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Edited Transcript of ACU earnings conference call or presentation 20-Oct-17 3:00pm GMT

Q3 2017 Acme United Corp Earnings Call

FAIRFIELD Oct 23, 2017 (Thomson StreetEvents) -- Edited Transcript of Acme United Corp earnings conference call or presentation Friday, October 20, 2017 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Paul G. Driscoll

Acme United Corporation - VP, CFO, Secretary & Treasurer

* Walter C. Johnsen

Acme United Corporation - Chairman of the Board & CEO

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Conference Call Participants

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* Andrew Shuler Burns

D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst

* Jeffrey L. Briggs

Singular Research, LLC - Research Analyst

* Jeffrey Matthews

RAM Partners, L.P. - Founder and General Partner

* Richard Dearnley

* Stephen Chick

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Presentation

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Operator [1]

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Good day, everyone, and welcome to the Acme United Corporation's Third Quarter 2017 Earnings Call. Just a reminder that today's call is being recorded.

And at this time, it's my pleasure to turn the conference over to the Chairman and Chief Executive Officer, Mr. Walter Johnsen. Please go ahead, sir.

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Walter C. Johnsen, Acme United Corporation - Chairman of the Board & CEO [2]

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Good morning. Welcome to the third quarter 2017 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?

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Paul G. Driscoll, Acme United Corporation - VP, CFO, Secretary & Treasurer [3]

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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, including, without limitation the following: one, the company's plans, strategies, objectives, expectations and intentions are subject to change at any time at the discretion of the company; two, the company's plans and results of operation will be affected by the company's ability to manage its growth; and three, other risks and uncertainties indicated from time to time in the company's filings with the Securities and Exchange Commission.

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Walter C. Johnsen, Acme United Corporation - Chairman of the Board & CEO [4]

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Thank you, Paul. Acme United reported net sales of $33.8 million for the third quarter of 2017 compared to $31.9 million in 2016, an increase of 6%. Net income was $1.2 million for the quarter compared to $1.5 million last year. And EPS was $0.32 compared to $0.40 in 2016.

As I discussed in our second quarter call, we had a shift of much of our back-to-school sales from the second to the third quarter of 2017, but not enough to exceed last year's Les Stroud numbers. First aid sales in the third quarter were even with 2016, and reflected a shift to the fourth quarter of a holiday promotion at a large retailer. Camillus knives, Cuda fishing product and Clauss professional tools were flat compared to last year with weak floating good sales in the flooded Southeast due to 3 major hurricanes.

Our international business increased with Canada growing 5% and Europe 15%. Particular areas of strength were sales in the office channel and back-to-school. Overall, our business in the fourth quarter looks good, with forecasted growth in first aid, Camillus and Cuda promotions and new Westcott business.

The growing importance of online business has impacted our 2017 performance in a number of ways. We have grown our e-commerce revenues in excess of 100% annually for each of the past 3 years, are -- and we are winning in what we believe is our largest open arena for growth, both in the U.S. and Europe. However, as you know, there are many industry-wide challenges with online growth. Some of our largest customers have closed retail stores, reallocated inventory, spun off their international divisions, readjusted their strategies, time and again, and shuffled management teams. One of our challenges has been to maintain and grow our market shares across all our major product lines with the shift to online business from retail stores. We believe we are succeeding.

We've also had higher logistics, warehousing, handling and shipping expenses during 2017 than last year due to the growth of online sales. The orders have been smaller, the lead times shorter and the shipments more frequent. We addressed these demands initially by hiring more people to be seamless to our customers. During the third quarter, we also upgraded our warehouse management software to make our operations more efficient. We installed additional pick-and-pack locations, optimized our package sizes and laid out our bins to reflect purchase velocity. During the fourth quarter, we will be installing a mezzanine in the Rocky Mount, North Carolina warehouse to move more high-volume products closer to the shipping locations. Next year, we'll be installing new location software to optimize efficiency. We expect these steps to improve productivity quickly.

In retrospect, our acquisition in 2013 of our Rocky Mount, North Carolina warehouse has been even more important than we expected. As some of you may remember, we purchased the 33-acre campus and 340,000 square-foot warehouse out of bankruptcy at $2.8 million. It has been absolutely critical in meeting the space requirements to support our online growth. However, when we purchased this site, we did not know that CSX would announce a new $270 million intermodal distribution facility less than 3 miles away. Warehouse properties in the area are becoming much more valuable. And we look forward to lower freight rates and better speeds of delivery when CSX opens the new operation in 2019.

We have had 6 record sales years in a row and expect 2017 to continue that trend. However, for reasons I indicated, net income for 2017 is tracking below 2016. We're reducing our forecast for 2017 to $133 million in revenues, net income of $5.6 million and EPS of $1.48. We've not built out our forecast for 2018 yet, but we have about $8 million of new committed business so far in first aid, pencil sharpeners, paper trimmers and Camillus knives. We continue to look to acquire undervalued assets and companies, where we believe we can add value. We will provide guidance for 2018 after year-end earnings are released in February 2018.

I will now turn the call to Paul.

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Paul G. Driscoll, Acme United Corporation - VP, CFO, Secretary & Treasurer [5]

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Acme's net sales for the third quarter were $33.8 million compared to $31.9 million in 2016, an increase of 6%. Sales for the 9 months ended September 30, 2017 were $100.4 million compared to $98.2 million in the same period in 2016, an increase of 2%.

Net sales in the U.S. segment increased 5% in the quarter and 2% for the 9 months ended September 30. Year-to-date sales were impacted by a soft back-to-school and a large promotion in the second quarter of 2016 that did not repeat this year. Net sales in local currency for Canada were approximately constant in the quarter and year-to-date. Net sales for Europe increased 8% in local currency for the quarter and 18% for the 9 months ended September 30. The sales increase for both periods was primarily due to new customers in the office and sporting goods channels as well as sales of DMT sharpening products.

Gross margin was 36.2% in the third quarter 2017 versus 37.2% in the third quarter of 2016. The lower gross margin as a percentage of sales in the quarter was due to our favorable mix and additional warehouse costs.

SG&A expenses for the third quarter of 2017 were $10.3 million or 30% of sales compared with $9.7 million or 30% of sales for the same period of 2016. SG&A for the first 9 months of 2017 was $30 million or 30% of sales compared to $28 million or 29% of sales in 2016. The increase for the 9 months was mostly due to the added Spill Magic business, higher variable selling costs as a result of higher sales and increased personnel.

Net income for the third quarter of 2017 was $1.2 million or $0.32 per diluted share compared to net income of $1.5 million or $0.40 per diluted share for the same period 2016. Net income for the first 9 months was $4.7 million or $1.25 per diluted share compared to $5.3 million or $1.49 per diluted share in the comparable period last year.

The company's bank debt less cash on September 30, 2017 was $38.9 million compared to $33.4 million on September 30, 2016. During the 12-month period, Acme purchased the assets of Spill Magic for $7.2 million and paid $1.4 million in dividends. Additionally, the company generated $3.2 million in free cash flow. We succeeded in reducing inventory in our existing business by $1.8 million or 5%. We expect to generate approximately $4 million in free cash flow in 2017.

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Walter C. Johnsen, Acme United Corporation - Chairman of the Board & CEO [6]

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Thank you, Paul. I will now open the call to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we'll go first to Andrew Burns at D.A. Davidson.

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Andrew Shuler Burns, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [2]

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On the revision to the full year guidance coming down $4 million, there's a lot of different moving parts in there in terms of back-to-school, hurricanes, timing of shipments. Could you maybe prioritize those buckets in terms of which ones are most meaningful to that $4 million revision?

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Walter C. Johnsen, Acme United Corporation - Chairman of the Board & CEO [3]

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Yes, the back-to-school was softer than we'd anticipated. And in June, when we were looking into the third quarter, we expected a very, very strong back-to-school online, and we did, but we were short. And it was hard to forecast because we've never been in the situation where online sales have been such a big segment, but in fact, that's what they are today for us. The hurricane clearly impacted fisher. And you can imagine, it's not just when your house gets flooded in the Keys or in Houston. But when people are concerned about the impact of the hurricane coming, I believe they just had fishing. They're pulling their boats out and they're leaving. And we found the -- that particularly soft. Now I'm not particularly concerned about that other than we lost that turn during the season, because there's a number of good fishing promotions coming up for the Christmas time season. And that's in the fourth quarter. But it was primarily the weaker back-to-school.

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Andrew Shuler Burns, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [4]

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And as you look at that and you look at sell-in versus sell-through and the opportunities that you converted into revenue with online sales. Did that meet your expectations or was it even capacity constrained in terms of delivering on that side? And conversely, in terms of the brick-and-mortar, you mentioned sell-through as being the weakness versus sell-in. I didn't note if there is any sort of structural destocking occurring there that could be a headwind to revenue.

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Walter C. Johnsen, Acme United Corporation - Chairman of the Board & CEO [5]

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Well, some people say one of our large customers in the back-to-school area was destocking. It's hard to know because the superstores have been in such flux that maybe they are reducing their inventory. But I -- we couldn't tell that. What I will tell you is that the online business is very difficult to forecast. And it's doing very, very well. But it puts tremendous pressure both on securing our inventory in an appropriate fashion without air freight, having enough so that when Monday shows up and the weekend online orders flood into North Carolina, that we are properly staffed, and that we have the product in place. These are the challenges that we'll solve. And -- but we have bigger numbers than we've had in the past, and they're continuing to grow. Relative to any structural changes with the online retailers, other than the office superstores where there really is flux, and they're among our largest customers. The rest, I think, was just demand and perhaps our market shares were weaker than we expected.

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Andrew Shuler Burns, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [6]

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And then one more, and I'll jump back in the queue. But just looking at the margin performance and the near-term headwinds, as it relates to this online shift. What is -- do you think the time line to sort of optimizing distributions that meet online needs? And longer term, do you view the shift to online as either a headwind or tailwind structurally to your margin profile?

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Walter C. Johnsen, Acme United Corporation - Chairman of the Board & CEO [7]

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Well, we had a full review last week at our board meeting at Acme, going over our warehousing and logistics issues and opportunities. And while we've added a lot of things, the software, the new equipment, we're putting a mezzanine to be close -- actually, products to be closer to the shipping locations. These things are in place and they will have a positive impact as they're executed, and roll them in the next 6 months. However, there's an ongoing issue because -- let me give you an example, our online sales will probably be somewhere in the $15 million range this year, which will be up substantially in excess of 100% from last year. Do we forecast another 100% in 2018? We better be planning for it. But it adds a lot of complexity, because how do you forecast customer growth at that level and be reasonably confident that you're making the right decisions. That's what we're working through right now. I'm in Asia this week, working with our suppliers. And the reason we are is so that we can shorten that supply chain and get products faster. Because the demands of this business are putting incredible pressures on the factories and on every single aspect of our distribution chain. The good news is that we have the opportunities to sell. And I believe that the margins probably will be showing improvement as we put these short-term improvements in place. But if we continue to have the kind of growth that we're getting, there's also inefficiencies that we haven't even anticipated yet, but we're trying to anticipate now.

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Operator [8]

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(Operator Instructions) We'll go next to Jeff Briggs at Singular Research.

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Jeffrey L. Briggs, Singular Research, LLC - Research Analyst [9]

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So the question I have is, again, related to the online sales. And just first of all, I just want to make sure that I understand how you're defining that. Since we're talking about small-packet shipments and filaments, and stuff like that. My assumption is that when you say online sales, you're talking about direct sales through the websites of the various brands and then fulfilling that to customers. Where are you including, like say, sales directly to other people that are selling online, like selling directly to Amazon and things like that. Is that -- do you include that in your online sales or is that a separate category, because it's more of a distribution sale?

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Walter C. Johnsen, Acme United Corporation - Chairman of the Board & CEO [10]

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Well, the major online customers that we have are Amazon, of course, walmart.com, both are the 2 big ones. And of course, then we've got some of the retailers that have less significant online presence. But between walmart.com and amazon.com, that's what's driving the bulk of this.

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Jeffrey L. Briggs, Singular Research, LLC - Research Analyst [11]

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Okay. So are you guys actually filling those individual orders yourself? Or do you like to work with Amazon distribution centers to fulfill?

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Walter C. Johnsen, Acme United Corporation - Chairman of the Board & CEO [12]

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Well, we do both. And typically, the online retailers are stocking, and then we're shipping, they are high-velocity items. And then if there's the smaller items that they're not stocking, but at some point, say, may want to, they maybe going to us for fulfillment or might be going to another retailer depending on who gets the buy.

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Jeffrey L. Briggs, Singular Research, LLC - Research Analyst [13]

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So for example, I give -- if Amazon is selling one of your products, they stock some of them, but then in other ones you guys are actually packing and shipping individual orders, if they are not stocking it?

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Walter C. Johnsen, Acme United Corporation - Chairman of the Board & CEO [14]

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Perhaps. But it might also be going to another retailer who's got a more attractive price at Amazon than we do. And we have -- we prefer to have another retailer there as opposed to ourselves. But we're backstopping.

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Jeffrey L. Briggs, Singular Research, LLC - Research Analyst [15]

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So -- but you're actually doing that for like individual items, like down to that granularity, like a customer...

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Walter C. Johnsen, Acme United Corporation - Chairman of the Board & CEO [16]

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Well, there's minimum orders for shipping and so forth. But the answer is, yes, we're filling smaller orders.

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Jeffrey L. Briggs, Singular Research, LLC - Research Analyst [17]

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Okay. So this is just a question. Have you guys looked into fulfilling -- the items that say those major online retailers aren't stocking themselves, and you guys are shipping individual packages and stuff like that. Have you looked into you guys holding your stock in the fulfillment centers? And then when those orders come in, it would actually be your stock, you would own it, not them. But then they would still do the fulfillment on those. Is it something that you've explored?

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Walter C. Johnsen, Acme United Corporation - Chairman of the Board & CEO [18]

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Well, we haven't evaluated that. So I really don't -- I don't know much about it.

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Jeffrey L. Briggs, Singular Research, LLC - Research Analyst [19]

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Okay. I may follow up with you that -- on that at a later date. But also, just kind of along the same lines, what's the -- I also know that you guys, like, actually do individual sales on your website and things like that. So if a customer is ordering direct, whether it's the Camillus website or whatever. When you include the fulfillments and the shipping costs and all of that stuff, how does that final margin compare to, say, if you're selling it wholesale? Is that something you can discuss?

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Walter C. Johnsen, Acme United Corporation - Chairman of the Board & CEO [20]

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Well, I'm not going to break it down to that level. But it's profitable. And you can imagine that it's very, very high margin. And there is shipping and handling and there are minimum orders. But if we had a simple model, which we aren't able to have, we'll be back to the days where we shipped the pallets at a time to a wholesaler. That world has changed.

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Operator [21]

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And we'll go next to Jeffrey Matthews at RAM Partners.

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Jeffrey Matthews, RAM Partners, L.P. - Founder and General Partner [22]

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I have another question to follow up on the online shift. And that is, how does your balance sheet and capital structure need to adapt? I'm wondering if you -- your -- it didn't happen this quarter. But I wonder if over time your accounts receivables shrink because online tends to pay faster or not. And I would also think your inventories would grow because it sounds like you need to have more stock on hand. I don't know, but that's my question.

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Walter C. Johnsen, Acme United Corporation - Chairman of the Board & CEO [23]

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Well, the inventory clearly will grow as we're anticipating growth in certain of these segments, particularly in first aid. And the reason is because the first aid kit will have anywhere between 50 and 200 components. And if one of those components is out of stock, then you can't ship the unit. It's not quite that simple, you can sometimes substitute. But by and large, if you don't have a bag for a first aid kit, you're not going to ship. Or you don't have eye washer, one of the key components. So we are putting a lot of emphasis on some of the higher-velocity components and adding more inventory. In the Westcott and Camillus lines, where we're bringing products in from Asia, clearly, you've got a long lead cycle. And you've got to put a little extra inventory in there. You have to. There's going to be Black Friday. Between that and Christmas time, what I'm hearing from Amazon is it's going to be so active there may not be enough trucks in America to carry all the products that are going to be going to delivery. So you've got to plan for inventory. And these are exciting opportunities. But wow, it's complicated. On the accounts receivables, very few of our orders are actually coming in on credit card or that kind of thing relative to our overall size. Most of it still is going to stay at Amazon or walmart.com for fulfillment, although we do have some of the smaller orders. And they have typically the same terms that any of our other big ones do. So I don't expect accounts receivable to change much. I do see inventory moving up in the DMT business. In all of our first aid area, where we can produce and get turns out, that actually is very responsive to online. And Spill Magic's also in that category. So that helps us in being the sponsor. But the long lead cycle with Asia is really something that we're working on, and that's why I'm in Asia right now.

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Jeffrey Matthews, RAM Partners, L.P. - Founder and General Partner [24]

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All right. And then along those lines, you talked about you've got a shortened supply chain, and you're working real hard on that. Does that involve bringing more of that production back to America?

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Walter C. Johnsen, Acme United Corporation - Chairman of the Board & CEO [25]

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No, it doesn't. It might mean some of our suppliers hold safety stock on -- in their own facilities that we don't own, but that's available for shipment. It may mean more commonality of parts, so that they can also be more responsive as we put orders in. There are things that can be done. But bringing things back to the U.S. that we currently have in Asia, I don't see that happening because of -- they're there for a reason and the costs are very, very attractive relative to U.S. production.

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Jeffrey Matthews, RAM Partners, L.P. - Founder and General Partner [26]

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All right. Okay. And then finally, just -- you and I have talked about this a lot. And that Rocky Mount purchase was kind of a grand slam home run in hindsight. Do you need something similar to that on the West Coast given all this -- these issues with supply chain and order -- online orders and everything or not?

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Walter C. Johnsen, Acme United Corporation - Chairman of the Board & CEO [27]

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We have the First Aid Only facility in Vancouver, Washington, which is outside of Portland, and it's a very, very nice facility. And it's being used for first aid right now. There's not excess capacity to be doing substantial warehousing there. Although, we have a team of people there that, if we wanted to, there's a fair amount of expansion -- warehouse expansion being done around the Port of Portland. So we might look at that. But I think our footprint is fine right now.

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Operator [28]

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We'll go next to Richard Dearnley at Longport Partners.

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Richard Dearnley, [29]

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In the -- you've mentioned first aid being flat. I guess it's been flat for a couple of quarters now. Does that tell me that the compliance kit business has -- is basically saturated, the factories and the trucks and what not, and so it's now just a replacement of the component business?

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Walter C. Johnsen, Acme United Corporation - Chairman of the Board & CEO [30]

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No, I don't think I would draw that conclusion at all, Dick. And what I think happened -- but I don't know this, but September sales in first aid were also soft. And we expected with the hurricanes that, that would be kind of picking up. In fourth quarter, first aid is very, very active. And it's new business that we're winning as well as orders from like the American Red Cross and FEMA. And those are extraordinary, but that's occurring as well. But that first aid business is a very, very good business and one that, in the long term, will be growing nicely for us, we believe.

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Richard Dearnley, [31]

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And that long-term growth will come from where? Because the compliance business, I would think, people have pretty much complied at this point.

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Walter C. Johnsen, Acme United Corporation - Chairman of the Board & CEO [32]

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Yes. Well, we're gaining in the -- I guess the van business has got a fulfillment app that's unique in the industry. That's being very, very well received by distributors, like Grainger and Fastenal and Staples and others. And that area gives substantial savings to industrial America, which are using vans right now to get their products, typically, on the order of 30% to 40%. It's not saturated at all. It's about $1 billion segment, and we're sitting at $50 million.

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Richard Dearnley, [33]

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I see. Okay. And then the Wal-Mart was in paper today -- yesterday about putting a Lord & Taylor site on their walmart.com site. Have you considered a site on Wal-Mart or Amazon's sites for Camillus, Cuda, Westcott, et cetera?

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Walter C. Johnsen, Acme United Corporation - Chairman of the Board & CEO [34]

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Well, I didn't read the article. And the answer is maybe it's a good idea. But I -- I'm just not familiar with it. Maybe some of the marketing people are doing that. I just don't know. But I'd be happy to get back to you on it.

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Richard Dearnley, [35]

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Okay. Then -- was -- did you feel any -- now that Cintas acquired GK. When -- if GK's revenue was going to run off, did you feel that? Or will that happen fourth quarter, first quarter, assuming they're going to supply themselves?

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Walter C. Johnsen, Acme United Corporation - Chairman of the Board & CEO [36]

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I don't really want to get into the kind of detail you're asking relative to customers.

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Richard Dearnley, [37]

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Okay. Sorry. And the gross margins generally been down, do you think the online business over the next year or 2 is causing a step down generally from the 380-ish percent margins you've been running?

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Walter C. Johnsen, Acme United Corporation - Chairman of the Board & CEO [38]

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Yes. And the reason that's happening is because of the warehouse inefficiencies, which are included in the cost of sales.

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Richard Dearnley, [39]

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And is -- does -- you mentioned -- does that account for most of the decline for third quarter to third quarter?

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Walter C. Johnsen, Acme United Corporation - Chairman of the Board & CEO [40]

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Yes.

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Operator [41]

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(Operator Instructions) And we'll go back to Andrew Burns.

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Andrew Shuler Burns, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [42]

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Just some quick follow-ups. In terms of the commentary regarding 2018 and the $8 million in new committed business. Just wanted to understand sort of the definition of that. So that's new incremental programs that are slated for '18 and not replacing old programs or meaning that's a -- if the rest of the business was flat that, that's all new incremental programs?

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Walter C. Johnsen, Acme United Corporation - Chairman of the Board & CEO [43]

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That's -- yes, that's exactly what it is. It's business that we didn't have before. And it's just incremental.

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Andrew Shuler Burns, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [44]

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Okay. And then just to follow up on, I think it was Dick's earlier question. Just the cadence of new SmartCompliance boxes going into the system, is it possible to characterize the trend there over the last couple of quarters and what you see going forward?

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Walter C. Johnsen, Acme United Corporation - Chairman of the Board & CEO [45]

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We're seeing -- that's a good business. And it's growing. It's -- the SmartCompliance is -- when you look at it -- to the year, will be pulling the entire first aid businesses growth. It's good.

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Operator [46]

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And we'll also go back to Jeffrey Matthews at RAM Partners.

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Jeffrey Matthews, RAM Partners, L.P. - Founder and General Partner [47]

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Walter, 2 follow-ups. One is on Europe. Your European business looked pretty good. I wonder if -- how the shift to online over there is developing? Doesn't sound like it's as dramatic as in the U.S. But where is that? And how do you -- how are you going to handle that over time?

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Walter C. Johnsen, Acme United Corporation - Chairman of the Board & CEO [48]

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Well, the Amazon business, in particular, in Europe, is growing very quickly for us. It's not of the same magnitude as the U.S. But our teams are working together, both our online teams in the U.S. as well as in Europe and Canada. The overall impact appears to us to be behind where the U.S. is by several years. But Amazon will be our #1 and #2 customer in Europe this year.

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Jeffrey Matthews, RAM Partners, L.P. - Founder and General Partner [49]

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Do you have...

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Walter C. Johnsen, Acme United Corporation - Chairman of the Board & CEO [50]

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It's making an impact.

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Jeffrey Matthews, RAM Partners, L.P. - Founder and General Partner [51]

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Yes. Do you have more -- is there more risk of big-box guys over there going completely? Or is it sort of the single...

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Walter C. Johnsen, Acme United Corporation - Chairman of the Board & CEO [52]

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They've already done that. I mean, the superstores, my commentary earlier about changes in management, changes in strategies, changes in international business, that's been in flux for the past few years. The shifting of inventory from one place to another and then changes in product managers or maybe there isn't a product manager that's -- that worked.

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Jeffrey Matthews, RAM Partners, L.P. - Founder and General Partner [53]

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Okay. And then my other question is on just CapEx. What does CapEx look like for this year, 2017? And I know you haven't made any forecast for next year, but do you have a sense of whether -- I would assume it's going to be higher just because of all the technology spend that you've done. But I don't know.

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Walter C. Johnsen, Acme United Corporation - Chairman of the Board & CEO [54]

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Paul, why don't you address that?

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Paul G. Driscoll, Acme United Corporation - VP, CFO, Secretary & Treasurer [55]

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So this year, we're expecting CapEx to be $2.9 million and that compares to $1.8 million last year. We had some significant purchases this year, especially, upgrading some manufacturing equipment for the DMT business. For next year, at this point, barring any acquisitions' impact, I would think it'd be similar to this year.

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Operator [56]

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And we'll go next to Steve Chick at Yucaipa Companies.

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Stephen Chick, [57]

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I just wanted to clarify on the guidance for the year implies a pretty good level of growth for the fourth quarter. If I have my math right, north of 20% in top line, now achieving bigger growth rate for earnings. And so I'm wondering that -- if you could kind of speak to that. And if that's kind of consistent with the trend that you're seeing today. And really where the strength is going to come from, coming into the fourth quarter.

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Walter C. Johnsen, Acme United Corporation - Chairman of the Board & CEO [58]

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Yes. Steve, you've done good math. And that forecast does show growth in the fourth quarter in excess of 20% on the top line and substantially more in earnings. And I can tell you that, at this point, we're confident in that. The growth is coming from first aid in a pretty sizable way right now in this month. We're seeing strong online sales. We've got promotions with Camillus knives that are in the -- in excess of $1 million of new business. We've got Cuda fishing tools with promotions as well as some things for Black Friday through some of the online retailers. Paul, what I'm I missing? There's a bunch of new business here. We had a shift of a major retailer of first aid that went into the fourth quarter and that's moving out now. Paul, what else is there?

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Paul G. Driscoll, Acme United Corporation - VP, CFO, Secretary & Treasurer [59]

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I think you captured it all there.

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Walter C. Johnsen, Acme United Corporation - Chairman of the Board & CEO [60]

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Yes. It's -- but there's a buildup that's identifiable. And -- so we have high confidence in the fourth quarter.

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Stephen Chick, [61]

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Okay. That helps. And it's good to hear. And then Paul, what tax rate are you assuming for the year and the quarter, specifically, just on the -- if I get my math right?

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Paul G. Driscoll, Acme United Corporation - VP, CFO, Secretary & Treasurer [62]

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I think for the year -- I think, at this point, we're at around 25%, and we're expecting approximately that for the year.

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Operator [63]

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And gentlemen, there are no additional questions at this time. I'll turn the program back over to you for any additional or concluding remarks.

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Walter C. Johnsen, Acme United Corporation - Chairman of the Board & CEO [64]

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Well, if there are no further questions, then this call is complete. We thank you for joining us. And look forward to sharing our year-end results, including updates in the way we're fine-tuning our operations to accommodate the growth of online sales. And we'll do that in February. Goodbye, and have a good day.

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Operator [65]

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And ladies and gentlemen, once again, that does conclude today's conference. Again, thank you for joining us today.