Good day, ladies and gentlemen, and welcome to today's Acme United Corporation's Fourth Quarter and Year End 2017 Earnings Call. At this time, I'd like to turn the conference over to Chairman and Chief Executive Officer, Walter Johnsen. Please go ahead, sir.

Good morning. Welcome to the fourth quarter and year end 2017 earnings conference call for Acme United Corporation. I'm Walter C. Johnsen, Chairman and CEO. With me is Paul Driscoll, our Chief Financial Officer, who will first read the Safe Harbor statement. Paul?

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.

Thank you, Paul. Acme United reported net sales in 2017 of $130.5 million, an increase of 5% over 2016. This was the seventh year in a row of record sales for the Company. Our net income in 2017 prior to adjustments due to tax reform was $5.3 million compared to $5.8 million in 2016. Earnings per share were $1.42 compared to a $1.64 in 2016. So, in the fourth quarter of 2017 our sales increased 14% and net income prior to adjustments due to tax reform increased 8%. All of our major product lines gained market share due to online growth. However we had a large pencil sharpener in our promotion at a major retailer that did not repeat in 2017, and reduced Westcott sales for the year. We regained this business for 2018. Our online sales have increased in excess of 100% annually for the past three years. We believe we are driving this growth due to outstanding products with excellent reviews, strong content and search, and promotional strategies that help us to continue to gain market share. Despite weakness at many retailers, wholesalers and superstores, our overall business continues to grow. We are optimistic about the prospects of continued momentum during 2018. Our acquisition and successful integration of Spill Magic which we acquired in February 2017, was one of the highlights of our year. We added marketing support staff to build the business and place this product at major new mass market accounts, industrial and safety distributors, online customers, and into the office products market. We look forward to growth in 2018, due to the additional product placement. Our international businesses also grew. In Europe sales increased 18% due to growth at DMT, our office products business and online sales. In Canada revenues grew 2%. Both subsidiaries contributed solid earnings. We have continued and worked on improving our warehouse operations to respond to the challenges of our online growth. During the year we added experienced executives and managers to improve the accuracy, speed and cost of deliveries in, installed new software modules to improve the efficiency of the pit lines and begin building a mezzanine level for storage of online products both to the point of shipment. We are seeing progress in reducing costs and look forward to benefiting from those improvements during 2018. The Tax Cuts and Jobs Act helps us directly in generating cash and increasing profits. We have already repatriated $5.8 million from our overseas subsidiaries and reduced debt. We expect our investments in new equipment for the expression of the DMT, Spill Magic and First Aid facilities to receive accelerated depreciation for tax purposes. We are trying to better assess the impact of our online business in 2018 before providing guidance for the year. As I have mentioned in past calls online sales are difficult to forecast and I can also add that as of now we are continuing to grow the strong momentum. I'll turn the call to Paul.

Acme's net sales for fourth quarter were $30.2 million compared to $26.4 million in 2016 an increase of 14%. Sales for the year ended December 31, 2017 were $130.5 million compared to $124.6 million in 2016 an increase of 5%. Net sales from U.S. segment increased 15% in the quarter. Sales for the year ended December 31, increased 4%. Sales excluding the Spill Magic acquisition declined 2%. Sales of First Aid product, was strong and to the large back-to-school promotion that did not repeat this year. Westcott school and office products sales were slightly lower than 2016. Spill Magic contributed $6.5 million in sales. Net sales of local currency for Canada increased 9% in the quarter and were constant for the year. Net sales of local currency for the Europe increased 8% in the quarter and 15% for the year. Growth in Europe came primarily from market share gains in the office product channels sales of DMT sharpeners. The gross margin was 35% in the fourth quarter of 2017 versus 37% in the fourth quarter of 2016. The fourth quarter of 2017 margin was lower than fourth quarter of 2016, mainly due to high promotional spending in the e-commerce business. The gross margin for the year was 37% compared to 37% in 2016. SG&A expenses for the fourth quarter of 2017 were $9.9 million or 33% of sales compared to 9.4 million or 35% of sales for the same period of 2016. SG&A expenses for the year ended December 31, 2017 were 40.1 million or 31% of sales compared with 37.1 million or 30% of sales in 2016. The increase in the quarter mainly was primarily due to higher variable selling costs as a result of higher sales and Spill Magic business and the additional sales marketing and IT personnel.…

[Operator Instructions] First from D.A. Davidson we have Andrew Burns.

Just a couple of follow-ups, just in terms of the loss of the Westcott pencil sharpener, was that the variance in 4Q? And was that product already built and we ship in '18? Or what's the process there?

No, we've lost the business in the second and third quarter, as you can imagine that's mostly back to school, and it was a sizeable loss. We will be shipping that in the second and third quarter of 2018, as we'll now recover it.

And the variance versus guidance in the fourth quarter?

There was about a $0.5 million of product that we did not ship in the fourth quarter, due to principally basically that shifted into Q1, but there's always some of that.

And then as we think about holding off on providing annual guidance between now and I guess 14th April when you report. Are you sort of waiting to firm up one particular retailer? Or does that time allow for much greater visibility on the back-to-school selling, just trying to better understand, the reason for the waiting?

Well, there is a primary one is the online business is difficult to forecast and it continues to be well ahead at very fast rate. And it's cannibalizing weaker sales at the wholesalers for office products and the retailers many of them some of the office super stores and so while we are gaining market share we will also have an some attrition with these other accounts. And you can see that with many of your retailers well worthy for strong one and it's going online so we are on the same trends and while we're trying to figure is the margin mix of the new business to margin mix of the loss business and it's complicated. And the good news is that our online business is now very sizeable one of the online retailers was our third largest customer in our 2017 and could very well become our largest customer this year so we're dapping to that change in customer mix but it also what we're guide on the shallow of the stores is different that we have online to some cases higher margin and some cases lower margin. And we're trying to calibrate that as it now shift into our bigger chunk of our overall sales. And so I hope that helps a little bit.

And then just one last one as you look forward in terms of a great year from Europe just the sustainability and the key drivers for that market is as we look forward?

I'm sorry Andrew you are talking about Europe?

Yes, Europe, sorry.

Europe did have a very-very it's the record year and so far this year it's continuing at a good pace. One of the starts has been the DMT product line, which have high margins and which is growing strongly in the European market. Amazon in Europe is also having an impact and is now the largest customer we have in Europe. We have gained the office products business so it's hitting on our all pillar just right now.

Moving on we have Jeff Briggs from Singular Research.

So three questions. Regarding Spill Magic, it looks like you are getting some good growth there. Is there -- do you have ramp of forecast on that for 2018? Or familiar there also regarding the online business, is that our in terms of the difficulty in the forecast? Are you seeing any type of I guess per unit per or SKU? Have you any type of price erosion there? And then final question, regarding M&A, are you on the lookout for possibilities for 2018?

First on Spill Magic, we have just installed the new equipment in the Nashville, Tennessee facility, which allows us to produce smaller containers of Spill Magic for both retail and online sales, and that's very exciting for us because it reduces not only the labor, but it increases the throughput. I have just personally placed an order at Amazon for Spill Magic, and I am waiting for a delivery, although it's been confirmed. So it's just beginning to flow into the online area. The major distributors Grainger, Fastenal and so forth are carrying the product. We have just introduced it into Europe, at Paper World in February, and so we will see what we can do there. We had a lot of customer interest in those formats. So, I am not going to give you a forecast, for it, it's a reasonably high margin product and it will grow and we are spending money to reduce the cost and make capability to produce it. With the online business, this time really a question of price erosion, we are selling in the Westcott product family, a lot of very high margin and exciting coated scissors in particular in volumes that don't represent what happens in our retail with any single retailer. So, strong volumes there and those are high margin. On the other hand we are filing less of the lower margin items which need to be quite representative of mix online, timidly but differently on our First Aid area, we are selling a lot of low margin consumer First Aid kits which we really don't sell in the U.S., except through Amazon and the higher margin industrial products in the refill or lower. So, it's not consistent and that's what we are grappling with. On the other hand, we are calling it the top line and we will build in that -- these other areas as we continue to do promotions and filing the gaps. Regarding M&A we are constantly looking, and I can tell you that by be being able to bring back $5.8 million so far from Asia and that number by year end, that will continue to generate cash there, will be a bigger number. It almost resets us, or being able to do another acquisition with our current bag line, in addition we are generating cash through our regular operations and on a normal year end $5 million or $6 million of free cash flow. So, we are positioning ourselves to grow to another acquisition.

[Operator Instructions] Next, we will move to Tim Call with Capital Management Corporation.

Can you review your Toys"R"Us exposure whether of material, and if you have any sales or do they just move to other retailers over time?

Toys"R"Us was in account a number of years ago, but it was always small. And Paul do you know if we even sell to them?

No, we don't sell them.

We don't sell t them. So there is no exposure.

With hunting and fishing, the hurricanes hurt your sales there. Do you have any easy comparisons coming up because of that? And do you see strength returning to those areas? Was that just a onetime blip down in the second half of last year?

Well, the Cuda fishing line continues to be gaining share and that's not only up to for salt water but now for freshwater and into Canada. And we've put in -- we've hired a person through social media to cover fishing tournaments with the sponsors as few of them. We've got one coming up in a couple of weeks in Florida. The fishing pros are actively working for us and we've got about 10 of them. And it's bearing fruit and in the first quarter which is traditionally where you begin to sell a lot of efficient tools where stronger than last year at now. In the hunting area, we are gaining fair amount of new business in 2018. Both under the branded for most lines as well as the private label program for one of the large retailer. So, there will be some good comparisons for hunting and fishing regardless of whether we had some storms. It's just -- the business is stronger.

[Operator Instructions] Next from RAM Partners, we will move to Jeffrey Matthews.

Walter the comment that Amazon is your largest European business I think that's what you said.

Yes.

That's very striking and I wonder if that's a function of just that you are on Amazon and they are growing so fast or is it also just helping there that your product lines are more adaptable to being sold on Amazon? In other words that it is easier earlier for you to gain share, but -- is it easier for you -- is it a bit easier for you to gain share in Europe being part of Amazon rather than trying to beat your head against the wall getting share within existing retailers?

No, the first part of that is, Amazon here is an important, is one of our largest customers corporately, and it's growing so fast. And our team of people are working this account effectively. And that same team has been working with our European counterpart who are also staffing for online sale. And with the strategies we are using in the U.S. we are using in Europe. And it's having a big benefit. Similar to the U.S. some of the retailers, not all, but some of the retailers in Europe are stay to flux. The sales were down its controlled from large superstores on the staff and it's difficult to get attraction with them for new business. Having said that we are getting attraction with the traditional retailers, and particularly in Germany where the market is more traditional we are picking up some very good accounts medium size companies recover regional markets very attractively. So what's going on in Europe is Amazon is rolling and it's an important parts of that core base of [indiscernible] distributors is also contributing to this growth.

Also the comments about inability to forecast the online side of the business is not entirely surprising because you talk about that aspect last quarter where there is something within the way the fourth quarter develop that made it more of an issue? Or is it just continued question mark about you are doing?

We're continuing and about the same paces in the fourth quarter right now which is an excess of 100% growth, but the numbers are getting bigger. And it's hard to say is that something you've continuing for the year it seems impossible, but it happened. So and then you've got the weakness with retailers that are closing stores or taken themselves private and they've squeezed inventory or it is lot of supporters, lots of people and has got a problem. So this shift in aggregate we're growing but again it's just heavy that right now the let's say if we were going and then find that either not address the margin mix properly and we are either up or were down from what I'm forecasting. But I think that for the first quarter that will be another benchmark both to the third and fourth actually second and third and fourth of this year have been of 2017 and that's the first should help us with the some guidance about it.

Got it and then finally just wondering to follow-up on the supply chain you talk last time about having assurance to supply and what do you see in a supply chain wise not going forward?

It wasn't so simple to shorten that supply chain the time to take the products from Asian and put in on a bolt hasn't changed and customs are still two week. We get the factors to move a little bit quicker on some of their production and they've change over Chinese New Year for a month the supply product.

[Operator Instructions] From D.A. Davidson will move back to Andrew Burns.

In terms of your go-forward tax rate comments about a 600 basis points potential reduction there, can you just give us what is the base level run rate was excluding sort of onetime items? I know in '16 excluding onetime items it's about 25% and principally on the reported number is lower, of '17, so what's sort of the starting point in that reduction?

I'll turn that over to Paul.

Well the global mix changes from year-to-year and in 2017 that effective rate was 23% so with 25% in 2016, and without the tax cuts it would have been 28% approximately 28%, in 2018, based on my projected mix and with the tax cuts that would be 22%.

And then just a follow-up on the success you're seeing at DMT, it looks like a great product launch schedule at the SHOT show there, you mentioned strengthened Europe, just probably thinking about the growth opportunities for DMT given the plethora of new products coming to the market?

Let me explain some of these new products which we did introduce at the SHOT Show. There's a new line of highly accurate sharpeners that are electronic and that sharpened vibration as the blades go through the sharpener and as a result you have minimal blurring at the microscopic level on the clean edges, and then of course they are diamond based and we can -- so you get a very-very sharp and consistent cut. These were very well received in the hunting area but it's a lot broader then just hunting and later fishing. These are to be consumerized and be sold, into mass markets retailers. DMT has strong margins, it had growth last year, we have gained additional business in 2018 at couple of very large retailers in the U.S., Europe is growing online as well as through industrial, mostly it's industrial distribution and we are adding about a third of capacity to parts of that facility, now, and if we do -- hopefully we can do, that will be enough, so it's broadened.

Moving on we will move back to the line of Jeff Briggs with Singular Research.

I've got a follow-up, so Walter, regarding -- and maybe you said this and I missed it, what is the magnitude or the percent of total revenue now online and on this metric, does that include Walmart are they still an important customer and what is the magnitude of sales in Walmart?

Well let me start with Walmart, Walmart's an outstanding company from my view. And the work they are doing online has the potential I think to [indiscernible] some real competition relative to its size, Walmart's as of last year was our largest customer and growing customer. That's a contract with some other retailers which haven't main as aggressive in their online efforts. We are supporting the online business at Walmart in many, many different ways and including our -- in many, many different ways. And I think that we will continue to solid and really starting growth there. Relative to the percent I don't know that number right now and it's a definitional issue because example Ranger has online sales so the Staples and office [seafood] and when you start adding those in if you can break them out. There will be fairly sizable piece. The pure online retailers like Amazon are in excess of 10% of our sales right now.

Moving on from Longport Partners we have Richard Dearnley.

You said you were going to add loosely a third of capacity at DMT. Do you have wrong numbers on the capacity increase in Spill Magic in First Aid?

That's getting pretty granular Rich, but particularly Spill Magic, if we wind up growing by a third or half it's less capital in terms of the DMT, when you are dealing with diamond coating and heavy high precision injection molding. Spill Magic is really more packaged and mixing. So it's easier to scale. But the new equipment that we put in, in Nashville was for growth in the retail and into the online sales. All of which we don't know how much that is but they are running pretty hard right now. With First Aid we have done some new business at very large industrial distributor which will ship either at the end of the first quarter or second and then continuing and we will also gain a very large food service distributor pilot program that is pretty substantial. So First Aid capacity is expanding and we have full capacity pretty much in Vancouver Washington. We are expanding in our facility in Rocky Mountain North Carolina.

And then Paul, what was CapEx in '17 and then -- do you have a guess sort of '18?

Projecting now 2.9 for '18, it was 3.2 in '17.

Then you mentioned that from the promotions in the fourth quarter and e-commerce and I've realized promotions taking many different forms, hurt the gross margins by 200 basis points or most of the 200 basis points. But if you look at -- as you see online, the online business now or better I guess in the future. Online business, most people are saying the gross margin is less. The SG&A is also less. And how does the op margin then shake out?

I don't have those exact numbers to share with you.

Okay.

But the answer on the promotions in the fourth quarter, Black Friday is one of the major, major promotional points for online and retailers. And for the online retailers there are lots of best prices all year and it wasn't on one day it's like five weeks. But it's -- that period is lower margins, the lowest, do you ever going to have on your products?

Walmart made a point on their fourth quarter saying we've got too much online inventory we didn't have enough in the stores, getting this right is very difficult and everyone is feeling their way along, and fair to say probably I'd like the investment business, you learn these lesions by costing you money I understand it's tough.

No, it's a change in the paradigm, and it's exciting. I mean we're playing and gaining market share. It has huge arena. And it's was the some customers who were just shining compared to many of the retailers who were struggling. And that shifts from retailer to online and then getting it right. If it's huge opportunity that's why we're putting the promotions and that's why we are hiring the staff, and that's why we are upgrading North Carolina to handle it, and I can't think of a more exciting time to be running Acme than right now.

And will move back to Jeffrey Matthews with RAM Partners.

Walter, I didn't hear any mention of sales and China gives us in Asia maybe I missed it. What's going on there sales wise rather than cost of goods wise?

Well, we do sell out of our Hong-Kong losses into Australia and New Zealand, Korea, Taiwan, Japan, Indonesia it's about a $1 million it's small, it's growing, it's profitable, and it's consolidated with the U.S. operations. So we don't break it out, but it's a very good piece of business, and it's profitable. In China, itself we sold for a while and we have trouble collecting few years ago, and finally that has started as we decided as a team that maybe that was the best market for us, it wasn't a great deal and we just shifted to the more the other countries in Southeast Asia.

And gentlemen at this time, it appears we have no further questions from the audience.

Well, then this call is complete. We look forward with speaking with you again after we release first quarter earnings in April, when we will also provide guidance for 2018. Thank you for participating and good bye.