U.S. Markets close in 20 mins

Edited Transcript of MACE earnings conference call or presentation 13-Nov-18 4:00pm GMT

Q3 2018 Mace Security International Inc Earnings Call

HORSHAM Jan 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Mace Security International Inc earnings conference call or presentation Tuesday, November 13, 2018 at 4:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Carl R. Smith

Mace Security International, Inc. - SVP of Corporate Finance

* John J. McCann

Mace Security International, Inc. - President, CEO & Director

================================================================================

Conference Call Participants

================================================================================

* Andrew Evan Shapiro

Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member

* Kenneth Fell

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning. My name is Megan, and I will be your conference operator today. At this time, I would like to welcome everyone to the third quarter 2018 financial results conference call. (Operator Instructions) John McCann, you may begin your conference.

--------------------------------------------------------------------------------

John J. McCann, Mace Security International, Inc. - President, CEO & Director [2]

--------------------------------------------------------------------------------

Thanks a lot, Megan. Thank you for joining the call today and please visit corp.mace.com, Investor Relations, Transcripts and Presentations, as we have loaded a PowerPoint update on the third quarter and full year results.

Now I'd like to turn it over to Carl Smith who will read a forward-looking statement.

--------------------------------------------------------------------------------

Carl R. Smith, Mace Security International, Inc. - SVP of Corporate Finance [3]

--------------------------------------------------------------------------------

Certain statements and information during this conference call will constitute forward-looking statements and are based on management's expectation and information currently in the possession of management. When used during our conference call, the words or phrases will likely result, are expected to, will, continue, is anticipated, estimate, projected and intended to or similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks, known and unknown, and uncertainties including, but not limited to, economic conditions, limit of capital resources and the ability of management to effectively manage the business and integrate acquired businesses. Such factors could materially and adversely affect Mace's financial performance and could cause Mace's actual results for the future periods to differ materially from any opinions or statements expressed during this call.

--------------------------------------------------------------------------------

John J. McCann, Mace Security International, Inc. - President, CEO & Director [4]

--------------------------------------------------------------------------------

Thanks, Carl. Now I'll comment on the third quarter, and please visit the website. You can download the PowerPoint presentation. I won't go through the presentation, but we can answer any questions during Q&A.

Brief comments on the quarter, and I'll try and be brief so we have a longer session of Q&A.

Revenues increased about 22% in the quarter with majority of our partners experiencing strong POS sales in the quarter. We also grew our distribution by 28 new accounts that we landed during the quarter.

Most of our major accounts had robust POS which means that point of sale through the register was great, which meant replenishment orders, and we also had some nice off-shelf placements to keep up with demand. Our e-commerce strategy has been effective. We're experiencing double-digit growth in the category. David Happe has done a great job with his team, Tim Satava and others on supporting the category and making sure we're enhancing our brand experience and developing strategic advertising plans to continue to support the category.

Though we end the quarter that our ROI on our spending was not as great as we would like, so we are reviewing how we go to market in the channel, as we move towards the future, we had great results. We think they can be even better by focusing in on the detail and also the message, the content and the context of our message. And I'll talk a little bit more about that later on the call.

We have opened new categories to sell our products which we're very excited about. We've branched out into some real estate agents, other direct opportunities to sell our products through our training program and enhanced brand messaging that we've done with some of our partners. We also had some nice pipeline fill on the quarter with a couple of major retailers. We were able to have several placements within one of our sporting goods channel partners, and we also had several new placements within the store format of one of our consumer partners. So we're very excited about that. We also think this direct communication with a lot of our customers directly from the company can be also a great way to enhance our brand value as we move forward.

On the marketing side, our new website is continuing to perform well. We launched in late June. We're seeing unique visitors up 50%. Our page views are up 192%. Our page views sessions are up 89%, and our bounce rates is down significantly year-on-year.

Also to note on our website, our AUPs, our average unit price, is up over $40 per unit, which is a $10 increase versus a year ago. So we're very pleased about where we're going. We think the next level for us is engaging a marketing firm on a short-term basis to help us with our content, context and our messaging to make sure that we reach a larger audience than we are today.

Some of the disappointments that I'll just highlight briefly in the quarter is our less lethal. Our Tactical division has done well on OC sprays and distribution of OC sprays, but we're still not where we want to be with the distribution of less lethal munitions that we started up. We think we have a great opportunity and ergo, that's why we have brought on Paul Hughes on to the company. Paul joined the company in November. He has 32-months public service role in Arizona Commerce Authority under the Governor Doug Ducey. Prior to his role there, Paul was the Chief Operating Officer at Guardian 8. He led a team of developers to create a new devices and several patents of [ProVQ] product design for the security industry. Prior to Guardian 8, Paul was at TASER. I think a lot of the experience Paul will bring, not only from his marine background, his TASER background and also his Guardian 8 background will solidify some of the branding, the messaging also the focus the company will have within tactical and throughout the entire company.

On international, we had some timing issues [on orders]. We still saw a nice lift in some of our businesses, but our traditional business in Europe continues to be slower than we'd like. We have some (inaudible) that we'll see later in the year and especially in the first quarter of next year. Also we've got several markets that are on our radar that we'll continue to work on. But right now, we think focusing on the U.S. along with some of our international current partners is the strategy that we're moving forward with.

Sporting Goods as a channel had a good channel. As I reported in the second quarter, it was a little bit off. But right now, it seems that it had stabilized itself. We're in a great position with the leading retailer in the channel, and we're continuing to see the channel to be smaller but still very effective for the sale of our products. We do feel that we'll hit our internal goals in this channel by the end of the year.

Just touching briefly on gross profit, it was an increase of 16% during the quarter, strong mix of sales and products to a variety of customers. We did have a slight dip in the overall percentage from roughly 46% to 44%, but we're continuing to see some opportunities through SKU rationalization, product mix, product kits and some other testing of higher AUP products that we feel will be very effective in the future.

Then in the quarter, we achieved a run rate of 10% in EBITDA. A lot of it was through operational efficiencies. We feel there's a lot more operational efficiencies we can squeeze out of the facility. We looked at our allocation of resources so we can optimize our efforts and increase our long-term sustainable double-digit EBITDA. We had some expenses in the quarter, namely our website software that we would not -- was obsolete and we would not go forward with our new operating package. So we saw a $32,000 hit in that segment that we took in the quarter as we move towards the new platform. And when I talk about the website, we look at it 2 ways. You have the front end of the website, the store side. You also have the back office of the website, which is actually the conversion side. And as I mentioned earlier, our web conversion percentage is up tremendously versus prior, and that's some of the tech software that we had with our old operating platform that our new platform just wasn't up-to-date, so ergo, we went to a new system.

Just touching briefly on inventory, you can see on the slide deck that it's 115 days at the end of the quarter which is 33% improvement from year-end. We do have the proper amount of inventory on time. We have some opportunities on inventory that we're moving, and we're constantly tracking any issues that we have with Asia. Currently, we have not been hit with any tariff issues, but we're very mindful of the fact that there's a lot going on in the world, and we're always looking at how we source and where we source.

Overall, our exhibitions have helped tremendously with the company revenue [brands]. We're still seeing a lot of organic growth. We're pretty bullish about what we've been able to do, both organically and with our acquisition. Our sales pipeline was good through October. We're seeing a little softening of that pipeline. It's Christmas, seem to be put off a little bit with some of our consumers, but we're still bullish on a positive EBITDA in the fourth quarter as we [standing also] to look at improvements and alignment of our resources to make sure that we are in a position to be customer-centric and customer-facing as we move towards the future.

Lastly, I just want to read something that came to me just recently from a friend of mine. And basically, it's a very nice story to end this little brief introduction. A friend of mine is a bond trader on the floor of the New York Stock Exchange. His eldest daughter left for her first year of college this summer. He went out, bought a couple of cans of Mace branded pepper spray so she and he could both feel safe. In order to have her to be ready, he prepared to set up a target in the yard and created a situation for her to respond. She was able to [pour in her] pepper spray in seconds, tell her father I got this and I'm ready to go to school. That's what we're really doing here as a company. Your safety is our mission.

So with that, as I said, I'd be brief. We can open up to questions, Megan, and so we will turn now over to you, Megan, and you can fire up the questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question is from [Herman Willis] with -- as an investor.

--------------------------------------------------------------------------------

Unidentified Participant, [2]

--------------------------------------------------------------------------------

I noticed the last 5 to 6 quarters, we've shown positive EBITDA. And recently, we've shown positive cash flow. Mace, as we all agree with, has a low valuation in the market and limited investors. Would it not make sense to be -- and be accretive to have a stock buyback in place? And would this not add to the daily stock liquidity? A sustained buyback would be value-added, accretive and create liquidity, of course, at the right price. Why not do this now?

--------------------------------------------------------------------------------

John J. McCann, Mace Security International, Inc. - President, CEO & Director [3]

--------------------------------------------------------------------------------

Thanks. And you are right, 5 of the last 6 quarters, we have seen positive EBITDA and we've also seen nice sales growth throughout the past couple of years. Your question is very valid and it has been brought up at the board level, and at the board level there are ongoing conversations of when the right time is and how we would do it. I think there's some strategies that will be in place soon, and we'll be able to answer that question more directly. So thank you very much for the question.

--------------------------------------------------------------------------------

Unidentified Participant, [4]

--------------------------------------------------------------------------------

All right. Can I have one follow-up?

--------------------------------------------------------------------------------

John J. McCann, Mace Security International, Inc. - President, CEO & Director [5]

--------------------------------------------------------------------------------

Yes, sir.

--------------------------------------------------------------------------------

Unidentified Participant, [6]

--------------------------------------------------------------------------------

It relates to marketing, and I know we continuously point to promotion, promotion, promotion and a branding story. I want to talk about targeting communications and wonder if TV is a part of our media plan. Would this not promote sales and make new investors a part of a targeted market? TV would motivate sales, gain new investors to buy. I think we spend 95% of our time growing the company and only 5% on promoting to get fans in the stands. So isn't -- shouldn't TV be a part of our medium plan like the (inaudible) retractable hose or the new EKG machine that was just approved by the FDIC? And if I could add to that, if you have any upcoming investor conferences or non-deal roadshow activity?

--------------------------------------------------------------------------------

John J. McCann, Mace Security International, Inc. - President, CEO & Director [7]

--------------------------------------------------------------------------------

All right. So a couple of questions in there. As I had mentioned in the press release, before we put out the earnings, Paul Hughes has joined the organization, and we have done a deep dive into a long-term partnering strategy with a marketing firm to discuss what is the best medium in order to get the Mace brand name out there. We feel there's a unique opportunity to change the paradigm. I think if you look at some of the newer investors that came on board, has looked at like our [resale grain], is great. We feel there's a strong opportunity for the brand to get back into some of the legacy business of tactical which will take some type of advertising and brand promotion in order to make sure that we differentiate ourselves. And then on the consumer side, yes, we'd be able to -- very many ways, we can do it. If you look at media today, it's very fractionalized. So you have a lot of kids that are online, you have a lot of kids that never turn on a television, you have radio, you have billboard. And what we're looking at is an integrated strategy to promote the brand consistently across all those mediums and then look at the best way to do it. But we definitely think there's an opportunity for the company to change the paradigm, relate directly to consumers and make Mace like as you were walking out the door with your keys, your purse, your phone, your bag and your can of Mace branded pepper spray or your Mace branded alarm. So I think that's an excellent point. And I think Paul will lead that charge as he's really hit the ground running within the organization and really be able to focus that message so we maximize the brands -- the great brand awareness that we have today. On your second point, Sanjay and I, the Vice Chairman of the board and myself, will be at Imperial Capital in New York, not presenting but meeting with -- opportunity with investors, opportunities to talk to some other companies within the safety and security group. Saliq Khan and his predecessor, Jeff Kessler, have done a great job covering the securities market, and we feel that's a great opportunity to do a little bit of networking, talk about the brand, talk about the opportunity within the brand and the value of the stock as it sits today as we continue to grow that brand value and also our EBITDA, our sales and our gross margin. But thank you very much, Herman.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

Your next question is from Andrew Shapiro with Lawndale Capital.

--------------------------------------------------------------------------------

Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [9]

--------------------------------------------------------------------------------

I'm glad to hear you and Sanjay are going to be at Imperial Capital. And with that in mind, I didn't know if Sanjay was on the call because as one of the new lead investors here, [Chuck] might be able to better answer this which is I wanted to get their views, especially in light of your attendance at that conference and hobnobbing with others in the industry, is whether or not they maintain or have views regarding the monetization and licensing of the Mace brand. And it seems like it's a huge high-margin opportunity that might accelerate the company's recognition of tax NOLs that our past forays with SecureCheck and Select Security and other license deals have not yet come to any fruition. Do you -- is either Chuck or Sanjay on the call to give their particular new investment in the company insight? Or can you convey that if they're not on the call?

--------------------------------------------------------------------------------

John J. McCann, Mace Security International, Inc. - President, CEO & Director [10]

--------------------------------------------------------------------------------

So they're not on the call, but I can convey [twofold] your question. I think if you look at the enthusiasm that [Chuck] and Sanjay had when they made their investment in the company and their continued enthusiasm for the company that we feel that we have a great opportunity within the company, expand the brand beyond the parameters of where we are today, especially in the tactical and then if you look at this direct-to-consumer opportunity, via e-commerce, via Mace branded website and also via the right marketing campaign, I think they're very bullish on that segment. On the other segment, we are in negotiations with some -- with a team for licensing the Mace brands, and we will review at a board meeting upcoming very, very soon. We want to make sure that it's very consistent with what we're trying to build out as the #1 company in personal safety in the marketplace. Stake that ground and make sure that we can defend ourselves and also make sure that we have the products out in front of the people all the time. So I will definitely convey. I think they will listen in, if not, I will make sure that when we meet that I personally convey your message.

--------------------------------------------------------------------------------

Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [11]

--------------------------------------------------------------------------------

Right. Just because obviously a new -- any licensing partner is going to put in their own marketing dollars on the brand and we get to leverage the benefit of that in addition, of course, to 100% royalties. So that'll help on the NOL recognition as it starts expiring next year. Regarding also the same feedback, you're on the board so you can convey as well. On the last call, Sanjay and [Chuck] -- or Sanjay talked about how it'd be another 60 to 90 days before they completed development of their long-term strategic plan. Well, it's now been 90 days since the call, and I wanted to get some insight as to what products and/or segments or channels that they have identified for greater or lesser resource allocation.

--------------------------------------------------------------------------------

John J. McCann, Mace Security International, Inc. - President, CEO & Director [12]

--------------------------------------------------------------------------------

So that's an excellent question and Dave's on a (inaudible) helping management with a longer-term strategic plan And when you look at it, and as I discussed earlier, viewing the opportunity in tactical, the hiring of Paul Hughes with a wealth of experience, he's a marine, you're never a former marine, right? So he's a marine, helping -- leading the charge there to consolidate, to solidify, to increase the focus and also increase their opportunities within the Tactical division has been identified as a tremendous opportunity for the company as well as what I would call our direct-to-consumer strategy, which includes social media, e-commerce, mace.com websites, partner websites to make sure that we're in front of people with the right message and the right products on a consistent basis so they don't have to fumble around or look. Some of the research that we reviewed with the Board of Directors, where to buy our products, why you buy our products, we're incorporating a lot of that into branding messages, and we're working with what I'd call today 2 different marketing firms, one of them new, [Greg Williams] has done a lot of her work on our website to help focus that message and make it very consistent. So I think those are 2 top priorities that have been identified, and we're taking actions. There'll be some more resource allocation as Paul's really digs in. Paul's already hit the ground running with a lot of ideas, which I think will benefit the company both short term and long term. And then also looking at the headwinds of where does the consumer tomorrow shop? Is it at a traditional retail or is it online? Is it directly? Is it through different means? So we have been challenged with -- by the board to come up with some different strategies in order to make sure we reach these consumers with a reasonable ROI and also make sure that everybody is aware of the products and everybody has the right product for them, given their situation, from the law enforcement professional to, as I mentioned, my friend's daughter who just left for college, that they know the Mace brand and they know the power of the brand and what that product can do for them to empower them and make them safe.

--------------------------------------------------------------------------------

Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [13]

--------------------------------------------------------------------------------

Right. Well, yes, thank you on that, and I'm glad things finally worked out between the company and Paul since I had introduced him there and to you guys a few years ago, and I'm very excited that things worked out and he's joined the team. I do think it's a great opportunity, especially in Tactical segment that I've been pounding on you guys for a while to -- had been underperforming or not achieving at least its full potential. And so hopefully, we'll see more of that. Can you comment further and mention the marketing team or firm, I guess, that was recently hired to assist the company and expand a little bit further on, I guess, the directives you're giving them and the timing of when you would start seeing tangible output from that firm?

--------------------------------------------------------------------------------

John J. McCann, Mace Security International, Inc. - President, CEO & Director [14]

--------------------------------------------------------------------------------

Okay. So [twofold] again. Like our partners on our website have done a tremendous job. As I had mentioned, like we're pleased, but not thrilled with our results on mace.com. We would really love to see a higher level of consumer involvement on a daily basis. So more visitors to the website because we've raised the AUP, we've fixed the conversion problem, we have eliminated the bounce problem. So now we just need to make sure that we have more people direct to the site. And that's where, on a short-term basis, Paul and [et al] have -- are working with a firm to kind of work on the context and content. And I'd say right now, we're in that preliminary phase of reviewing to make sure that we set ourselves up for a strong partnership. Everything we do has to have a return on investment so that's why we're constantly reviewing any document, anything that's been brought to us, we make sure that the return on investment is strong as possible. We do see that e-commerce channel is a huge opportunity with the brand, especially as we work out some of the issues with legalities, how we advertise, how we can work with our partners at Google and Amazon, and et cetera, to make sure that, that statement is around safety and around the right products at the right moment. So right now, I'd kind of [punting] a little bit on your question because we're just at the beginning stages of working with the second company. We really want to make sure that we have everything internally to support, and then also we make the right decisions and we analyze those decisions and so we move forward very sustainably into the future.

--------------------------------------------------------------------------------

Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [15]

--------------------------------------------------------------------------------

So it sounds like, and confirm if it is known and you agree or it's not yet known, that this is perceived to be a messaging issue right now and not one of you just have to give it more time.

--------------------------------------------------------------------------------

John J. McCann, Mace Security International, Inc. - President, CEO & Director [16]

--------------------------------------------------------------------------------

So I think a combination, right? So there's 50% of Americans that we show from our research that has not bought a can of pepper spray. So that's a huge opportunity for us, right, but they recognize our brand. So you say, it's twofold, that you need a little bit of time to make sure that they understand that, hey, this can keep them safe. This is a less lethal alternative to defend yourself or protect yourself. Then at the same time, you want to make sure that messaging is correct because the world's constantly changing, right? So 10 years ago, Facebook was a hot social media, now Twitter and some other things have happened. So we have to make sure that, that messaging is consistent. So I think still a little bit of both. There's some people that we're going to need a little more time to educate them and then there's some people that need the right message to hit them in the face so they buy the product. One of the things that we have undertaken in the quarter that always makes sense that we think we'll benefit us in the future is training. We've been to sororities, we've been to universities, we will be at The Ohio State University on the 18th, training their Student Alumni Council. There's over 30 young men and women that will be in that class that our lead trainer, Matt Schaefer, at TDT will be at. He was just at Baldwin-Wallace's AGD which is a sorority in Baldwin-Wallace, one of the oldest sororities in the country, and he did a training with their group. Then at the same time, we've been enhancing our training and our activities within real estate agents because now, we're seeing that there's an opportunity there, but we still have to educate them. And then after even the education, we have to make sure that they get hit with the right brand message. So it -- I think we have a great strategy moving forward. I think we've been very strategic in this go-to-market strategy. We've been adding resources. You'll see us add more resources in the future to make sure that we're forward-facing and then that messaging is very consistent.

--------------------------------------------------------------------------------

Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [17]

--------------------------------------------------------------------------------

Now that strategy you're talking about is somewhat grassroots and fairly localized. Do you have a plan to roll out that kind of grassroots strategy on a broader regional and hopefully more national scale?

--------------------------------------------------------------------------------

John J. McCann, Mace Security International, Inc. - President, CEO & Director [18]

--------------------------------------------------------------------------------

It's not -- like you're thinking it's regional, but it's not really, like we're in Las Vegas. We've been in different states, in different cities across the country, but you can't -- it's duplicatable to some extent, but really what happens next is that messaging that we can reach people in a quicker timeframe and with a broader message. So we've latched on to a couple of schools that have called us, but it's not limited to those schools. Like we were at several different events, women safety events in Las Vegas. We're working with the hotel industry, working with service industry. We've been at Charlottesville, Virginia. We've been in Florida. So we -- those are 2 recent ones that are coming up that I mentioned, but it is very nationwide, I'd call it, but along with that, we still need that right messaging, right? We focus...

--------------------------------------------------------------------------------

Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [19]

--------------------------------------------------------------------------------

Right. Well, you need to use social media to make what you're doing more viral.

--------------------------------------------------------------------------------

John J. McCann, Mace Security International, Inc. - President, CEO & Director [20]

--------------------------------------------------------------------------------

Correct. Correct.

--------------------------------------------------------------------------------

Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [21]

--------------------------------------------------------------------------------

Let me back out. I have plenty more questions. Please come back to me.

--------------------------------------------------------------------------------

John J. McCann, Mace Security International, Inc. - President, CEO & Director [22]

--------------------------------------------------------------------------------

Make sure that these kids then tweet out hey or this person tweets out or through their social media networks make sure that they know what Mace did for them.

--------------------------------------------------------------------------------

Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [23]

--------------------------------------------------------------------------------

Right. I have many more questions. Let me back out in the queue but please come back to me.

--------------------------------------------------------------------------------

John J. McCann, Mace Security International, Inc. - President, CEO & Director [24]

--------------------------------------------------------------------------------

Sure. Thanks.

--------------------------------------------------------------------------------

Operator [25]

--------------------------------------------------------------------------------

Your next question is from Ken Fell with Fell Capital Management.

--------------------------------------------------------------------------------

Kenneth Fell, [26]

--------------------------------------------------------------------------------

Appreciate you guys having this call. I think it's really important as far as new investors who are able to be on the call or even just read the transcripts. It's a great resource. John, in your comments, you briefly touched on the international markets for Mace. Could you maybe give us a little more on that, specifically India, what's going on there, maybe where you are right now and where you want to be and maybe how you're going to get there?

--------------------------------------------------------------------------------

John J. McCann, Mace Security International, Inc. - President, CEO & Director [27]

--------------------------------------------------------------------------------

Sure. And thank you very much for being here and participating. And you're right, we do agree that any communication we can give being a smaller company with a lot of potential is great. [Media] specifically, we've identified a partner that we have in country. It's been a little slower to develop than we like. We think it's a huge opportunity. There's, as you know, some changes, unfortunately, with Mace between governments and also some changes in the Indian government just recently that has kind of delayed a little bit of our action, but we do look at the international markets as an opportunity. We look at the domestic markets as maybe a greater opportunity today, not abandoning anything that we built out some of the other markets, but we feel if we can get the messaging right here, we can resonate that messaging across the globe. And but we have, like in North America, between Canada and Mexico, we've seen some nice increases, especially with some of our animal repellent products, especially our bear spray and different segments in the market, and we think that will continue. But we do feel there are certain markets in Europe along with some new packaging that we'll be able to quickly gain some market share within those segments still. Thanks.

--------------------------------------------------------------------------------

Operator [28]

--------------------------------------------------------------------------------

Your next question is from [William Rankin], an investor.

--------------------------------------------------------------------------------

Unidentified Participant, [29]

--------------------------------------------------------------------------------

Hey, John. Congratulations on the results, very improving. I guess one of my reactions to it is, volume post announcement yesterday, I think, all day traded 515 shares, you're about 1,200 shares today, stocks down 7%. You got any feedback you can give on your take on why that occurred? And what you guys are doing to get more investors aware of the company and trying to get volume up by promoting the stock as a good investment for investors?

--------------------------------------------------------------------------------

John J. McCann, Mace Security International, Inc. - President, CEO & Director [30]

--------------------------------------------------------------------------------

Yes. Bill, thanks. That's an excellent question. So twofold again. I would look at what we're trying to do on our marketing message and the consumer side, as I call it, with law enforcement consumers to make sure that we're very consistent there. And you're 100% right. We feel we're still a value play within the marketplace. And the next step now that we have Paul onboard, to kind of alleviate some of the day-to-day from my table -- from me and the board to really investigate the (inaudible) firms, the right messaging that we can do to gain some investors in the market. We still have Carleton McKenna, as we've indicated in the past, as the investment banking arm of the company. They're working on some pretty good ideas that, hopefully, in the future will come to fruition. But on the messaging side, I think next phase for us is to complete this mission for the next 60 or 90 days, make sure that this initiative we did on our strategic plan, identifying the segments that we want to attack, get that communications that marketing message there. And at the same time, really start attacking that investment relation opportunities, talk to some of the board members earlier today just about that to say, "Okay, now, let's work on that phase. Get Paul fully functional here at 4400 Carnegie in Cleveland, make sure there's operational efficiencies hit, make sure some of the customer relationship management software that we implemented that he finishes it down the pipeline. Look at how we process today internally on our orders to make sure we are sufficient as possible." And we really communicate with our investors through the right arm, through the right events that Mace is a value play and continually with sustainable profitability, with sustainable EBITDA and with sales growth.

So I think this -- that is somewhat the next phase, timing is still TBA because we're likely -- I've met with Imperial Capital, will be at that event. We are talking to individual investors, but hire the right firm that can do a better job than we are today, I think, is the next on the drawing board and full disclosure would be very helpful with your advice because of your great experience and what you've been able to achieve in your life and assisting us in that timeframe. So thank you very much.

--------------------------------------------------------------------------------

Unidentified Participant, [31]

--------------------------------------------------------------------------------

All right. I just have a comment on your comment. I agree, you got to have a good story, you have to have good results. Otherwise talking to potential investors and trying to get the story out to the investment community and you don't have -- you can't -- you don't know the enticement. You guys, certainly have that. You have that with the change on the board, you guys can limit the investment and these results are great compared to the past. And leveraging that good information and getting information in front of new investors, not your existing investors, is critical. And when you go to take an investment relations firm, someone who is really good at outreach and finding new investors, not managing the existing base because the existing base is very small. So thanks for the answer and we'll hear hopefully the call next quarter.

--------------------------------------------------------------------------------

John J. McCann, Mace Security International, Inc. - President, CEO & Director [32]

--------------------------------------------------------------------------------

Thank you very much, Bill. And we agree. I think we're still a great value play and the timing is now and in the future to make sure that, that's story gets out there. Okay, Megan, back to you.

--------------------------------------------------------------------------------

Operator [33]

--------------------------------------------------------------------------------

Your next question is from [Herman Willis], as a private investor.

--------------------------------------------------------------------------------

Unidentified Participant, [34]

--------------------------------------------------------------------------------

John, I think [Mr. Rankin] asked the question that I wanted to be a little more specific about is when we do plan, can you be a little more specific about when we do plan to hire that right IR firm, and get new fans in the stands? I noticed that I was impressed with the college kit, the real estate kit, the runners kit and could you expound a little bit on how we're going to market with that? You commented on visiting various locations, but could you just be a little more specific on how long we think it's going to take because it has been quite some time since we've had to write our firm to get the story out considering the environment that we're in, probably has never been better. Could you be a little more specific about that and how you're going to market with those 3 new products that I mentioned?

--------------------------------------------------------------------------------

John J. McCann, Mace Security International, Inc. - President, CEO & Director [35]

--------------------------------------------------------------------------------

Right. So on an overall basis, the timing like I'd be lying if I said exactly knew when this was going to happen. Part of our overall strategic plan as we talked about is resource allocation internally which is something that's still going on. Paul taking over a lot of the day-to-day opportunity -- operational activities is something that is happening. And as that happens, then we'll be able to focus on IR to make sure that people see what we're doing, how we're doing it and why we're doing it. And I think they'll enjoy that story. And we're also very cognizant of being a value play making sure that we don't wait too long for that story to be out when we're no longer a value play.

So I think my hope would be that over the next couple of weeks and that over the next several months, we'd see us reemerge as a lean, mean fighting machine organization and we'll be able to now have the free time to go out there and meet with investors, talk to investors and really be able to tell that story. With regard to some of the kits, online, if you went to Amazon.com or if you went to mace.com, we are offering many kits because part of it is, is that once you're there visiting, there's 3 or 4 different reasons why to buy our product, and we're trying to make it very easy for you to buy a kit that you might keep a product or you might give a product as another gift and also raise that AUP. So thanks for seeing that and we're seeing some success. And I think that our messaging improves a little bit more and we'll see even more success. And it is -- it's a priority within the next phase of the strategic plan to make sure that we have the right IR firm with the right messaging and be very consistent. So thanks.

--------------------------------------------------------------------------------

Operator [36]

--------------------------------------------------------------------------------

And our final question is from Andrew Shapiro with Lawndale Capital.

--------------------------------------------------------------------------------

Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [37]

--------------------------------------------------------------------------------

A few here. The drop in the elevated inventories to more normal levels. Was that natural, seasonal activity or were sustainable improvements or changes implemented?

--------------------------------------------------------------------------------

John J. McCann, Mace Security International, Inc. - President, CEO & Director [38]

--------------------------------------------------------------------------------

A little bit of both. There was a reduction. We had a buildup for the bear season when we ended the year and then just a strategic reduction in inventory overall.

--------------------------------------------------------------------------------

Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [39]

--------------------------------------------------------------------------------

And is that -- has that -- is that indicative of already narrowing the SKUs? Or that is still a change to come?

--------------------------------------------------------------------------------

John J. McCann, Mace Security International, Inc. - President, CEO & Director [40]

--------------------------------------------------------------------------------

It's a little bit of both. We still have some more changes than we want to make with our SKUs. We also -- we don't feel that we will have the pressure on building up our animal repellent sprays that we had a year ago due to some rulings by EPA. There was some products that they were looking at banning and those are off the table now. So we won't have to build up that we had a year ago. So we should see some consistency within our inventory taking last year out as an anomaly. But we are constantly working on reducing our inventory and being as just-in-time as possible with our consumers and with our retailers. And we're working on a couple of ways to improve that efficiency even greater in the future.

--------------------------------------------------------------------------------

Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [41]

--------------------------------------------------------------------------------

Okay. And then the rise in receivables, is that indicative of shipment to new bricks and mortar distribution channels in anticipation of seasonal consumer sales activity? Or is it something new in terms of revenues? And is that growth sustainable or one-time in nature?

--------------------------------------------------------------------------------

John J. McCann, Mace Security International, Inc. - President, CEO & Director [42]

--------------------------------------------------------------------------------

So it's sustainable. There's a couple of retailers that, by requirements, have longer dating requirements in order to do business with them. So a little bit of experience with that. And then a little bit of an experience of shared risk with a couple of partners to get some growth to get into new markets. We feel though we'll probably continue to experience to midway through the first quarter and then it should kind of normalize.

--------------------------------------------------------------------------------

Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [43]

--------------------------------------------------------------------------------

Okay. Your slides and your scripts focus strategic channel investment expenditures to drive future sales. Without giving away any competitive advantages, can you highlight or speak of any of these investments in particular yet?

--------------------------------------------------------------------------------

John J. McCann, Mace Security International, Inc. - President, CEO & Director [44]

--------------------------------------------------------------------------------

Sure. Well, one you look at the website and you look at some of the things that we're doing with SEOs, with metadata and also with AdWords buying. And then we're also working with a lot of partner e-commerce companies on strategy; and the third one is with our traditional brick-and-mortar, we've made some investments into being in more locations within a platform. So let's say we're in one department, now with 3 or 4 of our major retailers we're in 3 or 4 different departments within their platforms, which has a cost associated with it but we're experiencing a nice ROI. Being 100% honest, we would like to see a higher ROI with our messaging with our online. And ergo that's why we're reevaluating some of the messaging and how we can make that more consistent and also have a higher ROI for the company.

--------------------------------------------------------------------------------

Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [45]

--------------------------------------------------------------------------------

Okay. Now, obviously, with Paul joining in his particular expertise or experience in tactical, clearly companies devoting more resources to have tactical live up to its potential, and there's always been a long runway in terms of RFPs and things like that, which you guys have been focusing on for some time. So even before Paul hits the ground and is gaining traction on this, what I wanted to get a feel for and follow up on it, were a few of the other past initiatives. One is, where was the company as of the end of Q3 and as it is today, where are you guys on the ability to store and sell an expanded line of less lethal munitions and other consumables? Or is that an initiative you've now dropped?

--------------------------------------------------------------------------------

John J. McCann, Mace Security International, Inc. - President, CEO & Director [46]

--------------------------------------------------------------------------------

So we have all the registrations and all the ATF requirements to store and ship less lethal munitions domestically. And now we're taking on the challenge of making sure that we have the right State Department clearances to do international. Additionally, on that side, with the CRM initiatives that we've started when we upgraded our operating software internally and we upgraded our website is now -- Paul is going to bring that over the finish line, I think, very effectively, and that could be an excellent opportunity to make sure that we can analyze our wins and losses within our Tactical Division and also be prepared when bids come up and know when those bids come up.

And lastly, 3 other things that Paul has already initiated in his brief time here is our professional grade products to make sure that it extends over to our consumer side, to make sure people understand that this is the same strong product that law enforcement use to deescalate situation. He's also enhance our position with NTOA, which is a national organization that will give us more exposure in the law enforcement world that we can branch down into our consumer. And then also we will have and anyone of our investors are more than welcome to come to the SHOT Show. We will have a nice cocktail party and launch of our less lethal munitions at the SHOT Show. And Paul will be there running that segment. And then making the investments to get the realization enough what we've all been working on for the past 3 or 4 years on getting our less lethal munitions out to the folks that need it desperately.

--------------------------------------------------------------------------------

Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [47]

--------------------------------------------------------------------------------

When's this year's SHOT Show?

--------------------------------------------------------------------------------

John J. McCann, Mace Security International, Inc. - President, CEO & Director [48]

--------------------------------------------------------------------------------

I will get you the exact dates because I don't have that in front of me, but I believe it's the 3rd week of January in Las Vegas at the Sands Convention Center. I'll have someone e-mail you the exact timeframe and suite number.

--------------------------------------------------------------------------------

Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [49]

--------------------------------------------------------------------------------

Regarding some other vertical initiatives, it's a shame every -- we gather here every 3 months to have a quarterly call in the 3-month window there. It seems to be at least 3 to 5 new mass shootings. It's horrible. Many of these are in the environments where perhaps pepper gel that can go 25 to 30 feet would not be effective in protecting or knocking down assailants and buying those precious seconds and minutes to save more and more lives. But we know it's just unfortunately a matter of time where we're going to see and hear of another school or circumstance where your Mace Brand Safety Kits could actually save lives. Can you talk about the progress made in the last quarter and the steps being taken to further penetrate and get our product adopted into this, I will call it, the vertical market and opportunity to protect lives and project safety?

--------------------------------------------------------------------------------

John J. McCann, Mace Security International, Inc. - President, CEO & Director [50]

--------------------------------------------------------------------------------

Sure. So a couple of things. As you talk about the licensing side, there might be some opportunities for us to look at brand licensing in that segment in verticals that we're not in today. Secondly, we have some nice penetration with a variety of products on a smaller scale in several states where they are buying our pepper guns, which is reusable, replaceable cartridge of Mace Branded Pepper Spray that can shoot 25 to 30 feet. But the safety kits, in general, we're working with several companies that are in that space. It's still very fractionalized. Unfortunately, spending in school level for safety and security often fall in the fundraising category because they have facilities budgets, they have learning budgets, they have food budget, they have educational computer budgets that it's still very fractionalized. What I think Paul having uptaken an elevated position would be national tactical officers association, I think we'll be able to get that message out a little more consistently that Mace Brand and less lethal solutions could be one of those alternatives. But 100% honest with you, Andrew, the school area is still very fractionalized, and it's a tough go but we're not giving up. But we have made some nice penetrations, especially in Texas, Arkansas, Louisiana where there are several school districts that constantly buy our pepper guns and we're seeing an uptick in our sale of pepper guns both on our e-commerce partners and some of our direct sales initiatives that we think will continue in the future. But on a national trend level, it hasn't taken off the way we would like it.

--------------------------------------------------------------------------------

Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [51]

--------------------------------------------------------------------------------

I have some ideas for you. Would you call me off line about those because for competitive advantage, I don't really want to necessarily pop them out here, but I have a few ideas.

--------------------------------------------------------------------------------

John J. McCann, Mace Security International, Inc. - President, CEO & Director [52]

--------------------------------------------------------------------------------

[I have a lot of] traveling, but maybe I'll try to find the time between yourself and myself and Paul, we could have an off line conversation.

--------------------------------------------------------------------------------

Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [53]

--------------------------------------------------------------------------------

Yes -- no, no, I think I have some ideas. Are there any other states or legislation and regulation pending to better open the markets? And where do things stands with respect to that up in Canada as well?

--------------------------------------------------------------------------------

John J. McCann, Mace Security International, Inc. - President, CEO & Director [54]

--------------------------------------------------------------------------------

So Canada's at a standstill because you had one hardliner and a woman that brought it up to boosting the law, so there's no news there. New York is an area where I think we have some opportunity. [David Carroll] and his team could be a great partner for the company. But I think that's probably a level 3 in our strategy because once we have the branding, once we have the awareness and some of the other elements then I think we can attack that market because as we all know, New York is probably one of the greatest cities in the world but it's also one of the most expensive cities to lobby and work with and make sure we get the consensus that we feel is necessary. So right now there's really nothing like on the legal front. We are working with some other manufacturers of less lethal products to look at what other areas of the country we could improve the recognition of the power and safety of the products to the general public. but Canada is at a standstill and I think New York is a [right time].

--------------------------------------------------------------------------------

Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [55]

--------------------------------------------------------------------------------

I guess in the year of the woman legislators, perhaps things will become easier. What about in terms of the European Union as well, I think that was some legislative or regulatory barriers and hurdles and are those being overcome?

--------------------------------------------------------------------------------

John J. McCann, Mace Security International, Inc. - President, CEO & Director [56]

--------------------------------------------------------------------------------

Yes now, those are being overcome nicely. We got to give credit to the Germans for kind of leading the CLP packaging to make some consistencies. We are making sure that we are CLP compliant, which is you can look up online, get all the requirements in it, but that has stabilized. They still have some excess inventory they're working through, but we see that as an opportunity next year. We will be presenting at the IWA Show, the show in Germany that is really the American version of the SHOT Show where you have both law enforcement, nations participation along with your prevalent retailers in Western Europe present at the event.

--------------------------------------------------------------------------------

Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [57]

--------------------------------------------------------------------------------

Right. I only have a few more questions, but I'll get back out into the queue if you have someone else. Just a few more questions, I have and then I'm done. Again, talking about in each -- during -- since the last call, we've had a few major storms hit the United States, and Mace I think came up with a creative and useful approach promotion, et cetera, for its Alert 911 product, albeit, extraordinarily clumsy execution and late and poor timing. But I wanted to know from this is your takeaway from identifying this as the use of Mace Alert 911 in terms of its battery operation that would obviously last a lot longer than the problems of power outage fueling cellular phones, recharging them. Was there any uptake? Are you seeing or where are you seeing uptake in the Mace Alert 911? And are more resources planned to that product line and of course, obviously with a lot more advanced notice and promotion than a few days before the storm hits?

--------------------------------------------------------------------------------

John J. McCann, Mace Security International, Inc. - President, CEO & Director [58]

--------------------------------------------------------------------------------

Right. So we do have -- we worked on some kind of a storm tracking, weather/crime mix to be a little more effective the next time something like that happens. I kind of can't really answer a lot of the other questions because we're working with a couple of partners that we can see some significant uptake within the Mace 911 opportunity. So with that one, hopefully, if we can get some of these partnerships done, I think we'll see a nice benefit to the company with that product line.

--------------------------------------------------------------------------------

Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [59]

--------------------------------------------------------------------------------

Okay. Give me a call on that one as well. I have some ideas. I think I've shared a few already with you by e-mail, but let us chat about that, especially on the storm track.

--------------------------------------------------------------------------------

John J. McCann, Mace Security International, Inc. - President, CEO & Director [60]

--------------------------------------------------------------------------------

Absolutely. I'll reach out to Paul. I think he's traveling but we'll pick a time, so we can chat and love your ideas.

--------------------------------------------------------------------------------

Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [61]

--------------------------------------------------------------------------------

Okay. Lastly, it hadn't been on the radar because we're doing -- getting absorbed with the new lead investors coming up with good strategic plan, enhancing the operations, but you guys are now on a sustained positive cash flow level and growing further. Has there been an evolution, a focusing -- a shift of focus with respect to the new acquisitions in terms of scope or markets that Carleton McKenna and the newly composed board are looking at?

--------------------------------------------------------------------------------

John J. McCann, Mace Security International, Inc. - President, CEO & Director [62]

--------------------------------------------------------------------------------

The easiest way to answer without a lot of detail is yes. I think there's some opportunities that we're constantly reviewing. The board has dynamically chosen a couple of board members to put together a small acquisitions review team that we can response to opportunities in our marketplace, dynamically. And then Carleton McKenna has been carrying the water to make sure the messaging is consistent with what the company is doing, wants to do in the future and making sure that anything that we would look at fits nicely into those opportunity buckets that we've identified through our strategic plan.

And to note, both the acquisitions we've done over the past 24 months were both strategic and both have been very helpful with our longer-term planning, both on an e-commerce platform and also on an efficiencies platforms. So we're pleased with what we've achieved. We think there's more that we can achieve in that realm.

--------------------------------------------------------------------------------

Andrew Evan Shapiro, Lawndale Capital Management - Founder, Chairman, President, Portfolio Manager, and Managing Member [63]

--------------------------------------------------------------------------------

Yes. And then are the investment banks helping you in that area? They seem -- I would think they're capable of it, but have they been tasked with assisting the board with respect -- in investor -- I don't want to call it strategic alternatives per se, but more -- but I think you even said that before that they were retained to do that. But more with respect to actions the company can take to lower its cost of capital by of course, achieving a higher valuation multiple in our undervalued stock.

--------------------------------------------------------------------------------

John J. McCann, Mace Security International, Inc. - President, CEO & Director [64]

--------------------------------------------------------------------------------

Yes, they have been, and they've been very helpful in that regard.

Okay. Well, Megan, thank you very much for your job, and we thank everybody for being on the call. All the materials will be available on the website. If there's any further questions, please feel free to e-mail the company. But we do appreciate everybody's time and consideration, and we'll talk to you in the first quarter of 2019, and have a very happy Thanksgiving.

--------------------------------------------------------------------------------

Operator [65]

--------------------------------------------------------------------------------

This concludes today's conference call. Thank you for your participation, and you may now disconnect.