Mace to launch intrusion line

Declares it's committed to being a public company
Thursday, November 19, 2009

HORSHAM, Pa.—Mace Security International has changed a great deal since the hiring of CEO Dennis Raefield just over a year ago. In that time, the company has purchased central station CSSS, launched an access control line, and revamped its surveillance line to reduce returns and maximize gross margin. The newest change was announced in an investor call on Wednesday: Mace will be launching an intrusion panel line in the first quarter of 2010.

Raefield said it would be a full-featured panel line, with products aimed at the high-end commercial space, residential, even the DIY market. He said the company was working with a European manufacturer to “bring something that isn’t here yet, but is already UL-approved,” for the commercial space. And for the residential panels “we’ll be partnering with an American company that wants to do private labeling.” A third company will supply “a DIY panel for Internet sales” direct to the consumer.

Why intrusion?

“We have 360 dealers [at Mace CSSS] that are buying somebody else’s panels right now,” Raefield reasoned, “plus 600 other dealers that are currently selling our video and access lines.” Now they’ll have three lines of Mace equipment available to them.

Raefield said the new panels won’t just be a “me, too” offering. “We’re trying to come up with some new panels, with additional interface features to allow the panels to communicate in new ways, so they’re talking to the home owners as well; video verification is built into them. We’re looking for more features. It will be something different than what’s available today.”

Thus far, Raefield’s plan to revamp Mace is working. And it’s not.

Because is tenure has coincided with the economic downturn, the company is seeing success in losses. For example, noted Greg Krzemien, Mace CFO, over the first nine months of 2009, the operating loss for the company was about $5.9 million, the same loss suffered in the first nine months of 2008. That’s “despite a 29 percent reduction in revenues.” They could hold steady, he said, because of an increase in gross margin from 25 percent last September to 31 percent in the most recent quarter.

“We contained the operating loss,” Raefield said. “That wasn’t my goal. The goal was to break even by the end of the year, but we did manage to stay the same.”

Much of the cost reduction has come in employees. There are 67 fewer people on the payroll this year, which represents almost $4 million in total savings, Raefield said. A recent commitment to an outside sales force has not borne fruit in the way he’d hoped, either. “They were ineffective with good people,” Raefield said, “and when you do that you have to change your strategy.”

The good news is that Mace is close to selling more of its car washes, which will result in a cash infusion of some $6 million, and should leave the company with little debt and as much as $10 million in the bank. That, along with a $35 million net operating loss that means the company won’t pay significant income taxes in the foreseeable future as long as it doesn’t change hands, means Mace is committed to being a public company, despite a general agreement that it is too small to suffer the burden of some $1.3 million in annual expenses related to being publicly listed.

“There’s been some question about whether the overhead burden of being public is too much,” Raefield allowed, but “our board is very committed to figuring a way to get that shareholder value back, rather than going private to hurt shareholder value. The plan is to continue to grow organically, but also to look at partnering so we can share that public cost ... We’re committed to staying public.”

With its cash in the bank, Mace may continue to be acquisitive, but only if the acquisition will add to the bottom line.

“The companies coming to us right now, they just want our cash,” Raefield said.