We start. My name is Greg Burns. I'm an analyst here at Sidoti. I'll be handling the presentation here today with Acme United. We're going to be doing a fireside chat presentation here with the company's Chairman and CEO, Walter Johnsen. If you do have any questions, feel free to enter them through Zoom and I'll pepper in as many of those as I can along the way. With that, thanks for being here this morning with us, Walter.
Thank you so much.
I guess maybe for those that aren't too familiar with the story, I know you operate two very different businesses or in different sectors. One around cutting solutions, the other around first aid and safety. Maybe we could just start off with a brief overview of each of those two businesses, the main differences in those product segments and the markets you serve.
Oh, sure. Our main business is cutting and safety solutions. In the cutting area, we have the leading brand, Westcott, which we make 70 million scissors a year. They're sold globally. It's the leading brand globally, number one market position, lowest cost producer. About 150 patents. The cutting area is a slow growing area. Unlike some parts of office supplies, this is far broader. Our products are used in opening boxes, preparing shipments, in the craft area, in the kitchen, food preparation, kids scissors. It's quite broad and we've got leading shares in all of those. It's also got a strong cash flow and it's about 1/3 of our business. The other chunk, which is bigger, is the first aid and safety area. There we supply the retail market, the industrial market, direct to consumer, and the safety within retailers.
That business has a high recurring revenue stream because of the refills. Refills are used so that the first aid kits are always fully stocked when there's a potential accident. The business is growing organically about 8%-10% in total, and the first aid area is growing faster than that with Westcott in the low single digits.
Okay, thanks. It looks like you've been putting more of your emphasis around the first aid and safety business in recent years. Can you just maybe talk about the reasons for that? What it's attractive to you about that market and what the primary growth drivers are for you there?
Yeah. The first aid business is one small segment of a much bigger segment called pre-hospital care. What we do is everything from minor cuts and bruises right through bleeding events, heart arrhythmias, and things that require saving lives. When you look at that segment, that business in that manner, what you can quickly discover is there's many, many product areas that you can effectively convey to your customer base. It's much broader than the cutting area. It also saves lives, and that's an incredibly important thing that we remind ourselves every day, that our products truly do save lives. With the recurring revenue stream and the refill business, there's an annuity portion of the business that is unlike in the cutting area, and it's high margin and it's consistent.
When we do acquisitions in the first aid business and in that pre-hospital business, they tend to be companies that we compete with or we're a half step away, or we vertically integrate, so that we're making the components that go into these products.
Okay. Is there any particular growth driver specific to this segment? Is it more about just expanding your product line? Are there any secular growth drivers or how should investors think about the growth potential of that business?
The first thing to realize is that when you treat an accident quickly, the significance and severity of it is reduced. For example, if someone has a serious cut, to treat it before it gets infected means you have a person that recovers faster. In the workforce, of course, there are many rules and regulations that relate to either having a complete first aid kit or related to having the capabilities to treat on-site. There's also just common sense. You want a safe workforce. In our industrial business, that trend of caring for your production workers, or your office workers is something that is very important and it drives the business.
Okay. Are there any areas you'd look to be adding to that business that maybe are particularly attractive? What is the growth strategy?
Yeah.
for you internally?
If you think of a big white first aid kit on an office wall, that's one definition of the business. Let's say that you're now dealing with bleed control, and people can die in 90 seconds from a serious wound. There, it has to be accessible, and there's a whole different group of specialized products in there. Typically, QuikClot bandages, chest seals. We have a number of patented tourniquets, and they are available also on the wall. You might also have arrhythmia, and we have an agreement with one of the major defibrillator companies to be distributing that within our customer base. Of course, an arrhythmia can kill you, and this is an opportunity to take advantage of that quickly to save a life. There's eyewash stations.
It's something that happens in a workplace, and we've got a multimillion-dollar business in eyewash and dispensing units. As we look to expand what we deliver, I can see the day when we're looking at remote areas, particularly with our My Medic acquisition, where we can provide not only products directly to the consumer, but also training and success stories, so that when someone is injured somewhere outside of normal driving, we can actually make an impact and save a life.
Okay. Do you look at the business from a growth perspective as kind of organic growth and product category expansion? How much growth typically comes from category expansion versus just penetrating the existing product sets that you're in?
Well, the organic growth for the company has historically been somewhere in the 6%-7% range. Some years that doesn't happen because, like last year, tariffs interrupted the retail business. We were not able to get placement for many of the normal promotions that go on seasonally because our customer base was looking to find product for the items they had on the shelf at the single time. The Westcott business was softer. That's the cutting area last year. That trend of the organic growth there certainly didn't exist. It did in first aid. We look at acquisitions, and as you know, we bought the My Medic acquisition. Bought that company in January. It was $19 million in sales and $500,000 social media followers. Again, building on that first aid segment.
Since you brought up the My Medic acquisition, could you just talk about exactly what that was and what kind of benefits that brings to your platform?
Yeah. My Medic started very humbly in somebody's garage. The two founders had lost. One was the mother whose husband died and a son whose father died. He died because he was run over by a truck and bled to death. They started to make kits that could make a difference out in the field, that could save lives, particularly in the bleeding area. It did not grow in a traditional way. It grew through direct to consumer, and it grew very quickly to be $19 million in sales in less than 10 years and all self-financed. The business today has something very special, which is people that look at the website for training, for use of new products, for success stories, for articles of interest.
That mode of selling, when we transport that into a bigger arena, for example, in hard-to-reach places, that gives us the ability to reach directly to the consumer and train. We also think in certain areas, for example, our craft business, in Westcott benefits from direct to consumer, where the videos can be used and for training and projects. Getting our hands into that segment we felt was very important. Strategically, in the first aid area, it's a direct contact to the customer, and as we broaden that, it will be a direct contact to people that need help.
Okay. It sounds like you have some distribution, potentially revenue synergies ramping up that D2C channel. What about any cost synergies? What does the integration timeline look like for My Medic?
Well, one of the key objectives was not to screw it up. That may sound crazy, but not radical change. Rather start to give the product family that they currently have some quality distribution that we have within the company in retail. Part of it is to expand its Amazon presence. Part is to become more efficient. One area is in our sourcing. There we have scale, and we're also vertically integrated in some areas, so we have the ability to lower the cost of sales and therefore increase the margin. There are some redundant positions, not many, but some. When we put it all together, we think we've got a good chance to build the business this year profitably and lay the groundwork for some of the exciting expansion that we might have with the other product lines.
Okay. Now just switching back to the cutting business. Do you have any specific initiatives there, either whether from a margin improvement initiative, a growth initiative, for that side of the business, or is it just mainly a more mature cash flow type business that's going to fund the growth on the safety side?
Actually, the Westcott business this year looks to have a pretty full plate of growth. We expect to start to see that in the second quarter and in the third. We're expecting, as an example, a strong back to school. One of the reasons is we've gotten some new customers in the dollar store area that we didn't have previously, so we've gained a market share. In the craft area, we have made a major initiative. We have patents on non-stick scissors as an example, and non-stick cutting tools, and they're really good. It lend itself to craft. In some large retailers where we have gotten placement for the first time this year, there are multiple departments. For example, in the sewing area, we've gotten much more placement. Similarly, we've broadened placement at some of the specialty hobby stores like Hobby Lobby and Michaels.
We've gained market share, we've created new products, particularly in the craft area, and we've got a recovery in retail, because we're getting promotions again, whereas last year they couldn't do it. It's looking very good to us this year.
All right. Sounds good. Could you just talk about maybe is there a major difference between the margin profiles of the two sides of the business?
Well, there are differences, and a lot of it is dependent on the products. We have in our cutting area quite a number of proprietary items that really do special things. For example, we were the pioneer in titanium-coated cutting tools, and the patents relate to an optimization of hardness, with titanium nitride and chromium nitride. That utility patent applies to all sorts of cutting things, and our high-performance scissors, we believe are the best in the market. They're patented, and the margins are very good. That's a high-margin area. On our non-stick cutting tools, we didn't put Teflon on it or something that's dangerous. This is a thin ceramic sol-gel that we developed and patented. One of the tricks was trying to keep the non-stick to stick on the substrate, the stainless scissor. We did it.
What's out in the market now is terrific for Velcro, glues, tapes, eggs, cooking. It's broadly applied. Those are high margin. Kids scissors are low margin. Similarly, in the first aid area, refills are typically high margin, but maybe some of the first aid boxes, the simple commodity boxes that you might find at a CVS, which we supply, might not be very high margin. Overall, the mix of the two businesses, first aid's a little bit higher than Westcott, but not by very much.
Okay. You mentioned getting into the dollar stores, for Westcott. Are there any other distribution channels or geographies that you'd like to get into or you think are opportunities for the company?
Well, again, in the cutting area, we're the dominant player globally. Say lowest cost producer, 70 million scissors a year. There's not a retailer that in some fashion is not carrying our products. If it is, then they're in the Stone Ages. I'm not aware of it. We have very broad distribution. In the first aid area, sure, there's a lot of runway in new distribution. It's really international. We're making it a major effort as we speak in Europe, and getting very good success there because of the broad range of products that we've developed globally. The European team is picking and choosing and modifying for, particularly the German, Swiss, Austrian, and Scandinavian markets. In Canada, our first aid business there has tripled in the past four years.
We keep growing out of space, and we're just moving into a new facility outside of Montreal, literally in the next several months. There we're gaining share, and we're broadening the customer base that we service in total.
Right. What percent of your business is outside of the U.S. right now in total?
About 20%.
20%, okay. There's a question here around tariffs. Are you in line for any tariff refunds?
The answer is yes, we believe we are. We've filed for them. However, until we get cash and it is in our pocket, we're not believing anything. I think it's better to just assume that the tariffs, if they actually occur, that it's found money.
All right. Maybe we could just tell us a little bit about your capital allocation priorities. I know you just did the My Medic acquisition, but.
Yes
you just talk about your shareholder return.
Yeah. Our EBITDA has varied in recent years between $20 million and maybe it'll be higher this year, maybe it's $25 million, $24 million. That EBITDA is paying for the acquisitions. It pays for the dividend, which is about $2 million a year. We grow, we increase it about $0.01 a share every six or eight quarters, depending on our overall cash flow. I believe in returning some to shareholders. That's a small part of our overall cash flow, but it's meaningful. Last year we bought a new facility in Tennessee, because the Spill Magic business had grown out of space, and this is a facility that's larger and it gives us the chance to really grow both the breadth of the product family as well as install automation that frankly, we did not do in a rented facility.
We're dropping costs, but also spending money there. Outside of normal CapEx for maintenance, which is maybe $1 million for the buildings, the rest is going into automation, we've got nine plants in the U.S. and in Canada. These, for example, are being used to take alcohol prep pads, which we make in Florida and put them in boxes robotically. Some of the boxes are going into retail, some of them are going into our first aid kits. Similarly, we're doing that with BZK wipes, soon we'll be doing it with adhesive bandages and other items. All that go into the refill business, which is, of course, a growing annuity for the company. Our total CapEx spending without a plant once in a while is about $6 million-$7 million. $1 million of it is actually maintenance. A roof needs to be replaced.
You've got to replace major plumbing, but it's noise compared to productivity investments, which is what we're doing with the bulk of the capital.
All right. I guess with that in mind, do you have margin targets for the business or have you outlined how much in savings you hope to gain from some of these productivity initiatives?
That's a balancing act. We can have very high margins and no customers, and we don't run our business on margin. We run it on delivering value to those customers, and it's very different. Having said that, we're running 39% gross margin right now. Sometimes we run 40%, and those seem to be numbers that when you blend the refill business with first aid, a higher margin business in specialty coded scissors, and cutting tools, it tends to run about that range. My Medic, because it's direct to consumer, has higher gross margins than our average, but it spends a lot on social media advertising. That might be Twitter or LinkedIn, Facebook, and of course, the video production. It's a different profile than the other portions of the business. Higher gross margins, higher SG&A.
Okay. All right. We're getting towards the end of our allotted time here. If anyone has any last questions, feel free to ask them now. If not, hopefully you get them answered with a one-on-one with Walter. I'd like to just end it here, Walter. Thank you for presenting, and give you the floor for any final words.
Well, one of the things I think we all should know is we're in tough businesses, but businesses that we command and we know what we're doing. If we can finish the year at $225 million-$230 million this year, including the My Medic acquisition, and compound at 8%-10% a year, you see your way very quickly to $300 million in the next three years. There'll be other acquisitions. They'll be in first aid, and they'll be hopefully reinforcing our market presence and our product offering. I think we're really just at the beginning of what we hope will be a much bigger company. Thank you very much for listening to the presentation.
Yeah. We look forward to having you back over the years and watch the growth.
Well, thank you very much.
All right. Have a good day.
Bye-bye.