any advanced feelings, and given the over-inventory situation as you got into back-to-school in 23, it would seem like... things should be more, quote, normal. Yeah, I don't know what somebody else has experienced, but we're expecting a good back-to-school, and the orders that are coming in are solid. And as far as inventory reduction goes, if there are customers still out there with inventory reduction programs, then they have a problem. I understand. Okay, thank you. Okay, thank you. As a reminder, it is star number one to ask a question.
Yeah, that's and and do you do you have a.
Feel.
Some folks said they were expecting back to school.
<unk> to be down in 'twenty four.
Do you have any advance feel and given.
The over inventory situation as you got into back to school 23, it would seem like.
You should be more quote normal Oh, I don't know what somebody else out of as his experience, but we're expecting a good back to school and the orders that are coming in or solid.
And as far as inventory reduction if there are customers still out there was inventory reduction programs.
And then they have a problem.
[laughter] understand.
Hum.
Okay. Thank you.
Okay. Thank you thanks <expletive>.
As a reminder, it is star one to ask a question. Our next question comes from the line of Sam Nuomi Wei Ridgewood investments. Please proceed with your question.
Sam Neremy: Our next question comes from the line of Sam Neremy with Bridgewood Investments. Please proceed with your question. Hi guys. Great year.
Hi, guys.
Great year, I like the free cash flow generation.
Paul G. Driscoll: I like the free cash flow generation. I had a question about that, in the press release you wrote $24 million of free cash flow with the $5 million reduction. I just wanted to make sure that was cash flow from operations. Is that right? No, it's free cash flow. It's cash flow from operations less capital expenditure. Okay. But that doesn't include CUDA. No, it does not.
I had a question about that.
On the press release, you're about 24 million of free cash flow with a $5 million reduction so.
I just wanted to make sure that was cash flow from operations is that right.
No. It's it's free cash flow as cash flow from operations less the.
Capital expenditures.
Okay.
But that doesn't include the cuda still no it does not okay.
Paul G. Driscoll: Okay, and then, um, so I mean, that's pretty solid. And then the other question I had was, so, with the expansion... Are you, I guess you're going to be spending some CapEx on that. Do you have a sense of how much CapEx you're going to spend on that and the timing of that as well, so we can think about cash flows? Yeah, we'll be spending about $6 and a half million this year on CapEx. And our depreciation and amortization is somewhere around 5 million. How much did you spend last year on CapEx? About 4.3 million. I think this is just from memory. 4.7 million. 4.7 Okay. Okay, so not really much.
Okay, and then just so I mean, that's pretty solid.
And then the other question I had was so with the expansion plans are you I guess, you're going to see spending some capex on that do you have a sense of how much capex youre going to spend on that and the timing of that as well. So we can think about cash flows.
Yeah, we'll be spending about six and a half million dollars this year on capex.
And our depreciation and amortization is somewhere.
Like $5 million 5 million.
Sure.
How much did you spend last year on Capex 23, so $4.3 million I think this is just from memory 4.7 million four seven okay.
Okay, so not really much more.
Walter C. Johnsen: No, but it's impactful spending. For example, in Canada, the hawk tree acquisition is bringing a lot of business, and there's no place to put it. I mean, it's a good problem. But you have to do it.
No no, but its impactful spending for example in Canada that Hawk tree acquisition, that's bringing a lot of business and there's no place to put it.
I mean, it's a good problem.
But you Gotta do Oh I got it.
Paul G. Driscoll: I get it. So I mean, like, if I back out to the 24 million minus the 5 million of reduced inventory, I get like 19. And then, you know, assuming everything even stays flat, which I assume won't, because you guys seem to have some nice businesses, I get to like 17 million of actual free cash flow on a 154. The thing is, we're not going to drive down inventory the way we did in 2023. So inventory is going to grow based on our sales growth, so you're not going to get it. That impact is going to go the other way.
Got it so I mean like if I back out so the 24 million minus <unk> 5 million of production inventory I get like 19.
And then.
Assuming everything stays flat, which I assume won't because you guys seem to have some nice business I get to like 17 million of actual free cash flow.
And on a 100 people.
No no. The thing is we're not going to we're not going to drive down inventory. The way. We did in 2023, so inventory there's gonna grow based on our sales growth, so you're not going to get there.
That impact is going to go the other direction.
Walter C. Johnsen: Okay. But then you should have the impact of growth from, Yes. Yes. Okay. And then another question I had was, you know, you've reduced your debt quite a bit. If you make an acquisition, I assume you're going to use debt to finance it.
Got it okay.
But then you should have it.
Impact of growth from.
The demand you're seeing.
Yes mhm.
Okay, and then and then the other question I had was you've reduced your debt quite a bit.
If you make an acquisition.
Assume youre going to use debt to finance.
Walter C. Johnsen: Yes. Okay. Yes. Okay. And then your growth, is it coming from, like, taking, like, I guess, like winning against competition? Or maybe maybe kind of give some color as to the market or the markets expanding that you're in? Are you, you know, again, beating competition? Like, is there any color you can give in terms of that?
Yes.
In the past, Okay, yes mhm okay.
And then your growth is it coming from like I guess like winning against competition.
Or maybe maybe kind of give some color as to us like the market or the market is expanding that you're in are you getting beating competition. Like can you is there any color you can get in terms of that.
Walter C. Johnsen: Well, let's take Westcott first, because that's the one that you would think, well, the cutting area. It's probably, slowish growth. And it is, but people are continuing to open boxes and using them for different crafts and so forth. We have gained market share there. So the overall market is expanding at maybe 2-3% in my best estimate, but we're looking at much greater growth in Westcott this year, and it's from some cutting tools that are going into a mass market retailer that we never had before. It's a customer we've had before, but not for the products there. It's the replacement of a competitor. In the case of Westcott, again, at a major hobby store.
Well, let's take Westcott first because that's the one that you would think well the cutting area it's probably.
Well its slowest growth.
And it is but people are continuing to open boxes and using them for different crafts and so forth.
We have gained market share there so the overall market is.
Expanding it maybe 2% to 3%.
My best estimate.
But we're looking at.
Much greater growth in Westcott this year.
And it's from some cutting tools that are going into a mass market retailer that we never had before.
Customer, we've had before but not so the products and.
There.
It's it's a replacement of a competitor in the case of Westcott again at a major.
Hobby store.
Walter C. Johnsen: It's a replacement of a competitor with many, many new products. That's a multi-million dollar expansion. Again, it's winning against a competitor. In the case of First Aid,
It's a replacement of a competitor with many many new products.
So it's a multimillion dollar.
Expansion again, it's it's winning against a competitor.
In the case of <unk>.
First aid.
Walter C. Johnsen: We... We're seeing an expanding market growing faster than Westcott, where we're gaining growth this year, a major new drug chain, where we pushed out a competitor, and then, I believe, had another... Hardware change. We're not only pushing out a competitor but gaining more space that didn't exist dedicated to first aid. In the case of food service,
We were.
We're seeing an expanding market growing faster than westcott.
We're we're gaining growth this year.
Two drug chain, when we pushed out a bit.
A competitor and then.
I believe at another.
Industrial hardware chain.
We're not only pushing out a competitor, but gaining more shelf space that didnt exist dedicated to first aid.
In the case of foodservice.
Walter C. Johnsen: We're gaining new wipes and lens cleaners. We're also gaining, And that would probably be against a competitor, but I don't know which one. And then we're also gaining first aid, which is going into restaurants, but we've done quite a bit of work, but there's just new business that we're gaining. At Spill Magic, we gained a major piece of new business at a large grocery chain. And you know that Spill Magic's used, for example, at one large retailer in the United States where anybody that spills something on their floors or gets sick uses it for cleanup.
We're gaining new wipes and lens cleaners.
We're also gaining.
And that would be against its probably a competitor, but I don't know which one.
And then we're also gaining first aid which is going into restaurants that we've done quite a bit of work, but we're there's just new business that we're gaining.
At spill Magic, we gained a.
Major piece of new business at a large grocery chain.
And you might you know that spill magic Skus for example, at one large retailer in the United States, where anybody that spill something in on their floors or get sick. They use it for clean up and <unk>.
Walter C. Johnsen: And This is a multi-million dollar expansion of new business this year. I'm not sure whether they converted from another, um.., competitor. I don't think so. I think it was really a new youth.
This is a multimillion dollar expansion of new business this year.
I'm not sure whether they converted from another <unk>.
Competitor I don't think so I think it was really a new use.
And Europe with gains against a competitor in the West coast several hundred thousand dollars.
Walter C. Johnsen: In Europe, we've gained several hundred thousand dollars against a competitor in the West Cup, which I just became aware of yesterday, and we're introducing new first aid items there. Probably, in the first aid area, those would be new products to our existing customers in a new category. So that's sort of a flavor of how we're doing that, Sam. There is organic growth.
It just became aware of yesterday.
And we're introducing new first aid items there.
Probably that's in the first aid area that would be new products to our existing customers and a new category.
So that's sort of a flavor of how we're doing that Sam.
There was organic growth Oh, and then the DMT we've replaced a.
Walter C. Johnsen: Oh, and then at DMT, we've replaced a... in the kitchen area at a large retailer with Sharpening Tools for Knives, and that's a multi-million dollar new piece of business. So there was a competitive win. So that's sort of why we're seeing a coming year with some pretty good wins that are back.
In the kitchen area at a large retailer.
Sharpening tools for knives, and that's a multimillion dollar new piece of business. So there was a competitive win.
So that's sort of why we're seeing this coming year with some pretty good.
Oh winds at our back.
Walter C. Johnsen: And then I just wanted to get a sense of, you know, how much room you have in terms of your capacity for debt, what level of debt you'd be comfortable with going to or not.
Thank you and then I just wanted to get a sense of you know.
How much room.
How do you think about your capacity for debt.
What what level of debt you'd be comfortable with going to foreign acquisition.
Walter C. Johnsen: Well, we have... A lot of capacity right now. As you know, we were at $55 million in debt in December of 2022, and we're at where we now fall. 19, isn't that it?
Well we have.
A lot of capacity right now as you know we were at 55 million in debt in December 2022, and we're at where are we in outflow.
19, net debt right yeah, Yeah, I mean, so we've got.
Paul G. Driscoll: Right. Yes. Yeah. I mean, we've got 35, 36 million of excess capacity right now, and we're generating cash flow. My, The kinds of acquisitions we're looking at are tough-in acquisitions where we can leverage our distribution channels and our product mix to grow them. So we're not looking for some transformative deal where I've got to add a tremendous amount of debt. That's probably not what's in the
35 $36 million of excess capacity.
Right now and we're generating cash flow so.
My.
The kinds of acquisitions, we're looking at our tuck in acquisitions, where we can leverage our distribution channels and our product mix to grow them.
So I'm, we're not looking for some transformative deal where I've got adding a tremendous amount of debt, that's probably not what's in the courts.
Walter C. Johnsen: Is that helpful? Yeah, yeah, that's helpful. I guess part of what I'm thinking is also, You know, with what your outlook is looking like, does it make sense to increase it? Bye-bye, well. We have a buyback in place for over 160,000 shares, and we could do that, but I'm not thinking right now. Well, we could do it with some options, because that would be very advantageous for the company, because you've got the strike price offsetting the number of shares.
Is that helpful.
Yeah, Yeah. That's helpful. I guess part of what I'm thinking is also is.
You know with with what your outlook is looking like if it makes sense to increase by.
I back.
Well.
I don't know I don't think you actually have I'm not sure do you have a buyback in place.
I know, it's small, but yeah, we have a buyback in place for over 160000 shares and we could do that.
But I'm not thinking right now.
Well, we could do with some options because that would be very advantageous for the company.
Because you've got the strike price offsetting the number of shares we may do some of that and.
Walter C. Johnsen: We may do some of that. You know, opportunistically, we may find a block that's available, and we take it because...
You know Opportunistically, we may find a block that's available and we take it because it's.
Walter C. Johnsen: If we're right about where we think we're going, then that would be a good purchase for the company. Okay, and of the 100 million you mentioned on the call, you said 100 million in revenue, in what, three years? I'm not expecting. That's my objective. Hold it to Walter. Okay. Okay, I guess from the objective there, what would you say is the mix of organic versus.
We're right with where we think we're going then that would be a good purchase for the company.
Okay and of the 100 million.
On the call you said $100 million of revenue.
In what three years, what do you expect organic and no I'm not expecting that's my objective.
Older to Walter Okay.
[laughter] okay.
I guess the objective there what would you.
They is the mix of organic versus.
We did have growth.
Walter C. Johnsen: Yeah, so just for round numbers, we say we were at 200. We're less. We finished the year at 191. And we sold 6% of the company. So let's remember that. But let's say we're at 200. And we grow 10% a year for three years. That's 220, 240, 260. There's some compounding. That's 270.
Yeah. So just for round numbers, we say we were at 200 were less we finished the year at 191, and we sold 6% of the company. So, let's remember that but let's say, we're at 200, and we grow 10% a year and.
In three years, that's 220 to 40 to 60, there's some compounding that's 270.
Walter C. Johnsen: We buy 30 million companies. So that's how it would happen. I can see that happening.
We buy 30 million of companies so that that's how it would happen.
I can see that happening.
Sam Neremy: Got it, great. Thank you. I really appreciate answering.
Got it great. Thank you I really appreciate it.
Thanks for your support.
Of course.
Yeah.
Walter C. Johnsen: Thanks for your support. Our next question is a follow-up question from Richard Dearnley. Please proceed with your question. Paul, the tax rate in the fourth quarter... It looks like the capital gain was really minimal. Am I getting that right, and if so, why was it? The tax rate in the fourth quarter was... Twenty percent? Is that what you think it is? Well, if the gain on the sale is the capital gains rate is the same as the ordinary rate.
Our next question is a follow up question from Richard Gere Lee. Please proceed with your question.
Paul the attach rate in the fourth quarter.
Yeah.
It looks like are they operate ex the capital gain.
It's really minimal.
And like what what am I getting that right and if so what.
Why was that.
The tax rate in the fourth quarter was.
20%.
Yeah.
Well it is.
Gain on the gain on the sale is too big.
The capital gains rate is the same as the ordinary rate.
Paul G. Driscoll: But I think the tax rate in the fourth quarter was 20%. The effective tax rate. Right. Well, the $2 million or $3 million that you show there is basically the tax on the capital gain, suggesting that the operating pre-tax, which was about $1.6 million or something, had no tax rate.
But the I think the tax rate in the fourth quarter was 20%.
Yeah.
Yeah.
Pete.
Well that is the 2 million nine 3 million that you show there is basically the tax on the capital gain suggesting.
Then the.
The operating.
Pre tax which was about a million six or something had no accurate.
Paul G. Driscoll: Well, it's not that they didn't have any tax breaks, it's just that... During the year, we estimate the full-year taxes, and we use the effective annual tax rate. So in the fourth quarter, we true up the taxes based on the actual pre-tax profits. So there are always some differences in the fourth quarter.
Well, it's not that it didn't have any tax rate tick it's just that.
During the year we.
We estimate the.
The full year taxes.
And we use the effective annual tax rate so in the fourth quarter, we true up the taxes based on.
The actual pretax so theres always okay.
Some differences in the fourth quarter.
Paul G. Driscoll: Okay, that's what I guessed. Okay, thank you. Thanks, Dick. Our next question comes from the line of Jake Patterson with Talanta Investment Group. Please proceed with your question. Hey, I was just curious, you said 6% of the company sold, so it's like 11-12 million in revenue for those hunting and fishing lines. Does that sound right? Right, yes. And then, so that's for 23. What, does that mean? I said I was flat, verse 22 probably, or is that it?
Okay, that's what I guess.
Okay. Thank you.
Thanks <expletive>.
Our next question comes from the line of Jake Patterson with to Atlanta Investment Group. Please proceed with your question.
Hey, I'm just I'm curious you said, 6% of the company. So it's like 11, and 12 million in revenue for the hunting and fishing lines not sound right.
Right yes.
And then that's for 'twenty three what did that.
You said it was flat versus 'twenty, two probably or that is that down a little bit or.
Jake Patterson: down a little bit. I think it was down a little bit; I think in 2022 it was $12 million, and in 2023 it would have been $11 million. Okay. There were too many.
I think it was down a little bit I think in 2020 'twenty. Two is 12 million in 2023, it would've been $11 million.
Okay.
There were two myself, you're not a common itself.
Okay got you and you don't expect there's not going to be any like SG&A reduction from that.
Walter C. Johnsen: Okay, gotcha. And you're not expecting, there's not going to be any SG&A reduction from that, I would assume? Oh yeah, there was a SG&A reduction. Sure, Jake. We had to right-size ourselves when Dick Dearnley was doing his arithmetic and saying, well, you know, there must have been other expenses.
Oh, Yeah, there was.
The reduction sure Jake we we had to rightsize ourselves when <expletive> certainly was doing as arithmetic and saying well you know they must've been other expenses sure there there was severance.
Okay.
As you can imagine.
Yeah do you have the number or maybe one time expenses in fourth quarter.
Walter C. Johnsen: Sure, there was severance, as you can imagine. Yeah, do you have a number for maybe one-time expenses in the fourth quarter?
Let me get back out.
Cause those just Oh, but you got six you all you sold for 19.8, you can work backwards and come up with a number.
Paul G. Driscoll: We can back out. Okay. So I guess going forward, like, looking at, I don't know, your 59 million SG&A this year, you're expecting... That should probably stay steady going forward in 24th. Well, as we grow, it will increase a little bit, but the, you know, the variable cost is a lot. Freight to the customers and commissions, so variable selling, so that will go up as sales increase. And the rest of the ST&A budget will stay fairly flat, and there will be some savings on the Camelos and Kuda. But then we've got, you know, cost increases, wage increases, and so on.
Okay.
So I guess going for like looking at it.
59 million SG&A this year you're expecting.
That's it probably stays steady going forward in 'twenty four.
Well as we grow.
Well increase.
A little bit, but the you know the variable costs, there's a lot of.
Freight to the customers and commissions and so variable selling so that will.
Those will go up with a sales increase and the rest of the SG&A will stay fairly flat and when.
Some some some savings on the telemedicine cuda.
But then we got you know cost increases and wage increases.
Jake Patterson: Yeah. All right, cool. That's it for me.
Yeah.
Gotcha, Alright cool that that's it for me I appreciate it.
Walter C. Johnsen: I appreciate it. Thank you, Jake. There are no further questions in the queue. I'd like to hand the call back to management for closing remarks. Well, thank you very much for joining us. We look forward to speaking with you after the first quarter. Goodbye. Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time. And have a wonderful day.
Thank you Jake.
There are no further questions in the queue I'd like to hand, the call back to management for closing remarks.
Well. Thank you very much for joining us we look forward to speaking with you after the first quarter.
Goodbye.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.