Raefield has work to do at Mace

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03/26/2009
Mace released their 2008 financials today. See for yourself. There's a lot there to wade through, so I'll give you some highlights (or lowlights, depends on your point of view): Security revenue has actually dropped each of the last three years. 20,788,000 - 2008 - 27.5 percent gross margin 22,278,000 - 2007 - 27.1 percent 23,366,000 - 2006 - 25 percent 24,909,000 - 2005 - 29 percent But you can see that they're headed back in the right direction on cost of sales and gross margin. Still, the overall numbers don't look good for the company yet. They took a net loss of more than $10 million on about $51 million in sales (though there's a $5 million goodwill charge in there that makes that look worse than it really is). While the company has lost about $6 million a year since 2004, and you could say this is right in line with that, there still aren't signs of Mace moving toward profitability, even with a new digital marketing arm that's bringing in more than $17 million. There are good signs, though. First, Mace has almost no debt, just over $6 million, which isn't much at all, especially in this economy. Second, the company still has more than $16 million in working capital, so there's cash on hand for operations and even possible small acquisitions, like that central station they've been talking about. Here's what they've got to say about the make-up of the security segment:
Our Security Segment designs, manufactures, markets and sells a wide range of products. The Company’s primary focus in the Security Segment is the sourcing and selection of electronic surveillance products and components that it produces and sells, primarily to installing dealers, system integrators, retailers and end users. Other products in our Security Segment include, but are not limited to, less-than-lethal Mace defense sprays, personal alarms, high-end digital and machine vision cameras and imaging components, as well as video conferencing equipment and security monitors. The main marketing channels for our products are industry shows and publications, outside sales representatives, catalogs, internet and sales through telephone orders. Revenues generated for the year ended December 31, 2008 for the Security Segment were comprised of approximately 35% from our professional electronic surveillance operation in Florida, 43% from our consumer direct electronic surveillance and machine vision camera and video conferencing equipment operation in Texas, and 22% from our personal defense and law enforcement aerosol operation in Vermont.
So, of that $20,788,000, roughly $7,275,800 is coming from the professional electronic security market and their dealer program. That's the number to watch going forward. In 2007 it was $7.8 million. In 2006 it was $9.1 million. Here's the explanation of the movement downward:
The decrease in revenues within the Security Segment in 2008 was due to several factors. The majority of the decrease in sales was from decreases in sales of our consumer direct electronic surveillance division, our professional electronic surveillance operation and our machine vision camera and video conferencing operation. Our Vermont personal defense operations sales remain consistent between years. The decrease in sales of our consumer direct electronic surveillance, machine vision camera and video conference equipment operations, and our professional electronic surveillance operation was due to several factors, including the impact on sales of increased competition and the impact of management’s completion of its consolidation of the Security Segment’s electronic surveillance equipment operations from Ft. Lauderdale, Florida to the Farmers Branch, Texas warehouse. The consumer direct electronic surveillance and professional electronic surveillance division had a decrease in sales due to a delay in introducing new product lines during 2008. In the latter part of 2008 sales also decreased due to a reduction in spending by certain of our customers impacted by the deteriorating economy.
I think 2009 will be a real bellwether for Mace. They've got the management in place, they've got a plan, and people are going to expect returns in 2009. They've yet to really be able to leverage their brand. We'll see if they can do that this year.

Comments

Full disclosure: I sell truckloads of Mace product, they have an excellent working partnership with my company (which I will identify here as Big & Huge Electronics Corp), and it is in my best interest to see them do well.

That said, I think that Mace should be fine. While other manufacturers are trashing their analog businesses and adding bells and whistles, Mace is concentrating on two areas: usability and reliabilty. Simplifying the DVRs until anyone- even end users- can use them, and improving their QC, will in the long run pay off much more than adding another megapixel to your IP camera line.

My customers love the heck out of the Mace DVRs, because they are incredibly simple to use. Name another DVR manufacturer with an interface that takes about 2 minutes to learn. Mace makes a good product, they are being agressive with their marketing and pricing, and I think they will survive the financiapocolypse.