Mace Security International, Inc. (PNK:MACE) Q3 2023 Earnings Call Transcript

Mace Security International, Inc. (PNK:MACE) Q3 2023 Earnings Call Transcript November 16, 2023

Operator: Ladies and gentlemen, thank you for standing by and welcome to the Mace Security International Third Quarter 2023 Earnings Call. Currently, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would like to now hand the conference over to your first speaker, Mr. Rem Belzinskas. Please go ahead sir.

Remigijus Belzinskas: Thank you, Maddy and good afternoon. Joining me on the call today is Sanjay Singh, the Chairman and Chief Executive Officer of Mace. Please visit corp.mace.com under Newsroom, where you can find additional materials, including the Q3 2023 financial statements, and the OTC quarterly report for the third quarter ended September 30th, 2023, as well as our Q3 2023 financial overview presentation. Before proceeding, I would like to point out that certain statements and information in this conference call may constitute forward-looking statements and are based on management's expectations and information currently in the possession of management. When used during our conference call, the words or phrases such as will likely result, are expected to, will continue, is anticipated, estimated, projected, and intended to or similar expressions are intended to identify forward-looking statements.

A security guard patrolling a defense facility, protecting critical technologies.

Such statements are subject to certain risks known and unknown, and uncertainties, including, but not limited to, economic conditions, limit of capital resources, and disruptions in domestic, international supply chains. Such factors could materially adversely affect Mace's financial performance. It could cause Mace's actual results for the future periods to differ materially from any opinions or statements expressed during this call. I will now turn the call over to Sanjay for some comments about the third quarter.

Sanjay Singh: Thank you, Rem. Good afternoon. The third quarter was very, very challenging. While Q2 2023 sales were slightly higher than Q1 2023 sales, that trend did not continue in Q3. Sales decreased across the base business and retail channels. The feedback that we received is that consumers have scaled back purchases. Net sales declined by approximately $1.7 million, $1 million or 40.2% when compared with Q3 2022 and 10% when compared to Q2. Most of the decreases year-over-year were driven by lower revenues from two customers and the remaining decreases from our base business. The decrease versus Q2 were mostly the result of a significant back-to-school order from one of our customers in that quarter. Net sales for the third quarter of 2023 also reflect the impact of the loss of one significant customer, which accounted for $306,000 of the sales decrease in the third quarter of 2023.

Sales increased by 43% on the company's e-commerce platform, which partially offset some of the overall sales decrease. Over the last couple of quarters, in light of the slowness in organic business, we accelerated our focus to drive new business, both from new customers and new products and services. We started our partnership with US LawShield and Legal Heat earlier this year to provide both online and in-person non-lethal safety training. The program was officially launched on November 1st and to-date, we have received inquiries from large cities transportation department that would like to train 1,000 of their employees, head of college campus security, health care facilities, as well as inquiries from civilians. We expect to see a healthy demand for the service.

We're running marketing campaigns to move our mobile pepper spray with our F3 Defense partners. We're also working on a new type of pepper spray design that will be priced in the $70 to $80 range that would be suited for higher price point retailers. Additionally, we are working on another co-branded product that will cater to the hospitality and school and college segment. Lastly, we're in the final stages of launching a new product just co-branded that will be in a completely new segment in the non-lethal space. Back to the financials. The adjusted EBITDA loss was $318,000 for the quarter ended September 30th, 2023 compared with adjusted EBITDA income of $124,000 in the quarter ended September 30th, 2022. We lowered SG&A costs in Q3 2023 by 9% when compared to the same period in the prior year.

On October 20, 2023, we closed a three-year $2 million line of credit for the commercial asset-based lender. Given the drastic drop in sales, we have identified further cost reductions to drive to a breakeven EBITDA as well as to convert excess inventory to cash. I will now turn the call over to Rem to comment on the third quarter 2020 financial results.

Remigijus Belzinskas: Thank you, Sanjay. Our third quarter 2023 net sales were approximately $1.5 million, a 40% decrease from $2.5 million in our third quarter sales of 2022. Retail sales decreased 67.6%, International sales increased 41%, business-to-business sales decreased 74%, and our e-commerce platform sales increased 43% compared with the same period in 2022. Gross profit for the third quarter 2023 decreased $511,000 or 53% from our third quarter 2022 results. Our margin rate in the third quarter of 2023 was 30%, down eight points from a margin rate of 38% for the same quarter of 2022. Margins in the third quarter of 2023 -- over the third quarter 2022 due to decreased sales volume; unfavorable channel sales mix, higher component costs due to inflation, and lower plant efficiencies.

SG&A expenses for the third quarter 2023 decreased by $59,000 to approximately $1 million or 69% of net sales. The decrease in SG&A expenses is attributable to a $46,000 reduction in salaries and related benefits, $53,000 decrease in advertising expense, partially offset by a $42,000 increase in e-commerce platform fulfillment costs due to higher e-commerce platform sales. Our lower sales volume and higher manufacturing costs resulted in a net loss for the quarter of about $771,000, which was down from our net loss of $233,000 in the third quarter of 2022. Third quarter adjusted EBITDA was a loss of $318,000, down $442,000 from an adjusted EBITDA income of $124,000 in the third quarter of 2022. The decline in the bottom-line is primarily attributable to lower revenues.

Our line of credit borrowing stayed constant during the third quarter of 2023 at $1.5 million. Cash increased to $754,000 at September 30th, 2023 compared with cash of $62,000 at December 31st, 2022, primarily due to the closing of a $590,000 convertible debt offering on July 27th, 2023. As we've mentioned previously with the supply chain delays experienced in 2021 and early 2022, we had inventory orders that were in progress and could not be halted without a financial cost implications on future inventory order fulfillment. As such, we continue to have a lot of our cash tied up in convertible and salable inventory. Inventory decreased by $130,000 compared to December 31st, 2022. Inventory increased nominally during the third quarter of 2023 compared with the balance at the end of the second quarter of 2023 due to the company converting components into readily marketable finished goods during the third quarter of 2023.

I'll now turn the call back to Sanjay for some additional comments before we take questions.

Sanjay Singh: Thank you, Rem. The results, as you can see, are extremely disappointing. However, we are focusing our efforts on new business opportunities and are targeting $13.1 million of new business in the next few quarters. For additional details, you can find this in our investor deck on our website from corp.mace.com. Two of those retailers have expressed a very strong interest in carrying our products. The revenues from these new opportunities will be key to our financial results. We're going to be laser-like focused on these initiatives. A quick reminder. We will not address or respond to any questions pertaining to our ongoing strategic alternatives project. The company has retained financial and legal advisers to assist with this process.

At this time, I will stop and open the lines for questions. I would ask each caller to limit themselves to one question with one follow-up to allow everyone a chance to participate. If we have additional time, we'll try to get you back into the queue. Maddy, please open the line for questions.

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