Please stand by. Good day everyone, and welcome to the Acme United Corporation's hosted Q2 2022 Earnings Conference Call. At this time, I'd like to turn the call over to Walter Johnsen, Chairman and CEO. Please go ahead. Good morning. Welcome to the Q2 2022 Earnings Conference Call for Acme United Corporation. 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 statements in this conference call, including without limitation, statements related to the company's 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 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 in our periodic filings with the Securities and Exchange Commission and in our current earnings release. Thank you, Paul. Acme United had a challenging Q2 of 2022, but also one of accomplishment. The company had record sales. We completed the acquisition of Safety Made, which manufactures personalized first aid kits and safety products. We increased our debt facility to position the company for additional growth. Our net sales of $56.8 million was an increase of 27% over the Q2 of 2021. This represented the highest revenues in a quarter in the company's history. However, we did not keep up with rapidly escalating costs. Our net income for the quarter was $2.7 million, which was a decrease of 3% from last year after adjusting for a one-time tax credit of $900,000. Earnings per share without the tax credit in 2021 was $0.71, similar to 2021. Many events happened quickly, and they created unanticipated expenses. The ports in Shenzhen and Shanghai abruptly closed due to COVID. We rerouted a large number of containers to Ningbo and delivered to our customers on time. However, we paid an average of $18,000 per container when the budget was $12,500. This extra expense was approximately $500,000 in the Q2. Fortunately, container costs have since declined to about what we have budgeted, or $12,500. The US ports in Los Angeles and Long Beach were overwhelmed with containers due to port workers ordered to work round the clock by the US administration. There were not enough truck drivers to pick up the containers. The resulting pile up caused the ports to store containers on available land everywhere. They became jumbled in huge piles, and the port workers could not quickly or easily access containers to be placed on trucks. A similar situation occurred on the East Coast ports. In addition, the container ship Ever Forward got stuck in the mud off Baltimore, and our cargo languished for weeks. US federal law limits truck drivers to 10 hours of driving per day. We had drivers waiting for containers for 10 hours, limiting out and going home without cargo, only to return the next day. The US administration declared fines for unpicked up cargo. As a result, we incurred demurrage expenses of $130,000 in the Q2. When the war in Ukraine broke out in mid-March, the euro began a rapid decline in value against the US dollar from about $1.14 to 1.02 today. Since we pay in dollars for our products that are imported to Europe from China, we recognized an unanticipated expense of $160,000 in the Q2 as we marked our payables to market. In addition, our gross margins in Europe declined over 8 percentage points. Our inland transportation costs grew rapidly due to diesel prices increasing from mid-March of approximately $4 a gallon to 5.60 a gallon at the quarter's end. Well, we could go on forever about the state of affairs, but here's what we are doing. We've increased prices in the US and Europe on 1 July 2022 to be sensitive to the end user demand curve and yet meet the increased costs. We are implementing serious productivity improvements. Last year, we installed new warehouse management software in our largest facility located in Rocky Mount, North Carolina. The new software went live in April 2021, and we anticipate savings of over $300,000 annually starting in June 2022. We will be installing new bottling equipment in our Spill Magic plant in the Q4 of this year. This $580,000 investment is projected to generate annual savings of about $450,000 in 2023 and thereafter. Our Med-Nap facility in Florida is building a robotic filling machine, which is expected to become operational in the Q4 of 2022. This capital project cost about $800,000. It reduces the cost of placing alcohol wipes and pads in boxes and has projected savings annually of $350,000. Even more importantly, it reduces our production costs in the US for many Med-Nap products to potentially gain new business in the large domestic, medical, and defense markets. As you may know, two years ago, we intentionally increased our global inventory. This was done as a precaution for potential supply chain issues, particularly related to the impact of COVID in China. Our current plan is to reduce our global inventory by $4 million by the end of 2022. In addition to increasing the prices of our products, bringing on stream new productivity improvements, and beginning to reduce inventory, we made progress with a new acquisition and an expanded banking facility in the Q2. In June 2022, we purchased Safety Made, which produces customized first aid kits for the promotion market. The company had revenues of approximately $5 million in 2021 and pre-tax income of a little over $1.1 million. It has performed well and was accretive in the Q2. We also entered a new bank line with HSBC in the Q2 of 2022. Our new facility is $65 million compared to the former one of $50 million on essentially the same terms. The interest rate is SOFR 1.75%+ or about 3.3% today, and the term is four years. As you may recall, we also obtained mortgages in November 2021 on our Rocky Mount, North Carolina, and Vancouver, Washington, plants, totaling $11.6 million at a fixed interest rate of 3.8%. We'd like to thank HSBC for its support as we continue to grow. We are providing guidance of approximately $200 million in revenues in 2022. We plan to continue to adjust prices as appropriate as the year progresses and look forward to delivering solid results. I'll now return the call to Paul. Acme's net sales for the Q2 were $56.8 million compared to $44.8 million in 2021, an increase of 27%. Sales for the six months ended 30 June 2022 were $100.1 million compared to $88.4 million in the same period in 2021, an increase of 13%. Net sales in the US segment increased 33% in the quarter due to higher sales prices, increased volume, and Q1 backorders filled in the Q2. The Q1 backorders resulted from supply chain disruptions. Sales increased 13% for the six months ended 30 June 2022, mainly due to higher sales of First Aid and Westcott products. Net sales for Europe increased 12% in local currency for the quarter and 7% for the six months ended 30 June 2022. The sales increase for both periods was mainly due to new customers in the office channel. Net sales in local currency for Canada were constant in the quarter and grew 4% for the year- to- date. The gross margin was 33% in the Q2 of 2022 compared to 36% in 2021. The year- to- date gross margin was 34% compared to 36% in 2021. The lower gross margin was mainly due to product cost, inflation pressures, higher transportation costs, and higher labor costs. Price increases partially offset the cost increases. SG&A expenses for the Q2 of 2022 were $14.6 million or 26% of sales compared with $12.4 million or 28% of sales for the same period of 2021. SG&A expenses for the first six months of 2022 were $28 million or 28% of sales, compared with $25 million or 28% of sales in 2021. The Q2 of 2021 included $3.5 million of PPP loan forgiveness reflected in other income. Also, the Q2 of 2021 tax expense included $0.9 million of tax credit for stock-based compensation. Excluding these impacts, adjusted net income in the Q2 of 2021 was $2.8 million. Net income for the Q2 of 2022 was $2.7 million or $0.71 per diluted share compared to the adjusted net income for the Q2 of 2021 of $2.8 million or $0.71 per diluted share, a decrease of 3% in net income and constant for earnings per share. Net income for the first six months ended 30 June 2022 was $3.6 million or $0.93 per diluted share compared to adjusted net income of $4.9 million or $1.23 per diluted share in the comparable period last year, decreases of 27% and 25%. The net income decline in the six months was due to the decline in gross margin as a percentage of sales. The company's debt less cash on 30 June 2022 was $59.8 million compared to $39.3 million on 30 June 2021. During the 12-month period, we paid $11 million for the Safety Made acquisition, spent $1.8 million on dividends and repurchased $1.5 million of common stock. Inventory increased approximately $15 million, primarily due to unanticipated growth in our business, higher costs, and purchasing additional safety stock to offset the impact of potential supply chain disruptions related to COVID-19. Thank you, Paul. I will now open the call to questions. Thank you. If you would like to ask a question, simply press the star key followed by the digit one on your telephone keypad. Also, if you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, press star one at this time. We'll pause for a moment. We'll first hear from Tim Call of the Capital Management Corporation. Congratulations on the very strong sales, given all the economic headwinds and disruptions the rest of us are facing. Well, Tim, thank you very much. It was, as I said, a challenging quarter, and our team, really, they rose up to it. It was tough. This year might see the first normal back-to-school season in a few years. A lot of back-to-school sales have shifted to the Q3 being, you know, web-based stores and last-minute restocking. How do you see the competitive landscape and shelf space versus peers? Well, Tim, we've been gaining market share. In the Q2, we had a very strong already back to school. We saw a number of our customers, we believe, bringing in product in advance, giving more of a buffer, which was terrific. Of course, it put a lot of strain on us as we tried to expedite that, and it cost us a lot of money. It's going to be a very good back to school. You're right, it is far more normal, fortunately. We've got market share gains and it's gonna be a good back to school. With First Aid, you finally broke into the Canadian market in recent years. Do you think it's just as hard to enter the EU market, and can you make headway there over time? We actually are selling First Aid products in Europe. It's small compared to our North American business. The fortunate thing is we're leveraging the knowledge we have, and we truly are gaining headway in Europe. That's without an acquisition. Well, congratulations. Thank you. Thank you. As a reminder, it's star one if you would like to ask a question or make a comment. We'll pause for a moment. We'll hear from Richard Dearnley of Longport Partners. Good morning. Could you give a rough idea of how much carryover from the Q1 revenue was, you know, in the Q2? Yeah. Dick, it was about $3.5 to 4 million. Okay. The strength in Europe in new office customers, was that in both Westcott and First Aid, or was it mostly in one of those? In Europe, our biggest segment is Westcott. As I mentioned, we're having a very good back to school. In addition to that, Westcott gained market share in the normal office business as well, in Europe. The combination was a very strong Q2. Yeah. Now, all we have to do is worry about the foreign exchange. Well, we're adjusting prices, but I mean, the big thing is when you have a stable base, you can adjust prices, and you can work off of that. Mm-hmm. This was a very precipitous decline. Within weeks, the euro dropped 11%, and that was not priced. We're addressing that. As I said, we're working on productivity improvements so that hopefully we're able to really give value to our customers. Right. Great. Well, keep up the good work. Thank you. Next question comes from Jim Marrone of Singular Research. Yes, good afternoon, gentlemen. I have a few questions. Let's start with the sales increase. Really nice, healthy increase in sales. I'm just trying to get a sense how much of that did it reflect the price increase or did how much of that reflected increase in volumes? [inaudible] Jim, we're not gonna break out our price increases for competitive reasons, but we said that $4 million carried over from the previous quarter. You can imagine if inflation in the US is running at 9.1%, you know, and you've got gasoline and transportation higher, then you're gonna be somewhere in that range, depending on the product and the customer and where it's coming from. The net was we had a lot of plain organic growth plus price increase. Right. Okay. There is some reflection of price increase in these numbers then though, right? Oh, for sure. Yes. Right. You plan on implementing further price increases from your prepared comments? Well, the challenge for all of us is that inflation is not a one and done. It compounds. We believe we have to stay current with the current inflation. If it's a number like 9%, that gets to be easy because it's predictable. It's not predictable when you've got a war and port closures and disease and a disrupted supply chain exasperated by administrative mandates. That all happened in 12 weeks. Yes, the inflation rate, whatever it is, we intend to be passing through on a consistent basis, plus any productivity that we can do because we're trying to deliver value as well, on a regular basis to our customers. Hopefully we're providing a value to the end user because after all, they are the reason we're in business. Okay. Very good. In terms of the cost structure, you know, the issue is not really a demand issue. It's, you know, everyone's experiencing, it's the supply side, not the demand side. I'm just trying to get a sense on how you're going about controlling those costs. I know you've been doing inventory management for a while. I'm just trying to get a sense whether that is starting to factor in in your cost structure going forward. Well, in the Q2, there were many, many direct import programs, particularly for back to school with major retailers globally. Those are picked up in China and delivered directly to their locations. That piece is where we were mostly hurt because we had to deliver on the spot market then and there, and we did. The inventory that we hold in Europe, US, and in Canada for our daily everyday business, the Westcott and First Aid Only business, that is buffered against at least supply chain shortages. We've got that extra capacity that we added. We're going to start to reduce that safety stock, and we are doing that because we believe the supply chain will start to get better in the course of the next 12- months. Of course, we're gonna be monitoring that very carefully. If that occurs, then the plan is to have generated an extra $4 million of cash from inventory by year-end. As I see it now, I believe that that's attainable. Okay. That's encouraging. Is there any effort going forward on reducing your reliance on China and other foreign countries and sourcing out suppliers from maybe domestically or other options? Sure. Some may know that about 10 years ago, we were 80% or more reliant on Asian suppliers, primarily China. In the past 7 acquisitions, these have all been US manufacturers. Today, our imported piece is about 40% of our global sales. The remaining 60% is coming from plants. That's why as we're making productivity improvements and making investments, a couple that I identified today, we can do that because we have the plants either in the US or in Canada. I would anticipate that some of our future acquisitions will also be either in Western Europe or in US or Canada, and less likely to be more reliant on China. We're at about 40% reliant now. In the Q2, we were especially hit because of the direct import business to the major retailers for back to school. That's changing as the mix changes for the rest of the year. Right. Okay. Thank you for that color. One final question. I see the interest expense kind of doubling year- over- year. I think that's kind of reflecting higher rates already. You also mentioned a bit of a hit based on the US dollar strengthening and foreign currencies depreciating. I'm trying to get a sense, are you implementing any risk hedging at all, maybe with the use of derivatives or swaps with respect to the interest rate exposure and the foreign exchange exposure? Well, we are in a very serious but indirect way. The inventory that we hold has been delivered. There's not a currency risk on that, and there's not an interest rate risk. You basically own it. Now, we did fix the interest rates on $11.6 million of our debt last November in mortgages. That piece is fixed. The remainder is variable, and the goal is to start to drive it down. Right. Are you just gonna drive it down by rolling over into new terms, or are you gonna do a derivatives overlay? Like, how do you plan on addressing the- We're not doing anything with derivatives. When I said drive the debt down, I mean cash flow. Pay it off. 'Cause we have a very strong cash flow business. You know, the $4 million of inventory reduction at year-end pays down debt. The cash flow that comes in from our earnings for the first six months will have been collected by the H2, particularly back to school, that pays down debt. That's what I meant. Well, that's very encouraging as well then. Thank you for the color in regards to my questions. Thanks, Jim. Once again, star one to ask a question or make a comment. We'll pause for a brief moment. Michael Mork of Mork Capital Management. Hi, Walter. Good quarter, considering all the problems. Thanks. My question is, assuming you do $200 million this year, and assuming the inflation rate, which is currently 9% or 10%, glides down over the next 12-18 months, say to 4% or 5%, what type of revenue should we expect next year, like up 10% to $220 million, or what do you think? Well, I have personal goals of seeing us adding $20 to 25 million for each of the next three years, plus doing an acquisition, at least one during that period, probably more, to be looking at closer to $300 million over that timeframe. Some of that will be from, we hope, organic growth. If you were to add 10% growth on $200 million, you're at $220 million. You do that for three years, you're probably $270 million, $275 million. That's what we're trying to accomplish, and I think we can do it. Your estimate of hopefully inflations at 5%, I hope it is too, and I hope the rest of the growth is real growth. Yeah, well, we follow the monetary stuff real closely here, and the inflation was because the Fed let the money supply grow up to 27% +, but now it's only growing about 5% or 6%. I think the slowdown in inflation is kinda baked in the cake right now. I hope so. That would be terrific. Okay. Anyway, thanks a lot. Thanks, Mike. Next, we'll hear from Sam Namiri of Ridgewood Investments. Hey, Walter. Nice job dealing with all this stuff, all the issues in the quarter. Thank you, Sam. My question was kinda related to that, is on the M&A front, are you seeing others out there who are just kind of maybe, you know, tired of dealing with, you know, inflation, supply chain issues, et cetera, and are, you know, now maybe coming to the table and looking to get out of the business to sell to you guys? As you know, we've got a pretty substantial database from over 15 years of meeting companies and talking to companies that are in our business or related to them, and we're constantly talking to them. I think there's some opportunities this year that may present themselves and, you know, we pay fair prices in good markets and in bad ones. I would hope that some reach out to us. The answer is we're actively looking, and I think it might be a good time to team up with us. Got it. Thank you. Then also on that end as well too, how do you see this as an opportunity to take share as well? Like, maybe don't take as much price with inflation and I don't know, like is that something that you look at and opportunistically take advantage of as well too where, you know, someone else is raising their prices and the customer, you know, maybe doesn't wanna stay or start shopping around to switch suppliers? Well, our customers are really sophisticated and, you know, if we're not in the competitive range, we're gonna lose business. By and large, we are in that competitive range, and we're gaining share. You're correct. If some of our competitors get too far out of step with costs, we're gonna be at their tail, and hopefully we get some of that business. Got it. Okay. Thank you. Thanks again. Thank you. It appears there are no further questions at this time. We'll turn the call back over to the presenters for any additional or closing comments. Well, if there are no further questions, then this call is complete. We look forward to speaking with you at the end of the Q3. Thank you and goodbye. That does conclude today's conference. Thank you all for your participation. You may now disconnect.