Good day and welcome to the Acme United Third Quarter 2026 Financial Results Conference Call. At this time, I would like to turn the call over to Walter Johnson, Chairman and CEO. Please go ahead, sir.

Good morning. Welcome to the Third Quarter 2026 Earnings Conference Call for Acme United Corporation. I'm Walter C. Johnson, Chairman and CEO. With me is Paul Driscoll, our Chief Financial Officer, who will first read a safe harbor statement.

Paul? forward-looking statements in this conference call, including, without limitation, statements related to the company's plans, strategy, objectives, expectations, intentions, and adequacy of capital and other 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, among others, those arising as a result of a challenging global macroeconomic environment characterized by continued high inflation, high interest rates, and the imposition of new tariffs or changes in existing tariff rates. In addition, we have experienced supply chain disruptions and we may experience these disruptions in the future. We are also subject to additional risks and uncertainties as described in our periodic filings with the Securities and Exchange Commission and in our current earnings release.

Thank you, Paul. Acme United had an excellent third quarter of 2026. Net sales were $58 million compared to $49.1 million in the third quarter of 2025, an increase of 18%. Net income was $3.4 million compared to $1.9 million in 2025, an increase of 80%. Earnings per share were $0.80 compared to $0.46, an increase of 74%. We received a tariff refund of $6 million, of which $4 million was brought into income offset by reserves for closure of our small DMT facility and variable compensation. The net impact was $1.2 million in pre-tax income and approximately $1 million in after-tax income. Excluding the $1 million net income, I'm sorry, excluding the $1 million, net income was $2.4 million compared to $1.9 million, an increase of 24%, and earnings per share were 55 cents compared to 46 cents, an increase of 20%. Our net sales in the United States increased 20% with strong sales in both the first aid and Westcott cutting tool segments. Our back-to-school sales were excellent. reflecting new promotional activity and strong sell-through in the mass market channel. The MiMedic acquisition performed as planned with net sales of $4 million in the quarter. The operating cash flow contribution was positive. The fourth quarter is expected to be seasonally strong in both sales and earnings. Our new business efforts in retail and industrial distribution are beginning to generate additional sales and we are building the momentum for 2027. The company introduced the latest smart compliance first aid kit in September at the National Safety Conference. This product includes integrated RFID technology and generates automatic replenishment orders for refills. Customer feedback has been encouraging and we plan to begin shipping in January 2027. At the beginning of 2026, we reviewed our sites, their potential for expansion, and where to allocate capital. We concluded that our DMT plant in Marlborough, Massachusetts did not have sufficient scale or capacity to be a long-term asset. Most of our production of DMT sharpeners had been outsourced to China in previous years, and production at the Marlborough site was not cost-effective. We will close the plant during the fourth quarter and have reserved $1 million. Savings are expected to be over $1 million annually beginning in January, 2027. The Spill Magic plant in Mount Pleasant, Tennessee that we opened in March, 2026 is now fully operational. It provides increased capacity that has resulted in growth of approximately 34% this year. We also installed highly automated production and filling equipment. It took about six months to complete the installation and we now have a very efficient plant that we believe is poised for future growth. Our international businesses performed well in the third quarter. In Europe, net sales increased 7% in local currency with strong earnings. Sales in Canada grew 12% in local currency. and we are projecting a solid fourth quarter of 2026. As we look into 2027, we have already booked new business in first aid and are seeing continued strength in our cutting tool business. There have been increases in shipping costs, freight expenses and inflation, which we are offsetting with improved efficiency from automation and new equipment. We've had strong cash generation in 2026, and our liquidity is excellent. We continue to review new acquisition opportunities. I'll now turn the call to Paul.

Acme's net sales for the third quarter were $58 million compared to $49.1 million in 2025, an increase of 18%. Excluding Mimetic, sales increased 10%. Sales for the nine months ended September 30, 2026, were $173 million compared to $149 million in the same period in 2025, an increase of 16%. Excluding Mimetic, sales increased 8%. Net sales in the U.S. segment increased 20% in the quarter. Excluding Mimetic, sales increased 10%. Sales increased 17% for the nine months and its 30th. Excluding Mimetic, sales increased 7%. The increases for both periods were driven by higher sales across all product lines. Net sales and local currency in Europe increased 7% in the third quarter and 15% for the nine months of 2026. The increases for both periods were partly due to the new line of cutting and sharpening tools. Also, Westcott and First Aid had solid performances. Net sales and local currency for Canada increased 12% in the quarter and 8% for the year to date, mainly due to higher sales of First Aid products. We received $6 million in IEPA tariff refunds and in the third quarter of 2026, recognized $4 million of the refund as a reduction of cost of goods sold. The remaining $2 million was recorded as an accrued liability in the balance sheet. In the third quarter, we also recorded $1 million of variable compensation expense related to the refund included in SG&A. Additionally, in the third quarter of 2026, cost of goods sold included $1.8 million of costs accrued related to closing our DMV sharpening facility. that income for the three and nine months ended September 30th, also benefited from approximately $400,000 of tax benefits resulting from stock option exercise. The gross margin was 45.3% in the third quarter of 2026 compared to 39.1% in 2025. The gross margin for the third quarter included the benefit of approximately 690 basis points from the tariff refund, partially offset by approximately 310 basis points related to the DMT closure costs. The gross margin was 42.6% for the first nine months of 2026 compared to 39.8% in 2025. Gross margin for the first nine months of 2026 included a benefit of approximately 230 basis points from the tariff refund partially offset by approximately 105 basis points related to the DMT closure costs. Excluding the impact from tariff refunds and the DMT closure, the gross margin as a percentage of sales increase for both periods was mostly due to the favorable mix from higher margin directly consumed by medical products. Estimated expenses for the third quarter of 2020 were $21.8 million at 37.6% of sales compared with $16.2 million at 33% of sales for the same period of 2025. SG&A for the first nine months of 2026 were 60.7 million or 35% of sales compared with 47.5 million or 32% of sales in 2025. The higher SG&A was primarily due to the addition of the MiMedic business. The higher percentage of sales was due to the higher amount of advertising needed for the direct-to-consumer MiMedic business. The third quarter also included $1 million of variable compensation related to the tariff refund. Net income for the third quarter of 2026 was $3.4 million or 80 cents per diluted share compared to net income of $1.9 million or 46 cents per diluted share in 2025, an increase of 80% in net income and 74% in earnings per share. Net income for the first nine months of 2026 was $9.5 million, or $2.29 per diluted share, compared to $8.3 million, or $2.03 per diluted share in the comparable period last year, increases of 14% and 13%. Now to the balance sheet, net debt increased from $23.1 million at September 30, 2025, to $29.5 and many others. During the 12-month period ended September 30th, we paid $14.5 million for the acquisition of the assets of MyMedic, distributed approximately $2.4 million in dividends, and purchased the cutting and sharpening line of products in Germany for $1.6 million. Additionally, we generated approximately $13 million in free cash flow, including $15 million

and Tariff Refunds. Thank you, Paul. I'll now open the call to questions.

Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys.

One moment, please, while we fall for questions. Thank you.

Our first question is from Jim Maroney with Singular Research.

Good afternoon, gentlemen. Thank you for taking my call. I have multiple questions all unrelated with one another. And I'll begin with just with regards to the tariff refund. If you could kind of just share some insight on how it goes about being calculated, I would greatly appreciate it with that. to go along with the tariff refund. I'm just trying to get a sense of your rationale for the decisions on closing the Marlboro plant and transferring that operation overseas. It seems like the U.S. segment has outperformed both Canada and Europe and it kind of goes against the grain with what other companies are doing by reinvesting in the U.S., in light of the tariffs. And so it just seems kind of against the grain of what other companies are doing. So I look forward to hearing your answers to that.

Okay, Jim. Those are good questions, and we appreciate them. The first is the tariff refund. How is it calculated? Well, the tariffs that we paid, we went back, because we were the importer of record, we went back to... and many more. Now, the rationale for closing Marlboro, that was a very difficult decision. It was the place where DMT started. It had modern equipment. But honestly, although there's a lot of push to buy American, and we support that, when the price of a product is just more expensive and many more. Good reception in the market is Chinese made. Other items that required expensive tooling in the United States could be done more cost effectively in China. So we produced it there. The net is it was a small plant and when you look at where you're going to put your resources, you put them where you have big value, not little. And so we closed it. Now, having said that, the rationale for production in the United States is a good one. As you may recall, we bought a plant in now-pleasant Tennessee to produce our Spill Magic production. There was a 12-acre facility, 78,000 square feet, room to double, modern air-conditioned. We bought it at a very, very good price of $6 million. We invested about a million and a half dollars in equipment brought that to be fully automated and went live this quarter. And incidentally, the DMT of the Spill Magic product line increased 34% year to date because we get out the capacity to make it and we have the capacity to grow. So when you compare two plants, you see why One was struggling. It made sense to use the best resources you can in China. The other is reinvest in the U.S. where you had real leverage. And that's what we did.

Okay, that's very good insight. Yeah, very good insight, Walter. Thank you for that. And so speaking of growth, where is the focus going forward then? Is it going to continue to be organic growth or will there be a little more focus on acquisitions later? like you have in the past. So where do you see your attention? Well, it's a combination.

We've looked at a lot of deals this year and we're continuing to evaluate them. You want them to be strategic. You want them to make a difference. And you want them to have a high likelihood of being successful. And so being a little choosy and taking some time makes sense. In the meantime, we are building that balance sheet. and that means we're not highly levering our company. The organic growth has been good. We're looking forward to, as I mentioned in the call, a solid fourth quarter and we're already booking business for 2027. So it's really a combination of both and I would expect sometime in the next 12 months there'll probably be another deal because every year we wind up doing at least one. but we're being careful.

And okay, if you're looking at growth and whether it's a deal or organically, is it more on the first aid side or on the cutting tool side? Where do you think your focus will be?

Well, both segments are very important to us. And if there's a good deal in the Westcott side, of course we'll buy it. and in the case of our German business last year we bought a direct-to-consumer business in the sharpening and cutting area and we'll continue to look at those for sure. The first aid business lends itself to consolidation. We are the consolidator and we're the natural buyer for many of our competitors and some of those that are a half step away and I would expect that There'll be other opportunities in that segment. And if you look long term, I think the first aid business has greater organic growth opportunities. And I think that given that it's 70% of our business, chances are it will continue to become increasingly important in the overall company. Excellent answer.

Thank you so much for that, Walter.

Sure.

Our next question is from Georgi Vashchenko with Freedom Brokers.

Good afternoon, and thank you for taking my question. You know that the back-to-school season was strong in this quarter. Could you elaborate on performance on the Westcott brand, particularly compared with the strong growth you saw in the second quarter? Thank you.

Yes. Well, the Westcott business... We have to be a little bit careful here because last year with the tariffs, the promotional business, that is the products that would be normally added as extras to a shelf or a planogram, all those promotional business was pretty much delayed or stopped by our customers because of the uncertainty of pricing that happened in April 2025. So the comparisons this year have the full effect of promotional activity. The buyers were able to use all the tools that they have in their toolkit. The merchants were doing a really good job, and we had product that was selling through. So we had a combination of easy comparisons, to be frank, but second, we truly did a good job with our renovation, and it worked.

Thank you. You're welcome.

Our next question is from Tim Call with Capital Management Corporation.

Congratulations on an excellent quarter. Thank you, Tim.

Looking at the accounts receivable up around 20% in the last 12 months and inventories up around 15% over the last 12 months, despite being adjusted lower. Do you think you'll be able to manage those lower if they were cut by 10%? You could lower your variable rate debt by 37%. So there's a lot of potential there. I know you've added the inventory to take advantage of some smart buys. How do you see those balances over the next 12 months?

The accounts receivable is a function of the sales increase. The sales increased 18%. That's why the receivables are up, I think you said, 20%.

On the inventory, when the war with Iran started, as you may recall, we thought it was not going to be short-term. We thought that it might cause product shortages, that there might be shipping cost increases. And we thought it might be wise to product now and hold it. And we consciously increased our inventory by about 8 to 10 million US dollars. And it was all the items that you would have in the A and B top selling products without Any issues with obsolescence or would they sell? Of course they would sell. These are the best items we had. Well, in retrospect, we were smart because there have been shortages. There have been price increases. The freight costs from China have tripled. There have been times when you simply can't get product, but we have it. It's been a very good insurance policy. On the other hand, as you point out, Tim, we're paying the marginal interest rates about 6% for us, so there's a cost to that. So far, it's been a good investment, and we have the ability to work it down. I'm optimistic that we'll find some clarity in both Iran and the Ukraine in the next year. And I'm also optimistic that we'll be able to convert some of that inventory back into cash. But we're being cautious right now because we could be wrong. It could get worse. But I personally think that we will bring it into cash during 2027, as I see it now.

Over the last five years there have been a lot of disruptions with back to school seasons and you're having a great one this year. Do you think that seasonality and that those sales and promotions have come back to a normalized state that should continue long term?

The Westcott business is particularly sensitive to retail and If things stay as they are right now, which is a reasonable, non-changing tariff environment, and I think that's over, then we would expect it would have normal promotions next year as well. And we're certainly having plenty of discussions right now about new business opportunities in the mass market. We're certainly getting our share of promotions for back to school for next year. and so yeah, I think it would be a pretty normal business. There's one caveat and that's that although we haven't seen it yet, maybe we won't see it, the consumer is being stressed and heating oil, gasoline, so many products, interest rates, mortgages, all these things impact their disposable income. And there is a sensitivity to that. But I think if that stays the same, then we're looking at a very good 2027 with the Westcott business as well as first aid. Great.

Thank you for all your hard work. Good job.

Thank you, Tim. Thank you for your support.

As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. Thank you. There are no further questions at this time. I'd like to hand the floor back over to Walter Johnsen for any closing remarks.

Well, if there are no further questions, this call is complete. I would truly thank you for joining us. Have a good day. Goodbye.

This concludes today's conference. You may disconnect your lines at this time. Thank you again for your participation.