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. Good morning. Welcome to the Fourth quarter and Year-End 2023 Earnings Conference Call for Acme United Corporation. I am Walter 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 limitations 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 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. Sales in 2023 were $191.5 million, a 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. Earnings per share were $2.23 compared to $0.82 in 2022. Highlights of 2023 included new retail distribution of our first aid kits, expansion of our Westcott ceramic cutters, and new craft planograms 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 Hawktree Solutions at a bankruptcy auction for $1 million, providing new customers in the Canadian market. We decreased net debt from $55 million at year-end 2022 to $19 million. As we entered 2024, we were 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. Our Canadian business is expanding from organic growth and the Hawkt ree acquisition. In Europe, we continue to secure new first aid and Westcott business. With 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 uses. We are developing new alcohol and antiseptic wipes and lens cleaners for production at our Med-Nap facility for sale in the United States and Canada. We are upgrading our production and distribution facilities in Rocky Mount, 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 Med-Nap plant in Brooksville, Florida. In each case, we believe we have the business to make these expansions accretive. 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. 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%. Excluding the impact of the Camillus and Cuda product line sold on November 1st, 2023, sales for the fourth quarter of 2023 declined 1% compared to 2022. Sales for the year-end of December 31, 2023, were $192 million compared to $194 million in 2022. Net sales, excluding Camillus and Cuda in the U.S. segment, declined 2% in the fourth quarter. Sales were constant for the year-end of December 31st. Sales of school and office products for the year were impacted by customer reductions of inventory in the first half of 2023. 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. The sales decrease for both periods 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 2022. The gross margin for the year was 37.7% compared to 32.8% in 2022. 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 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. The Camillus and Cuda hunting and fishing product lines were sold to GSM Holdings on November 1st, 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 $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. 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%. Net income for the fourth quarter, excluding the gain in the sale of the Camillus 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 Cuda sale for the year-end of December 31, 2023, was $8.1 million, or $2.23, per diluted share compared to $3 million, or $0.82, per diluted share last year. The gain on the sale net income was $17.8 million. 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 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, we will 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 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. Yeah, good afternoon. My question deals with what you anticipate going forward. 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 that we see very clearly. In my mind, I'm looking at, over the next three years, somewhere around $100 million of growth. 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. Now, all the shareholders benefited from that. As an example, if we get an opportunistic sale, 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. Med-Nap, 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. So no, we're not shrinking the business. This 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's two ways. 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. It's a horizontal expansion, mostly in the U.S. and Canada, as well as vertical integration. 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 year with many challenges. Hopefully, the upcoming years are much easier. But post-pandemic, Cuda and Camillus had negative sales growth, and we're holding you back. So you've sold them. Should we think now, overall, sales growth could accelerate with healthcare being the largest part of the company and replenishment sales in healthcare possibly being the fastest growing area of Acme? Tim, I think that's a pretty perceptive question. The Cuda and Camillus business 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've got 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 Camillus have been in the past couple of years. So your question, holding us back in the top line? Yeah, I guess it would have because it was flat for two years. The other piece of that is Westcott has gained this year new business in the cutting area and in planograms. And so we're feeling pretty positive about growth there over and above what it normally has grown. Yeah, I'm looking for meaningful growth. Frankly, orders are good right now in the first quarter. And so the first half of 2023 saw softer sales as retailers and wholesalers cut inventory levels. You don't see that repeating in 2024 necessarily? No. We believe we're beyond that. Then when we look at gross margins and profit margins, again, healthcare seems to have higher margins, and replenishment sales in healthcare might even have higher margins. As your overall sales mix skews toward healthcare and toward replenishment sales, do we expect overall corporate faster sales growth and margin expansion? 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. 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 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 on margin improvement. So as we're looking at it, 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. On margins, I probably wouldn't model much more over the fourth quarter. If we do better, then that's a pickup. So organic sales growth, strong 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. For everybody on the call, thank you for your support because 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 Longport Partners. Please proceed with your question. Good morning. What's the headcount at year-end versus last year's headcount? Your comment about best ever is interesting. Well, Paul will try to answer the numbers. We have somewhere around 650 people today. 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 are excelling. We've had some new people join us at Med-Nap, and that's helping us expand there. We've started off very strong at Med-Nap, which I'm cheering about. We're also strengthening some of the people in our accounting and in our IT area. Those are the kinds of people that are really making a difference. Right. Right. Do you have a feel for where the headcount was at the end of 2022? 2022 or 2023, you mean? No. 2022. 2022. It was 620. 620, and we're at what, about? 2022. I think we're at about 650 right now, or. Right. It's about. Something like that. Sorry. Yep. That's close enough. Now, if the sale of Cuda and Camillus was $19.8 million and the taxes were $2.9 million, that suggests proceeds of $16.9 million, but you said the net proceeds were $13.0 million. Where'd the other $3.9 million go? Is my math all wrong? The taxes were $3 million. Yeah. There's a holdback of $1.5 million that we haven't received yet that we'll receive at the end of this year or November 1st. All right. But there would still be another $1.5 million missing. No, I don't think so. Sorry. What was that math again? Could that be, well, the $19.8 was the sale, taxes? Yeah. Well, we had the expenses associated with the sale. Okay. Okay. That would account for that. All righty. And then the sales mix between Westcott and first aid, and you might want to break down the pro forma as you leave 2023 if 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. Yeah, the sales mix between the two pieces. It was 60% for the year. It was 54%. The fourth quarter. It was 54% last year. The fourth quarter, I'm not sure. I would think it would be like 62% maybe. Okay. And next, without Cuda and Camillus, we can just adjust the math for one month in the fourth quarter and. Yeah. Two months. Two months. Right. Right. Oh, 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. Oh, and then in October, you mentioned that the sales had started strong generally. So it looks like the fourth quarter tailed off. Am I reading that correctly? Well, we sold 6% of the company, and the sales were a little softer in November and December. But I mean, I guess there's waves in an ocean too. January and February are really strong. Yeah. And do you have a feel? Some folks said they were expecting back-to-school to be down in 2024. Do you have any advance feel? And And given the over-inventory situation as you got into back-to-school in 2023, it would seem like things should be more "normal. Yeah. I don't know what somebody else has as experience, but we're expecting a good back-to-school. The orders that are coming in are solid. As far as inventory reduction, if there are customers still out there with inventory reduction programs, then they have a problem. Right. Understand. Okay. Thank you. Okay. Thank you. Thanks, Dick. As a reminder, it is star one to ask a question. Our next question comes from the line of Sam Namiri with Ridgewood Investments. Please proceed with your question. Hi, guys. Great year. I like the free cash flow generation. I had a question about that. On the press release, you wrote $24 million of free cash flow with the $5 million reduction. So 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 the capital expenditures. Okay. But that doesn't include the Cuda sale? No. It does not. Okay. Okay. And then this. 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 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 $6.5 million this year on CapEx. Our depreciation and amortization is somewhere like $5 million. $5 million. $5 million. How much did you spend last year on CapEx for 2023? About $4.3 million. I think this is just from memory. $4.7 million. $4.7 million. Okay. Okay. So not really much more than the normal. No. But it's impactful spending. For example, in Canada, that HawkTree acquisition is bringing a lot of business, and there's no place to put it. I mean, it's a good problem, but you got to do it. Oh, I get it. So I mean, if I back out, so the $24 million minus the $5 million of reduction inventory, I get like $19 million. And then assuming everything even 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 $154 million. No. No. 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 that impact is going to go the other direction. Got it. Okay. But then you should have impact of growth from the demand you're seeing as well too, right? Yes. Yes. Okay. Okay. And then another question I had was, you've reduced your debt quite a bit. If you make an acquisition, I assume you're going to use debt to finance that like you have in the past? Yes. Yes. Okay. Okay. Okay. And then your growth, is it coming from, I guess, winning against competition? Or maybe kind of give some color as to, is the market are the markets expanding that you're in? Are you, again, beating competition? Is there any color you can give in terms of that? 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. The overall market is expanding at maybe 2%-3%, by 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. And there, it's a replacement of a competitor. In the case of Westcott, again, at a major hobby store, it's a replacement of a competitor with many, many new products. That's a multimillion-dollar expansion. Again, it's winning against a competitor. In the case of first aid, we're seeing an expanding market growing faster than Westcott, where we're gaining growth this year with a major new drug chain where we pushed out 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 didn't exist dedicated to first aid. In the case of food service, we're gaining new wipes and lens cleaners. We're also gaining and that would be against 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 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. You might 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, they use it for cleanup. This is a multimillion-dollar expansion of new business this year. I'm not sure whether they converted from another competitor. I don't think so. I think it was really a new use. In Europe, we've gained against a competitor in the Westcott business several hundred thousand dollars that I just became aware of yesterday. We're introducing new first aid items there. Probably in the first aid area, that would be new products to our existing customers in a new category. That's sort of a flavor of how we're doing that, Sam. There was organic growth. Oh, and then at DMT, we've replaced in the kitchen area at a large retailer sharpening tools for knives. That's a multimillion-dollar new piece of business. So, there it was a competitive win. So that's sort of why we're seeing this coming year with some pretty good wins at our back. Got it. Thank you. And then I just wanted to get a sense of how much room in terms of how do you think about your capacity for debt and what level of debt you'd be comfortable with going to for an acquisition? 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 are we now, Paul? $19 million in net debt? Right. Yes. 19. Yeah. I mean, so we've got 35 million-36 million of excess capacity right now, and we're generating cash flow. So the kinds of acquisitions we're looking at are tuck-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 adding a tremendous amount of debt. That's probably not what's in the cards. Is that helpful? Yeah. Yeah. That's helpful. I guess part of what I'm thinking also is, with what your outlook is looking like, does it make sense to increase buyback as well? Or I don't know. I don't I don't think you actually have. I'm not sure. Do you have a buyback in place? I know if you do, it's small, but. Yeah. 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. We may do some of that. And opportunistically, we may find a block that's available, and we take it because if we're right with where we think we're going, then that would be a good purchase for the company. Got it. Okay. Of the $100 million you mentioned on the call, you said $100 million of revenue in, what, three years is what you expect? Both organic and. No. I'm not expecting. That's my objective. Hold it to Walter. Okay. Okay. Okay. Okay. I guess from the objective there, what would you say is the mix of organic versus positive growth? Yeah. So just for round numbers, say we were at 200. 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. In three years, that's 220, 240, 260. There's some compounding. That's 270. And we buy $30 million of companies. So that's how it would happen. I can see that happening. Got it. Great. Thank you. I really appreciate answering your question. Sam, thanks for your support. Of course. Our next question is a follow-up question from Richard Dearnley. Please proceed with your question. Paul, the tax rate in the fourth quarter looks like the capital gain was really minimal. Am I getting that right? And if so, why was that? The tax rate in the fourth quarter was 20%. Is that what you? Well, if the. The gain on the sale is the capital gains rate is the same as the ordinary rate. But I think the tax rate in the fourth quarter was 20%. The effective. Right. Well, the $2.9 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 a $1.6 million or something, had no tax rate. Well, it's not that it didn't have any tax rate, Dick. 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. So there's always some differences in the fourth quarter. 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. It's like $11 million-$12 million of revenue for those hunting and fishing lines. Does that sound right? Right. Yes. And then so that's for 2023. You said that was flat versus 2022, probably, or is that down a little bit, or? I think it was down a little bit. I think in 2022, it was $12 million. In 2023, it would have been $11 million. By week, yeah. There were two months that we didn't have any sales. Okay. Gotcha. You're not expecting there's not going to be any SG&A reduction from that, I would assume? Oh, yeah. There was SG&A reduction. Sure, Jake. We had to right-size ourselves. When Dick Dearnley was doing his arithmetic and saying, "Well, there must have been other expenses," sure. There was severance, as you can imagine. Yeah. Do you have a number for maybe one-time expenses in the fourth quarter that we could back out? Well, those just. There was. You know, you sold for $19.8. You can work backwards and come up with a number. Okay. All right. So I guess going forward, looking at, I don't know, your $59 million SG&A this year, you're expecting that to probably stay steady going forward in 2024? Well, as we grow, we'll increase a little bit. But the variable cost, there's a lot of freight to the customers and commissions and so variable selling. So those will go up as sales increase. And the rest of the SG&A will stay fairly flat and some savings on the Camillus and Cuda. But then we got cost increases and wage increases and so on. Yeah. Gotcha. All right. Cool. That's it for me. I appreciate it. Thank you, Jake. If 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.