Alpha Pro Tech(APT) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The unaudited condensed consolidated financial statements for the period ended September 30, 2023, show total assets of $64.6 million, a slight decrease from year-end 2022, with net sales of $46.0 million and net income of $3.1 million for the nine months ended Condensed Consolidated Balance Sheets As of September 30, 2023, total assets were $64.6 million, a slight decrease from $64.8 million at December 31, 2022, driven by a decrease in inventories offset by an increase in cash and cash equivalents Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $18,163,000 | $16,290,000 | | Inventories | $21,526,000 | $24,397,000 | | Total current assets | $52,687,000 | $52,562,000 | | Total assets | $64,611,000 | $64,803,000 | | Liabilities & Equity | | | | Total current liabilities | $1,982,000 | $2,406,000 | | Total liabilities | $3,220,000 | $4,045,000 | | Total shareholders' equity | $61,391,000 | $60,758,000 | | Total liabilities and shareholders' equity | $64,611,000 | $64,803,000 | Condensed Consolidated Statements of Income For Q3 2023, net sales increased 9.0% year-over-year to $16.1 million, driving net income up 184.3% to $1.4 million, while nine-month net sales decreased 7.6% to $46.0 million, with net income increasing 15.1% to $3.1 million Q3 2023 vs Q3 2022 Performance (Unaudited) | Metric | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Net sales | $16,053,000 | $14,722,000 | +9.0% | | Gross profit | $6,035,000 | $4,818,000 | +25.3% | | Income from operations | $1,423,000 | $647,000 | +119.9% | | Net income | $1,430,000 | $503,000 | +184.3% | | Diluted EPS | $0.12 | $0.04 | +200.0% | Nine Months 2023 vs 2022 Performance (Unaudited) | Metric | Nine Months 2023 | Nine Months 2022 | Change | | :--- | :--- | :--- | :--- | | Net sales | $45,967,000 | $49,756,000 | -7.6% | | Gross profit | $17,123,000 | $16,872,000 | +1.5% | | Income from operations | $3,161,000 | $3,890,000 | -18.7% | | Net income | $3,128,000 | $2,718,000 | +15.1% | | Diluted EPS | $0.26 | $0.21 | +23.8% | Condensed Consolidated Statements of Shareholders' Equity Shareholders' equity increased from $60.8 million at year-end 2022 to $61.4 million as of September 30, 2023, primarily driven by net income partially offset by common stock repurchases - For the nine months ended September 30, 2023, the company repurchased and retired 724,110 shares of common stock for a total cost of approximately $2.98 million[14][15] - Net income of $3.13 million for the first nine months of 2023 increased retained earnings[14] Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, net cash provided by operating activities was $4.9 million, a significant improvement from the prior-year period, resulting in a net increase in cash of $1.9 million Cash Flow Summary (Nine Months Ended Sep 30) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $4,929,000 | $2,331,000 | | Net cash used in investing activities | ($487,000) | ($349,000) | | Net cash used in financing activities | ($2,569,000) | ($2,772,000) | | Increase (decrease) in cash | $1,873,000 | ($790,000) | - The primary use of cash in financing activities was the repurchase of common stock, amounting to $2,979,000 in the first nine months of 2023[19] Notes to Condensed Consolidated Financial Statements The notes detail the company's business segments, revenue recognition policies, and significant transactions, including an investment in an unconsolidated affiliate and an ongoing lawsuit to recover a $490,000 deposit - The company operates in two segments: Building Supply (construction weatherization products) and Disposable Protective Apparel (garments, masks, shields)[22][23] - The company has a 41.66% ownership interest in Harmony Plastics Private Limited, a joint venture in India that manufactures building products and disposable apparel[40] - A lawsuit was filed to recover $490,000 paid for equipment that was never delivered. The amount has been written off, and any potential recovery is a gain contingency[73] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 9.0% consolidated sales increase in Q3 2023 to a record quarter in the Building Supply segment, which offset a decline in the Disposable Protective Apparel segment, with improved gross profit margins due to lower freight costs Results of Operations Q3 2023 sales rose 9.0% year-over-year to $16.1 million, driven by a 19.2% increase in Building Supply sales, partially offset by a 10.0% decrease in Disposable Protective Apparel sales, with gross margin improving to 37.6% Sales by Segment - Q3 2023 vs Q3 2022 | Segment | Q3 2023 Sales | Q3 2022 Sales | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Building Supply | $11,449,000 | $9,604,000 | +$1,845,000 | +19.2% | | Disposable Protective Apparel | $4,604,000 | $5,118,000 | -$514,000 | -10.0% | | Consolidated | $16,053,000 | $14,722,000 | +$1,331,000 | +9.0% | - Building Supply segment had a record sales quarter, with housewrap sales increasing 25.7% despite a 6.0% decrease in U.S. housing starts, indicating market share gains[92][93] - Disposable Protective Apparel sales declined due to a 60.6% decrease in face mask sales and a 73.8% decrease in face shield sales, attributed to residual excess inventories from the pandemic[96][97] - Gross profit margin improved to 37.6% in Q3 2023 from 32.7% in Q3 2022, positively affected by lower ocean freight rates[101][102] Liquidity and Capital Resources The company's financial position remains robust, with cash and cash equivalents increasing to $18.2 million and working capital at $50.7 million, supported by healthy cash flow from operations and continued stock repurchases - As of September 30, 2023, the company had cash of $18,163,000 and working capital of $50,705,000[117] - Net cash provided by operating activities for the nine months ended September 30, 2023 was $4,929,000, primarily driven by net income and a significant decrease in inventory[117][118] - During the first nine months of 2023, the company repurchased 724,110 shares of common stock for $2,979,000. As of September 30, 2023, $1,217,000 was available for future repurchases[123] Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, Alpha Pro Tech, Ltd. is not required to provide this information - The company is a smaller reporting company and is not required to provide the information otherwise required by this Item[126] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of September 30, 2023, concluding they were effective at a reasonable assurance level with no material changes to internal control over financial reporting - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2023[130] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[131] PART II. OTHER INFORMATION Legal Proceedings The company is pursuing a lawsuit filed in June 2022 against vendors for failing to deliver equipment for which the company paid $490,000, seeking compensatory damages and lost profits, with the deposit written off as a gain contingency - The company filed a lawsuit seeking compensatory damages of $490,000 for equipment ordered but never delivered[132] - The $490,000 balance has been written off as of September 30, 2023, and the final outcome of the lawsuit is uncertain[132] Risk Factors There have been no material changes to the company's risk factors from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022 - There have been no material changes to the risk factors previously disclosed in the 2022 Form 10-K[134] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2023, the company repurchased 249,110 shares of common stock for approximately $1.03 million under its expanded share repurchase program, with $1.22 million remaining available Issuer Purchases of Equity Securities (Q3 2023) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2023 | 56,600 | $3.93 | | August 2023 | 48,600 | $4.00 | | September 2023 | 143,910 | $4.33 | | Total Q3 | 249,110 | $4.13 | - On June 22, 2023, the Board of Directors authorized a $2,000,000 expansion of the existing share repurchase program[135] - As of September 30, 2023, $1,217,000 was available for repurchase under the plan, which expires on December 15, 2024[135] Exhibits This section lists the exhibits filed with the Form 10-Q, including the CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and the Interactive Data Files (101, 104)