Acme United Corp: Form 10-Q for the period ended Mar 31, 2026

Forward-Looking Information

The Company may from time to time make written or oral “forward-looking statements” including statements contained in this report and in other communications by the Company, which are made in good faith pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on our beliefs as well as assumptions made by and information currently available to us. When used in this document, words like “may,” “might,” “will,” “expect,” “anticipate,” “believe,” “potential,” and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from our current expectations.

Forward-looking statements in this report, 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 that may impact the Company’s business, operations and financial results.

These risks and uncertainties include, without limitation, the following: (i) changes in the Company’s plans, strategies, objectives, expectations and intentions, which may be made at any time at the discretion of the Company; (ii) the impact of volatility in global economic conditions, including the impact on the Company’s suppliers and customers; (iii) international trade policies of the United States or foreign governments and their impact on demand for our products and our competitive position, including the imposition of new tariffs, changes in existing tariff rates or the threat of any such action; (iv) potential adverse effects on the Company, its customers, and suppliers resulting from the wars in Iran and elsewhere in the Middle East and Ukraine; (v) the continuing adverse impact of inflation, including product costs, transportation costs and interest rates; (vi) additional disruptions in the Company’s supply chains, whether caused by pandemics, natural disasters, including trucker shortages, port closures, port strikes or otherwise; (vii) labor related costs the Company has and may continue to incur, including costs of acquiring and training new employees and rising wages and benefits; (viii) changes in client needs and consumer spending habits; (ix) currency fluctuations; (x) the Company’s ability to effectively manage its inventory in a rapidly changing business environment; (xi) the impact of competition; (xii) the impact of technological changes including, specifically, the growth of online marketing and sales activity; (xiii) the Company’s ability to manage its growth effectively, including its ability to successfully integrate any business it might acquire; ; and (xiv) other risks and uncertainties indicated from time to time in the Company’s filings with the Securities and Exchange Commission.

For a more detailed discussion of these and other factors affecting the Company, see the Risk Factors described in Item 1A included in the Company’s Annual Report on Form 10-K for the fiscal year December 31, 2025 and below under “Financial Condition”. All forward-looking statements in this report are based upon information available to the Company on the date of this report. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.

Critical Accounting Estimates

There have been no material changes to the Company’s critical accounting estimates as previously reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.

Results of Operations

Traditionally, the Company’s sales and profits are stronger in the second and third quarters and weaker in the first and fourth quarters of the fiscal year, due to the seasonal nature of the Westcott back-to-school market.

Net sales

Consolidated net sales for the three months ended March 31, 2026 were $52,301,000 compared to $45,958,000 in the same period in 2025, an increase of 14%. Excluding the incremental sales resulting from the acquisition of the assets of My Medic on January 15, 2026, comparable sales increased 6%.

Net sales in the U.S. for the three months ended March 31, 2026 increased 12% compared to the same period in 2025. The increase in net sales for the three months ended March 31, 2026 was primarily due to increased sales of first aid and medical products and additional sales resulting from the acquisition of the assets of My Medic.

Net sales in Canada for the three months ended March 31, 2026 increased 16% in U.S. dollars and 11% in local currency compared to the same period in 2025 due to higher sales of first aid products.

European net sales for the three months ended March 31, 2026 increased 32% in U.S. dollars and 19% in local currency compared to the same period in 2025 primarily due to higher ecommerce sales and additional sales resulting from the acquisition of the cutting and sharpening line of products on October 1, 2025.

Gross profit

Gross profit for the three months ended March 31, 2026 was $20,785,000 (39.7% of net sales) compared to $17,917,000 (39.0% of net sales) in the same period in 2025.

Selling, general and administrative expenses

Selling, general and administrative ("SG&A") expenses for the three months ended March 31, 2026 were $19,039,000 (36.4% of net sales) compared with $15,491,000 (33.7% of net sales) in the same period in 2025, an increase of $3,548,000. The increase in SG&A expenses was primarily due to the acquisition of the assets of My Medic as well as higher personnel related expenses.

Operating income

Operating income for the three months ended March 31, 2026 was $1,746,000 compared with $2,426,000 in the same period of 2025.

Operating income in the U.S. segment decreased by $1,320,000 for the three months ended March 31, 2026 compared to the same period in 2025. The decrease in operating income for the three months ended March 31, 2026 was primarily due to higher cost of sales and increased operating expenses as a result of higher tariff-related costs and investments in enhanced quality assurance protocols at the Med-Nap facility, together with rising employee healthcare expenses. Tariff expenses were recognized during the first quarter as the Company sold inventory that had been subject to the high tariff rates imposed in 2025.

Operating income in the Canadian segment increased by $206,000 for the three months ended March 31, 2026, compared to the same period in 2025. The increase in operating income for the three months ended March 31, 2026 was primarily due to higher sales of first aid products.

Operating income in the European segment increased by $434,000 for the three months ended March 31, 2026, compared to the same period in 2025. The increase in operating income for the three months ended March 31, 2026 was primarily due to higher sales.

Interest expense, net

Interest expense, net for the three months ended March 31, 2026 was $486,000 compared with $397,000 in the same period of 2025, an $89,000 increase. The increase in interest expense for the three months ended March 31, 2026 resulted from higher average outstanding borrowings partially offset by lower average interest rates on the debt outstanding.

Other income (expense), net

Other expense, net was $16,000 in the three months ended March 31, 2026 compared to other income of $90,000 in the same period of 2025.

Income taxes

The effective income tax rate for the three months ended March 31, 2026 was 21% compared to 22% in the same period of 2025.

Financial Condition

Liquidity and Capital Resources

During the first three months of 2026, working capital increased approximately $9.2 million. Inventory turnover, calculated using a twelve-month average inventory balance, was 2.0 at March 31, 2026 and December 31, 2025. Receivables increased approximately $4.4 million at March 31, 2026 compared to December 31, 2025. The average number of days sales outstanding in accounts receivable was 51 days at March 31, 2026 compared to 54 days at December 31, 2025. Accounts payable and other current liabilities increased by approximately $0.3 million at March 31, 2026 compared to December 31, 2025.

The Company's working capital, current ratio and long-term debt to equity ratio are as follows (dollar amounts in thousands):

Long-term debt consists of (i) borrowings under the Company’s revolving loan agreement with HSBC Bank, N.A. and (ii) amounts outstanding under the fixed rate mortgage on the Company’s manufacturing and distribution facilities in Rocky Mount, NC and Vancouver, WA. Effective as of June 26, 2025, the Company entered into Amendment No. 11 to the Loan Agreement. Amendment No. 11 extends the scheduled maturity of the $65 million dollar secured revolving credit facility under the Loan Agreement to May 31, 2027. The Loan Agreement provides for borrowings of up to $65 million, at an interest rate of SOFR plus 1.75%; interest is payable monthly. The Loan Agreement has an expiration date of May 31, 2027. The Company must pay a facility fee, payable quarterly, in an amount equal to one eighth of one percent (.125%) per annum of the average daily unused portion of the revolving credit line. The facility is intended to provide liquidity for operating activities, growth, acquisitions, dividends share repurchases and other business activities. Under the revolving loan agreement, the Company is required to maintain specific amounts of funded debt to EBITDA, a fixed charge coverage ratio and must have annual net income greater than $0, measured as of the end of each fiscal year. As of March 31, 2026, the Company was in compliance with the covenants under the revolving loan agreement as then in effect.

During the first three months of 2026, total debt outstanding under the Company’s revolving credit facility increased by approximately $21.2 million, compared to total debt thereunder at December 31, 2025. As of March 31, 2026, $33,034,000 was outstanding and $31,966,000 was available for borrowing under the Company’s credit facility.

On January 15, 2026, the Company acquired the assets of SLED Distribution, LLC. (d/b/a "My Medic") a leading supplier of tactical, trauma and emergency response products sold primarily through the direct-to-consumer channel, for approximately $18.7 million,

On July 15, 2025, the Company purchased a manufacturing and distribution center in Mt. Pleasant, TN for approximately $6.0 million. The property consists of 77,000 square feet of manufacturing and warehouse space on 12 acres and is designed to be expanded by up to an additional 60,000 square feet. The facility is used primarily to manufacture our Spill Magic line of bodily fluid and spill clean up solutions.

The Company’s manufacturing and distribution facilities in Rocky Mount, NC and Vancouver, WA were financed by a fixed rate mortgage with HSBC Bank, N.A. at a rate of 3.8%. The Company entered into the mortgage loan agreement on December 1, 2021. Payments of principal and interest are due monthly, with all amounts outstanding due on maturity on December 1, 2031. At March 31, 2026, there was approximately $9.9 million outstanding on the mortgage.

Our operations, supply chains, and financial performance are impacted by evolving global trade policies and tariffs, and geopolitical tensions and wars, including ongoing conflicts and instability in the Middle East. In particular, our global operations and international sales expose us to risks associated with trade conflicts between the United States and other governments, as well as broader regional instability in the Middle East that can disrupt global shipping routes and energy markets. These factors have resulted in and could continue to result in inflationary costs to produce and sell our products, both domestically and in foreign markets.

The higher tariff expenses during the first quarter of 2026 resulted from the Company selling inventory that had been subject to high tariff rates imposed in 2025. We expect that the impact of tariffs on the Company will gradually lessen over the balance of 2026 as the Company begins to sell inventory subject to lower tariffs set in November 2025 and February 2026. In addition, we have commenced purchasing a total of approximately $10 million of inventory for delivery in the second and third quarters of 2026 to mitigate the potential shortages or price increases as a result of the war in Iran or other regional conflicts.

We have been actively diversifying our supply base for many years and source products and components in a number of countries. A significant portion of the products we sell (and components used in our products) are sourced from suppliers located in China. The United States government has imposed, and may continue to impose or adjust, significant tariffs on a range of Chinese goods. These tariffs have increased our costs of goods sold and could further escalate depending on changes in trade policy, negotiations, or retaliatory measures by China or by other countries similarly impacted. The indirect impact on demand for our products as a result of these developments has become more uncertain. The Company has taken and continues to take steps to mitigate the potential impact on our business and operations through strategic sourcing adjustments, price adjustments and supply chain diversification, but such efforts have not been able to fully mitigate the effects of the imposition of tariffs and related developments. Any further increases of existing tariffs, the imposition of new tariffs, the potential modifications to existing trade agreements, new restrictions on free trade and the responses by other governments to changes in trade policy by the United States may further adversely impact demand for our products, increase our costs, and disrupt our supply chain. These risks, in turn, could have a material adverse effect on our business, results of operations, and financial condition.

The Company believes that cash generated from operating activities, together with funds available under its revolving loan agreement, will, under current conditions, be sufficient to finance the Company’s operations over the next twelve months from the filing of this report.

(a) Evaluation of Internal Controls and Procedures

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of March 31, 2026. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective.

(b) Changes in Internal Control over Financial Reporting

During the quarter ended March 31, 2026, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

See Risk Factors set forth in Part I, Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2025.