Alpha Pro Tech, Ltd. — Q3 2021 Form 10-Q
Business and period: Unaudited results for the three and nine months ended September 30, 2021, compared with the same 2020 periods. The company sells building weatherization products and disposable protective apparel, including masks and face shields.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $14.475 million | $30.027 million | $55.442 million | $73.681 million |
| Gross profit / margin | $4.942 million / 34.1% | $15.136 million / 50.4% | $20.353 million / 36.7% | $36.303 million / 49.3% |
| Operating income / margin | $849,000 / 5.9% | $10.370 million / 34.5% | $7.081 million / 12.8% | $22.521 million / 30.6% |
| Net income / diluted EPS | $766,000 / $0.06 | $8.107 million / $0.58 | $6.156 million / $0.45 | $19.668 million / $1.41 |
| Operating cash flow | Not separately stated in the filing text | Not separately stated in the filing text | $421,000 | $17.038 million |
For Q3, sales fell 51.8% year over year; for the first nine months, sales fell 24.8%. Apparel sales declined 80.3% in Q3 and 46.6% year to date, as pandemic-driven mask and shield demand receded. Building Supply sales rose 31.4% in Q3 and 24.4% year to date, with Q3 reaching a segment record. The filing attributes the weaker profit and margins primarily to lower apparel sales and mix, as well as higher freight, transportation and raw-material costs. Apparel garment sales also faced elevated channel inventory in Q3.
Liquidity, balance sheet and capital allocation
- At September 30, cash was $17.636 million, total current assets were $52.775 million, and current liabilities were $3.029 million. Working capital was $49.746 million and the current ratio was 17:1.
- Total liabilities were $5.286 million, including $2.926 million of operating lease liabilities. The filing reports no outstanding borrowings; its former $3.5 million credit line expired in May 2020 and was not renewed.
- Cash declined $5.656 million from year-end 2020. Nine-month cash flows included $2.391 million used in investing, mainly equipment purchases, and $3.686 million used in financing, mainly $4.077 million of share repurchases.
- Inventory increased $6.441 million to $23.190 million. Capital investment commitments for Building Supply capacity were approximately $4.0 million, of which $2.450 million had been paid by September 30.
Outlook, risks and notable items
Management expects mask and face-shield sales to move toward pre-pandemic levels and anticipates growth in pre-pandemic demand for protective garments and continued Building Supply growth. It cautions that garment sales may be affected by above-historical channel inventory. Building Supply demand could be hurt by housing-market weakness or supply constraints affecting other construction components. Management described demand for Building Supply products as strong and expected added equipment capacity to support production; a delayed major equipment delivery was expected to arrive late in Q4 2021 and become operational in Q1 2022.
The company stated that COVID-19’s future effects remain uncertain, including the impact of variants and evolving economic conditions. Other cited risks include supplier and international manufacturing exposure, customer concentration, competition, new-product acceptance, and information-security and legal risks. Raw-material and freight cost increases may outpace sales-price increases. Management said current cash should cover projected working capital and planned capital expenditures for the foreseeable future. A nonrecurring estimated $2.0 million tax benefit boosted the comparable 2020 nine-month results; the filing reports no material subsequent events and no material changes to previously disclosed risk factors.
Key facts for investors to verify
- Whether PPE demand and channel inventory continue to normalize, and the resulting effect on apparel revenue and margins.
- Whether Building Supply growth persists and the delayed capacity equipment becomes operational as expected.
- Whether freight and raw-material cost pressures ease or continue to compress margins.
- How inventory growth and low year-to-date operating cash generation affect liquidity and cash conversion.
- Related-party exposure to Harmony, including $19.979 million of nine-month inventory purchases and the $6.172 million equity investment.