Acme United(ACU) - 2023 Q3 - Quarterly Report

Part I — FINANCIAL INFORMATION Item 1: Financial Statements (Unaudited) Unaudited Q3 2023 financial statements reveal a 1% net sales increase, significant net income growth, reduced assets and debt, and improved operating cash flow from inventory reduction Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $156,269 | $164,377 | ($8,108) | | Cash and cash equivalents | $5,567 | $6,100 | ($533) | | Inventories | $54,575 | $63,325 | ($8,750) | | Total Liabilities | $70,363 | $85,347 | ($14,984) | | Long-term debt | $32,934 | $49,916 | ($16,982) | | Total Stockholders' Equity | $85,906 | $79,030 | $6,876 | - The company significantly reduced its inventory by $8.75 million and long-term debt by nearly $17 million as of September 30, 2023, compared to the end of 2022[9][11] Condensed Consolidated Statements of Operations Q3 2023 vs Q3 2022 Performance (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $50,384 | $49,744 | +1.3% | | Gross Profit | $19,503 | $15,925 | +22.5% | | Gross Margin | 38.7% | 32.0% | +6.7pp | | Operating Income | $3,657 | $953 | +283.7% | | Net Income | $2,152 | $64 | +3262.5% | | Diluted EPS | $0.58 | $0.02 | +$0.56 | Nine Months 2023 vs 2022 Performance (in thousands, except per share data) | Metric | Nine Months 2023 | Nine Months 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $149,559 | $149,849 | -0.2% | | Gross Profit | $55,807 | $49,475 | +12.8% | | Operating Income | $11,096 | $6,299 | +76.2% | | Net Income | $6,586 | $3,632 | +81.3% | | Diluted EPS | $1.83 | $0.96 | +$0.87 | Condensed Consolidated Statements of Comprehensive Income - For the nine months ended September 30, 2023, comprehensive income was $6.5 million, a significant increase from $2.2 million in the same period of 2022. This was driven by higher net income, partially offset by a smaller foreign currency translation loss[17] Condensed Consolidated Statements of Changes in Stockholders' Equity - Stockholders' equity increased from $79.0 million at the end of 2022 to $85.9 million as of September 30, 2023. The growth was primarily driven by net income of $6.6 million, partially offset by dividend distributions of $1.5 million[22] Condensed Consolidated Statements of Cash Flows Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $21,662 | ($7,607) | +$29,269 | | Net cash used in investing activities | ($4,523) | ($13,208) | +$8,685 | | Net cash (used in) provided by financing activities | ($18,408) | $22,155 | ($40,563) | - The significant improvement in operating cash flow was mainly due to an $8.7 million decrease in inventories, compared to a $12.8 million increase in the prior year period. Financing activities reflected a net repayment of $17.0 million in long-term debt in 2023, versus net borrowings of $24.1 million in 2022[24][26] Notes to Condensed Consolidated Financial Statements Net Sales by Product Category (in thousands) | Product Category | Q3 2023 | Q3 2022 | 9 Months 2023 | 9 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Cutting, Sharpening and Measuring | $20,315 | $22,525 | $61,162 | $70,710 | | First Aid and Medical | $30,069 | $27,219 | $88,397 | $79,139 | Net Sales by Segment (in thousands) | Segment | Q3 2023 | Q3 2022 | 9 Months 2023 | 9 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | United States | $43,688 | $42,943 | $127,743 | $127,589 | | Canada | $3,305 | $3,629 | $10,938 | $11,120 | | Europe | $3,391 | $3,172 | $10,878 | $11,140 | - On November 1, 2023, the Company sold its Camillus Cutlery and Cuda business lines to GSM Holdings, Inc. for a purchase price of $19.77 million[65] - As of September 30, 2023, the company had $33 million in borrowings outstanding under its $65 million revolving loan agreement with HSBC, which expires on May 31, 2026[41][42] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong Q3 2023 performance to significant gross margin improvement, driven by productivity and lower freight costs, alongside successful inventory and debt reduction, with expected cost savings exceeding $6.0 million Results of Operations - Q3 2023 net sales increased 1% to $50.4 million. U.S. sales grew 2% driven by first aid products, while Canada sales fell 9% (7% in local currency) and Europe sales rose 7% in USD but fell 1% in local currency due to economic weakness[75][76][77] - Gross margin for Q3 2023 expanded significantly to 38.7% from 32.0% in Q3 2022. This improvement was primarily due to productivity gains in manufacturing and distribution, along with lower in-bound freight costs[78] - SG&A expenses increased by $874,000 in Q3 2023 compared to Q3 2022, mainly due to higher personnel-related expenses[78] - Operating income for Q3 2023 surged to $3.7 million from $1.0 million in Q3 2022, with the U.S. segment contributing the majority of the increase due to productivity improvements and cost savings[79] Financial Condition - During the first nine months of 2023, working capital decreased by $10.4 million, primarily due to a planned inventory reduction of $8.8 million as supply chain risks diminished[83] Key Financial Ratios | Ratio | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Current ratio | 3.87 | 4.77 | | Long term debt to equity ratio | 50.4% | 76.7% | - Total debt under the revolving credit facility was reduced by approximately $17 million during the first nine months of 2023, with $32 million available for borrowing as of September 30, 2023[86] - The company has implemented cost reduction initiatives expected to generate over $6.0 million in savings in 2023 through productivity improvements and lower SG&A expenses[87] Quantitative and Qualitative Disclosures about Market Risk This section is not applicable for this reporting period - The company has indicated that this item is not applicable[89] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of September 30, 2023, and concluded they were effective. No material changes were made to the internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[89] - There were no changes in internal control over financial reporting during the quarter ended September 30, 2023, that materially affected, or are reasonably likely to materially affect, internal controls[90] 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[92] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022 - The company refers to the Risk Factors section in its Annual Report on Form 10-K for the fiscal year ended December 31, 2022, indicating no material updates[92] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None reported[92] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None reported[92] Mine Safety Disclosures This section is not applicable to the company - Not applicable[92] Other Information The company reported no other information for this period - None reported[92] Exhibits This section lists the exhibits filed with the report, including CEO and CFO certifications (pursuant to Sarbanes-Oxley Act Sections 302 and 906) and Inline XBRL documents - Exhibits filed include certifications from the CEO and CFO under Sarbanes-Oxley Sections 302 and 906, as well as Inline XBRL data files[92]