Acme United(ACU) - 2023 Q1 - Quarterly Report

Part I — FINANCIAL INFORMATION Financial Statements The unaudited condensed consolidated financial statements for Q1 2023 reflect increased net sales and income, with positive operating cash flow used to reduce debt Condensed Consolidated Balance Sheets As of March 31, 2023, total assets decreased to $157.5 million, liabilities to $77.4 million, and stockholders' equity increased to $80.1 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total current assets | $99,184 | $105,600 | | Inventories | $58,488 | $63,325 | | Total assets | $157,468 | $164,377 | | Total current liabilities | $24,033 | $22,127 | | Long-term debt | $40,135 | $49,916 | | Total liabilities | $77,352 | $85,347 | | Total stockholders' equity | $80,116 | $79,030 | Condensed Consolidated Statements of Operations Q1 2023 net sales increased 6% to $45.8 million, with gross profit rising to $16.3 million, operating income to $2.2 million, and net income to $990,000 Q1 2023 vs Q1 2022 Performance (in thousands, except per share data) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net sales | $45,838 | $43,333 | | Gross profit | $16,281 | $14,968 | | Operating income | $2,188 | $1,371 | | Net income | $990 | $830 | | Diluted earnings per share | $0.28 | $0.22 | - Interest expense nearly tripled to $919,000 from $309,000 in the prior-year quarter, reflecting higher interest rates[18] Condensed Consolidated Statements of Comprehensive Income Comprehensive income for Q1 2023 increased to $1.1 million from $0.9 million, driven by higher net income and positive foreign currency translation Comprehensive Income (in thousands) | Component | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net income | $990 | $830 | | Foreign currency translation adjustment | $109 | $27 | | Comprehensive income | $1,099 | $857 | Condensed Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity increased to $80.1 million as of March 31, 2023, primarily due to $990,000 in net income, partially offset by dividends - Total stockholders' equity grew to $80,116,000 as of March 31, 2023, driven by net income of $990,000[22] Condensed Consolidated Statements of Cash Flows Q1 2023 generated $7.7 million in operating cash flow, a significant improvement, with $10.3 million used in financing activities, resulting in a $3.3 million net decrease in cash Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash from operating activities | $7,676 | $(5,479) | | Net cash used in investing activities | $(701) | $(518) | | Net cash (used in) provided by financing activities | $(10,324) | $6,450 | | Net change in cash | $(3,336) | $464 | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, debt structure, and segment performance, confirming CECL adoption had no material impact and debt covenant compliance - The company adopted ASU 2016-13 (CECL model) on January 1, 2023, which did not have a material impact on the financial statements[31] Net Sales by Product and Segment - Q1 2023 (in thousands) | Product Category | United States | Canada | Europe | Total | | :--- | :--- | :--- | :--- | :--- | | Cutting, Sharpening and Measuring | $14,083 | $1,405 | $3,361 | $18,849 | | First Aid and Medical | $24,770 | $1,852 | $367 | $26,989 | | Total Net Sales | $38,853 | $3,257 | $3,728 | $45,838 | - As of March 31, 2023, the company had outstanding borrowings of $40.1 million under its revolving loan agreement and was in compliance with all debt covenants[42][44] Operating Income by Segment - Q1 (in thousands) | Segment | 2023 | 2022 | | :--- | :--- | :--- | | United States | $1,781 | $811 | | Canada | $217 | $386 | | Europe | $190 | $174 | | Consolidated | $2,188 | $1,371 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q1 2023 net sales growth to U.S. first aid products, improved gross margin, and significant reductions in inventory and debt, ensuring sufficient liquidity Results of Operations Q1 2023 consolidated net sales increased 6% to $45.8 million, driven by U.S. growth, offsetting declines in Canada and Europe, with gross margin improving to 35.5% - Consolidated net sales increased by 6% in Q1 2023 compared to Q1 2022, reaching $45.8 million[72] - U.S. net sales grew 9%, primarily from higher sales of first aid and medical products, while Canadian and European sales declined 10% and 6% respectively due to retailer inventory reductions[73] - Gross margin improved to 35.5% from 34.5% year-over-year, attributed to cost-saving initiatives and productivity improvements at manufacturing and distribution facilities[74] Financial Condition, Liquidity and Capital Resources Q1 2023 saw strengthened financial condition with $75.2 million working capital, $4.8 million inventory reduction, and $9.8 million debt decrease, supported by cost reduction initiatives - Inventory decreased by approximately $4.8 million during the first three months of 2023 due to planned reductions as supply chain risks diminished[76] Key Financial Ratios | Ratio | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Working capital | $75,151,000 | $83,473,000 | | Current ratio | 4.13 | 4.77 | | Long term debt to equity ratio | 63.3% | 76.7% | - During Q1 2023, total debt outstanding under the revolving credit facility decreased by approximately $9.8 million[80] - As of March 31, 2023, $40.1 million was outstanding and $24.9 million was available for borrowing[80] - The company has implemented cost reduction initiatives expected to generate over $5.0 million in savings in 2023[81] Quantitative and Qualitative Disclosures about Market Risk This item is not applicable for the reporting period - The company has indicated that Quantitative and Qualitative Disclosure about Market Risk is not applicable[84] Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2023, with no material changes in internal control over financial reporting - Based on an evaluation as of March 31, 2023, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures are effective[84] - No changes in internal control over financial reporting occurred during the quarter ended March 31, 2023, that materially affected, or are reasonably likely to materially affect, internal controls[84] Part II — OTHER INFORMATION Legal Proceedings The company reports that there are no pending material legal proceedings to which it is a party - There are no pending material legal proceedings involving the company[90] Risk Factors No new risk factors were reported this quarter, with the company referring to those disclosed in its Annual Report on Form 10-K - The company refers to the risk factors set forth in its Annual Report on Form 10-K for the fiscal year ended December 31, 2022[90] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None reported[91] Exhibits The report lists several exhibits filed, including CEO and CFO certifications pursuant to the Sarbanes-Oxley Act of 2002 and Inline XBRL documents - Exhibits filed with the report include: - Certifications from the CEO and CFO (Exhibits 31.1, 31.2, 32.1, 32.2)[86][87] - Inline XBRL Instance Document and related taxonomy files (Exhibits 101 and 104)[88]