Alpha Pro Tech, Ltd. — Q1 2022 Form 10-Q
Business and period: The company develops and sells building weatherization products and disposable protective apparel, including masks and face shields. This unaudited report covers the three months ended March 31, 2022, compared with the same 2021 period.
Financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $17.661 million | $23.161 million | Down 23.7% |
| Gross profit / margin | $6.442 million / 36.5% | $9.179 million / 39.6% | Profit down 29.8%; margin down 3.1 percentage points |
| Operating income / margin | $1.924 million / 10.9% | $4.403 million / 19.0% | Income down 56.3% |
| Net income / margin | $1.522 million / 8.6% | $3.719 million / 16.1% | Income down 59.1% |
| EPS, basic / diluted | $0.12 / $0.12 | $0.28 / $0.27 | Lower year over year |
| Operating cash flow | $(1.179) million | $(3.220) million | Cash used in both periods |
Segment performance: Building Supply sales rose 22.7% to $10.237 million, a quarterly record, led by housewrap, synthetic roof underlayment and other woven material. Disposable Protective Apparel sales fell 49.9% to $7.424 million as mask, face-shield and garment demand normalized from pandemic-related highs. Apparel sales were down despite masks and shields performing strongly relative to most quarters since Q1 2021.
Liquidity, capital and balance sheet
- Cash was $14.239 million at March 31, down $2.068 million from year-end. Working capital was $51.186 million; the current ratio was 27:1.
- Total assets were $67.769 million and total liabilities $4.328 million. The filing reports no borrowings; liabilities include $2.473 million of operating lease obligations.
- Operating cash use reflected a $3.814 million increase in accounts receivable, partly offset by lower inventory and prepaid expenses. Receivable days outstanding rose to 35 from 24 at year-end.
- Investing cash use was $133,000, primarily equipment purchases. Financing cash use was $756,000 for repurchases of 170,000 shares. The company had $1.322 million remaining under its repurchase authorization.
- The company has approximately $4.0 million committed to Building Supply equipment expansion. The delayed, most expensive equipment item has about $1.0 million remaining to be paid on delivery; management expected delivery in late Q2 2022 and operation in Q3.
Outlook, commentary and risks
- Management anticipated continued Building Supply growth in 2022, while noting recent retraction in new-home starts and re-roofing spending. It expected housewrap growth if construction remained high. No specific consolidated revenue or earnings guidance was provided.
- Management said pandemic-related apparel demand was normalizing; mask and shield sales were expected to remain above pre-pandemic levels in the short term, but duration was uncertain. Garment sales were affected by elevated channel-partner inventory, though open orders had improved.
- Freight, raw-material and labor cost inflation may pressure margins if costs rise faster than selling prices. Supply shortages and logistics delays could constrain production, deliveries and the planned capacity expansion.
- Other cited risks include COVID-19 and variants, customer concentration or order reductions, supplier and international-manufacturing reliance, housing-market weakness, competition, product acceptance, cybersecurity, legal and regulatory matters, and stock-price volatility. The filing reported no material changes to previously disclosed risk factors and no subsequent events requiring disclosure.
- Transactions with unconsolidated affiliate Harmony included $6.183 million of inventory purchases in the quarter; equity income from Harmony was $49,000, versus $322,000 a year earlier. The affiliate investment was $6.169 million at quarter-end.
Important facts for investors to verify
- Whether apparel demand and channel-partner inventory continue to normalize, and how that affects sales after the unusually strong 2021 comparison.
- Whether Building Supply growth persists amid housing and roofing-market conditions, and whether equipment delivery and ramp-up meet the revised schedule and budget.
- Whether freight, materials and labor costs continue to compress gross margin, and whether pricing can offset those pressures.
- Whether receivables convert to cash as expected, given the quarter’s increase and longer collection period.
- The pace of share repurchases and the company’s cash needs for planned capital spending. Management stated existing cash and expected operating cash flow should cover projected working capital and planned expenditures for the foreseeable future.