What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-07 compared with 2024-08-08 · 127 added, 122 removed, 107 unchanged (70% of the section changed)

57 unchanged sentences

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

Ended September 30,

For the Nine Months

Ended September 30,

Selling, general and administrative expenses

1 unchanged sentence

Income before provision for income taxes

Three and Six months ended June 30, 2024 compared to Three and Six months ended June 30, 2023

Consolidated sales for the three months ended June 30, 2024, increased to $16,289,000, from $16,115,000 for the three months ended June 30, 2023, representing an increase of $174,000, or 1.1%.

This increase consisted of increased sales in the Disposable Protective Apparel segment of $770,000, partially offset by decreased sales in the Building Supply segment of $596,000.

Building Supply segment sales for the three months ended June 30, 2024 decreased by $596,000, or 5.7%, to $9,941,000 compared to $10,537,000 for the three months ended June 30, 2023.

The Building Supply segment decrease during the three months ended June 30, 2024, was primarily due to a 6.0% decrease in sales of synthetic roof underlayment and a 9.0% decrease in sales of housewrap, partially offset by an increase in sales of other woven material of 12.3%, compared to the same period of 2023.

The sales mix of the Building Supply segment for the three months ended June 30, 2024, was approximately 40% for synthetic roof underlayment, 48% for housewrap and 12% for other woven material.

This compared to approximately 40% for synthetic roof underlayment, 50% for housewrap and 10% for other woven material for the three months ended June 30, 2023.

Three and Nine months ended September 30, 2024 compared to Three and Nine months ended September 30, 2023

Consolidated sales for the three months ended September 30, 2024 , decreased to $14,251,000, from $16,053,000 for the three months ended September 30, 2023, representing a decrease of $1,802,000, or 11.2%.

This decrease consisted of decreased sales in the Building Supply segment of $2,651,000, partially offset by increased sales in the Disposable Protective Apparel segment of $849,000.

Building Supply segment sales for the three months ended September 30, 2024 decreased by $2,651,000, or 23.2%, to $8,798,000 compared to a record sales quarter of $11,449,000, for the three months ended September 30, 2023.

The Building Supply segment decrease during the three months ended September 30, 2024, was primarily due a 16.2% decrease in sales of housewrap, a 25.1% decrease in sales of synthetic roof underlayment, and a 27.2% decrease in sales of other woven material, each compared to the same period of 2023.

The sales mix of the Building Supply segment for the three months ended September 30, 2024 was approximately 46% for housewrap, 41% for synthetic roof underlayment and 13% for other woven material.

This compared to approximately 43% for housewrap, 43% for synthetic roof underlayment and 14% for other woven material for the three months ended September 30, 2023.

Our synthetic roof underlayment product line primarily includes REX SynFelt®, REX TECHNOply® TECHNO SB and our housewrap product line primarily consists of REX Wrap®, REX Wrap Plus® and REX™ Wrap Fortis.

Housewrap accessories consist of REXTREME Window and Door Flashing and REX™ Premium Seam Tape and our synthetic roof underlayment accessories consist of our new self- adhered TECHNOplus and REX Ultra HT.

The housing market continues to show weakness, with housing starts down 7.4% in the second quarter of 2024 compared to the prior year period.

Sales of our core building products, which include housewrap and synthetic roof underlayment, were down due to the decrease in housing starts in the second quarter of 2024 compared to the prior year period.

Our housewrap and accessories sales were down 9.0% in the second quarter compared to the prior year period, which were negatively affected by our premium housewrap line (REX™ Wrap Fortis) which was down 15.3% in the second quarter of 2024, because of a sharp decline in the multi-family building sector.

The synthetic roof underlayment market has also been affected by lower housing starts, uncertain economic conditions, more offshore competition and a push in the market to reduce product selling prices.

Despite these pressures, our synthetic roof underlayment sales performed reasonably well, with our economy underlayment, which makes up approximately 90% of our total underlayment sales, down only 0.5% in the second quarter of 2024 compared to the prior year period.

Our premium underlayment was down in the second quarter, as the market continues to move away from expensive premium underlayment products.

We launched our new line of self-adhered roofing products in late 2023, and we expect continued revenue growth from this new product line.

Self-adhered roof underlayment has proven to be a good addition to our roof category, and we expect these products will lead to additional conversions of our full line of mechanically fastened products.

Management is currently exploring the possibility of offering additional products such as roof deck flashing.

Alpha Pro Tech, Ltd.

Other woven material sales increased by 12.3% in the second quarter of 2024 compared to the same period of 2023, due to increased sales to our major customer.

The Company is pursuing new opportunities for other woven material sales that may improve sales, but management does not expect other woven material sales to be a growth driver in 2024.

Management expects the remainder of 2024 to be challenging from a sales standpoint as single family and multi-family housing starts are both projected to finish lower than 2023.

The housing market continues to show weakness, with housing starts down 4.0% in the third quarter of 2024 compared to the prior year period.

While sales in the third quarter of 2024 were lower than earlier quarters in the year, the performance of the core building products (housewrap and synthetic roof underlayment) for the full year of 2024 has been encouraging despite a number of headwinds.

During the first six months of 2024, housing starts trailed 2023 by 2.7% while our core building product sales remained nearly flat.

In the third quarter of 2024, our largest customers contributed to most of the decline but those customers, which represent a majority of our business, were up approximately 9% for the first six months of 2024.

In July 2024, housing starts were down 14.3%, leading to our largest customers reducing shipments and adjusting their inventory positions, resulting in decreased sales in the third quarter of 2024.

Despite the drop in housing starts in 2024, the percentage decline of sales to those large customers was lower than the percentage decline of housing starts.

Presenting an additional challenge in 2024, multi-family housing starts for the first nine months were down 30.5% compared to 2023 and the lowest in ten years.

Other woven material sales decreased by 27.2% in the third quarter of 2024 compared to the same period of 2023, due to decreased sales to a customer that was acquired by another company.

The Company is pursuing new opportunities for other woven material sales that may improve sales, but management does not expect other woven material sales to be a growth driver in the short term.

Management is encouraged for the remainder of 2024, as our robust inventory and plant location in Georgia will allow us to assist in the southeast rebuild after hurricanes Helene and Milton.

Since the first storm, we have seen a surge in synthetic roof underlayment orders, which we expect to have a positive effect on the fourth quarter of 2024.

We expect growth in the Building Supply segment when uncertainty in the housing market abates.

Disposable Protective Apparel segment sales for the three months ended June 30, 2024 increased by $770,000, or 13.8%, to $6,348,000, representing the highest quarter in two years, compared to $5,578,000 for the same period of 2023.

This segment increase was due to a 9.2% increase in sales of disposable protective garments, an 81.0% increase in sales of face masks and a 64.1% increase in sales of face shields.

The sales mix of the Disposable Protective Apparel segment for the three months ended June 30, 2024, was approximately 90% for disposable protective garments, 7% for face masks and 3% for face shields.

This sales mix is compared to approximately 93% for disposable protective garments, 5% for face masks and 2% for face shields for the three months ended June 30, 2023.

Sales of disposable protective garments in the second quarter of 2024 were up by 9.2%, primarily due to increased sales to our major international supply chain partner, as well as increased sales to regional and national distributors.

Alpha Pro Tech, Ltd.

Disposable Protective Apparel segment sales for the three months ended September 30, 2024 increased by $849,000, or 18.4%, to $5,453,000, compared to $4,604,000 for the same period of 2023.

This segment increase was due to a 6.9% increase in sales of disposable protective garments, a 124.3% increase in sales of face masks and a 204.5% increase in sales of face shields.

The sales mix of the Disposable Protective Apparel segment for the three months ended September 30, 2024, was approximately 82% for disposable protective garments, 13% for face masks and 5% for face shields.

This sales mix is compared to approximately 91% for disposable protective garments, 7% for face masks and 2% for face shields for the three months ended September 30, 2023.

Sales of disposable protective garments in the third quarter of 2024 were up by 6.9%, primarily due to increased sales to our regional and national distributors.

We expect continued growth for disposable protective garments in the remainder of 2024.

Face mask and face shield sales are still suffering from the post COVID-19 residual excess inventories at the distributor level, but sales in the second quarter of 2024 and year to date 2024 are showing signs of improvement.

The market continues to be saturated with products, but we are cautiously optimistic that face mask and face shield sales will continue to show growth in 2024.

Consolidated sales for the six months ended June 30, 2024 decreased to $29,772,000 from $29,914,000 for the six months ended June 30, 2023, representing a decrease of $142,000, or 0.5%.

Face mask and face shield sales in the third quarter of 2024, which were up 124.3% and 204.5%, respectively, are showing signs of improvement.

The market continues to be saturated with face mask and face shield products from the post COVID-19 residual excess inventories at the distributor level, but management is cautiously optimistic that sales of these products will continue to show growth in 2024 and beyond.

Consolidated sales for the nine months ended September 30, 2024 decreased to $44,023,000 from $45,967,000 for the nine months ended September 30, 2023, representing a decrease of $1,944,000, or 4.2%.

This decrease consisted of decreased sales in the Building Supply segment of $3,637,000, partially offset by increased sales in the Disposable Protective Apparel segment of $1,693,000.

Building Supply segment sales for the six months ended June 30, 2024 decreased by $986,000, or 5.1%, to $18,181,000, compared to $19,167,000 for the same period of 2023.

Sales of synthetic roof underlayment decreased by 5.7%, sales of other woven material decreased by 31.9% and sales of housewrap increased by 4.9% compared to the same period of 2023.

The sales mix of the Building Supply segment for the six months ended June 30, 2024 was 40% for synthetic roof underlayment, 52% for housewrap and 8% for other woven material.

This compared to 41% for synthetic roof underlayment, 48% for housewrap and 11% for other woven material for the six months ended June 30, 2023.

Management is encouraged by the 4.9% increase in housewrap sales, especially since housing starts are down 2.5% year to date.

Although synthetic roof underlayment sales are compared to the same period of 2023, our economy and self-adhered roof underlayment, which comprised approximately 95% of total underlayment sales were up approximately 1% compared to the prior year period.

Our premium underlayment, which accounts for only approximately 5% of roof underlayment sales, was down as the market has been moving away from expensive roof underlayment.

Sales of other woven material is down compared to the prior year period primarily due to one of our customers being acquired and deciding to go in a different direction.

The Company is pursuing new opportunities for other woven materials sales that may improve sales, but management does not expect other woven material sales to be a growth driver in 2024.

Disposable Protective Apparel segment sales for the six months ended June 30, 2024 increased by $844,000, or 7.9%, to $11,591,000, compared to $10,747,000 for the same period of 2023.

This segment increase was due to a 29.8% increase in sales of face masks, a 28.6% increase in sales of face shields and a 5.2% increase in sales of disposable protective garments.

The sales mix of the Disposable Protective Apparel segment for the six months ended June 30, 2024 was 87% for disposable protective garments, 9% for face masks and 4% for face shields.

This sales mix is compared to 89% for disposable protective garments, 8% for face masks and 3% for face shields for the six months ended June 30, 2023.

Building Supply segment sales for the nine months ended September 30, 2024 decreased by $3,637,000, or 11.9%, to $26,979,000, compared to $30,616,000 for the same period of 2023.

Sales of housewrap decreased by 2.6%, sales of synthetic roof underlayment decreased by 13.2% and sales of other woven material decreased by 29.9% compared to the same period of 2023.

The sales mix of the Building Supply segment for the nine months ended September 30, 2024 was 50% for housewrap, 40% for synthetic roof underlayment and 10% for other woven material.

This compared to 46% for housewrap, 42% for synthetic roof underlayment and 12% for other woven material for the nine months ended September 30, 2023.

Management is encouraged by our housewrap sales, especially since the percentage decline of housing starts year to date was higher than the percentage decline of housewrap sales.

The synthetic roof underlayment market has also been affected by the uncertain economic conditions, more offshore competition and a push in the market to reduce product selling prices.

We launched our new line of self-adhered roofing products in late 2023 and have achieved revenue in 2024, and we expect continued revenue growth from this new product line within our current customer base and into new markets.

Self-adhered roof underlayment has proven to be a good addition to our roof category.

Market acceptance has been good as evidenced by our sales outpacing expectations.

We are exploring additional products such as roof deck flashing.

As building codes evolve, we see this as an opportunity to capture additional business, specifically in coastal and high wind markets.

We expect a return to growth in the building supply segment when uncertainty in the housing market abates and flat to positive new home starts statistics become apparent.

Sales of other woven material was down compared to the prior year period primarily due to one of our customers being acquired.

The Company is pursuing new opportunities for other woven materials sales that may improve sales, but management does not expect other woven material sales to be a growth driver in the short term.

Management expects growth in the Building Supply segment in the coming year, as the projected number of housing starts in 2025 is estimated to increase.

However, there continues to be uncertainty in housing starts and the economy in general that could affect this segment.

Disposable Protective Apparel segment sales for the nine months ended September 30, 2024 increased by $1,693,000, or 11.0%, to $17,044,000, compared to $15,351,000 for the same period of 2023.

This segment increase was due to a 5.7% increase in sales of disposable protective garments, a 55.3% increase in sales of face masks, a 63.6% increase in sales of face shields.

The sales mix of the Disposable Protective Apparel segment for the nine months ended September 30, 2024 was 86% for disposable protective garments, 10% for face masks and 4% for face shields.

This sales mix is compared to 90% for disposable protective garments, 7% for face masks and 3% for face shields for the nine months ended September 30, 2023.

Alpha Pro Tech, Ltd.

Sales of disposable protective garments for the six months ended June 30, 2024 were up 5.2%, for the reasons as discussed above in the three months ended June 30, 2024 section.

Face mask and face shield sales, although up significantly compared to 2023, continue to be affected by excess inventories at the distributor level and in the marketplace.

Sales of disposable protective garments for the nine months ended September 30, 2024 increased by 5.7%, for the reasons discussed above in the three months ended September 30, 2024 section.

Face mask and face shield sales, although up 55.3% and 63.6% compared to 2023, continue to be affected by excess inventories at the distributor level and in the marketplace.

Gross Profit .

Gross profit increased by $735,000, or 12.0%, to $6,841,000 for the three months ended June 30, 2024, from $6,106,000 for the three months ended June 30, 2023.

The gross profit margin was 42.0% for the three months ended June 30, 2024, compared to 37.9% for the three months ended June 30, 2023.

Gross profit increased by $1,171,000, or 10.6%, to $12,259,000 for the six months ended June 30, 2024, from $11,088,000 for the six months ended June 30, 2023.

The gross profit margin was 41.2% for the six months ended June 30, 2024, compared to 37.1% for the six months ended June 30, 2023.

Gross profit decreased by $551,000, or 9.1%, to $5,484,000 for the three months ended September 30, 2024, from $6,035,000 for the three months ended September 30, 2023.

The gross profit margin was 38.5% for the three months ended September 30, 2024, compared to 37.6% for the three months ended September 30, 2023.

Gross profit increased by $620,000, or 3.6%, to $17,743,000 for the nine months ended September 30, 2024, from $17,123,000 for the nine months ended September 30, 2023.

The gross profit margin was 40.3% for the nine months ended September 30, 2024, compared to 37.3% for the nine months ended September 30, 2023.

The gross profit margin in 2024 was positively affected by a margin increase in both the Disposable Protective Apparel and Building Supply segments.

However, management expects the gross profit margin could be negatively affected by recent significant increases in ocean freight rates.

However, management expects that the gross profit margin could be negatively affected by recent significant increases in ocean freight rates.

Selling, General and Administrative Expenses .

Selling, general and administrative expenses increased by $309,000, or 6.8%, to $4,884,000 for the three months ended June 30, 2024, from $4,575,000 for the three months ended June 30, 2023.

As a percentage of net sales, selling, general and administrative expenses increased to 30.0% for the three months ended June 30, 2024, from 28.4% for 2023.

The change in expenses by segment for the three months ended June 30, 2024, was as follows:

Selling, general and administrative expenses increased by $115,000, or 2.6%, to $4,502,000 for the three months ended September 30, 2024, from $4,387,000 for the three months ended September 30, 2023.

As a percentage of net sales, selling, general and administrative expenses increased to 31.6% for the three months ended September 30, 2024, from 27.3% for 2023.

The change in expenses by segment for the three months ended September 30, 2024, was as follows:

Disposable Protective Apparel expenses were up by $200,000, or 17.9%;

1 unchanged sentence

and corporate unallocated expenses were up by $113,000, or 8.5%.

The increase in the Disposable Protective Apparel segment expenses was primarily related to increased employee compensation and rent expenses.

The decrease in the Building Supply segment expenses was related to decreased employee compensation, marketing expenses, travel expenses and insurance.

The increase in corporate unallocated expenses was primarily due to increased employee compensation, stock option and restricted stock expenses and reorganization costs.

The reorganization costs were incurred in connection with moving our face mask manufacturing facility from Utah to Arizona.

As of the third quarter of 2024, the Disposable Protective Apparel segment, which includes disposable protective garments, face masks and face shields, will all be in Arizona.

This move is expected to result in lower costs.

Selling, general and administrative expenses increased by $844,000, or 9.5%, to $9,732,000 for the six months ended June 30, 2024, from $8,888,000 for the six months ended June 30, 2023.

As a percentage of net sales, selling, general and administrative expenses increased to 32.7% for the six months ended June 30, 2024, from 29.7% for 2023.

The change in expenses by segment for the six months ended June 30, 2024, was as follows:

The increase in the Disposable Protective Apparel segment expenses was primarily related to increased employee compensation, rent and marketing expenses.

The decrease in the Building Supply segment expenses was related to decreased employee compensation, commission, travel expenses and insurance.

The increase in corporate unallocated expenses was primarily due to increased employee compensation, stock option and restricted stock expenses and professional fees.

Selling, general and administrative expenses increased by $959,000, or 7.2%, to $14,234,000 for the nine months ended September 30, 2024, from $13,275,000 for the nine months ended September 30, 2023.

As a percentage of net sales, selling, general and administrative expenses increased to 32.3% for the nine months ended September 30, 2024, from 28.9% for 2023.

The change in expenses by segment for the nine months ended September 30, 2024, was as follows:

Disposable Protective Apparel expenses were up by $506,000, or 14.2%;

1 unchanged sentence

and corporate unallocated expenses were up by $759,000, or 19.4%.

The increase in the Disposable Protective Apparel segment expenses was primarily related to increased employee compensation and rent expenses.

The decrease in the Building Supply segment expenses was related to decreased travel and insurance expenses, partially offset by an increase in employee compensation and sales commission.

The increase in corporate unallocated expenses was primarily due to increased employee compensation, stock option and restricted stock expenses, reorganization costs, professional fees, insurance expenses and general office expenses.

The increase in the Disposable Protective Apparel segment expenses was primarily related to increased employee compensation, marketing and rent expenses.

The decrease in the Building Supply segment expenses was related to decreased employee compensation, travel and insurance expenses.

The reorganization costs were incurred in connection with moving our face mask manufacturing facility from Utah to Arizona.

As of the third quarter of 2024, manufacturing for the Disposable Protective Apparel segment, which includes disposable protective garments, face masks and face shields, will all be in Arizona.

This relocation of our face mask manufacturing facility is expected to result in lower expenses on this product line.

In accordance with the terms of his employment agreement, the Company’s current President and Chief Executive Officer is entitled to an annual bonus equal to 5% of the pre-tax profits of the Company, excluding bonus expense, up to a maximum of $1.0 million.

A bonus amount of $111,000 was accrued for the three months ended June 30, 2024, compared to $83,000 for the three months ended June 30, 2023.

A bonus amount of $149,000 was accrued for the six months ended June 30, 2024, compared to $120,000 for the six months ended June 30, 2023.

A bonus amount of $58,000 was accrued for the three months ended September 30, 2024, compared to $96,000 for the three months ended September 30, 2023.

A bonus amount of $207,000 was accrued for the nine months ended September 30, 2024, compared to $216,000 for the nine months ended September 30, 2023.

Depreciation and Amortization.

Depreciation and amortization expenses increased by $26,000, or 11.9%, to $245,000 for the three months ended June 30, 2024, from $219,000 for the three months ended June 30, 2023.

Depreciation and amortization expenses increased by $27,000, or 5.8%, to $489,000 for the six months ended June 30, 2024, from $462,000 for the six months ended June 30, 2023.

Depreciation and amortization expenses increased by $20,000, or 8.9%, to $245,000 for the three months ended September 30, 2024, from $225,000 for the three months ended September 30, 2023.

Alpha Pro Tech, Ltd.

The increase in depreciation and amortization for the three and six months ended June 30, 2024 was primarily due to an increase in depreciation on the Building Supply segment.

Depreciation and amortization expenses increased by $47,000, or 6.8%, to $734,000 for the nine months ended September 30, 2024, from $687,000 for the nine months ended September 30, 2023.

The increase in depreciation and amortization for the three and nine months ended September 30, 2024 was primarily due to an increase in depreciation on the Building Supply segment.

Income from Operations .

Income from operations increased by $400,000, or 30.5%, to $1,712,000 for the three months ended June 30, 2024, compared to $1,312,000 for the three months ended June 30, 2023.

The increased income from operations was primarily due to an increase in gross profit of $735,000, partially offset by an increase in selling, general and administrative expenses of $309,000 and an increase in depreciation and amortization expenses of $26,000.

Income from operations as a percentage of net sales for the three months ended June 30, 2024, was 10.5%, compared to 8.1% for the same period of 2023.

Income from operations increased by $300,000, or 17.3%, to $2,038,000 for the six months ended June 30, 2024, compared to $1,738,000 for the six months ended June 30, 2023.

The increased income from operations was primarily due to an increase in gross profit of 1,171,000, partially offset by an increase in selling, general and administrative expenses of $844,000 and an increase in depreciation and amortization expenses of $27,000.

Income from operations as a percentage of net sales for the six months ended June 30, 2024, was 6.8%, compared to 5.8% for the same period of 2023.

Income from operations decreased by $686,000, or 48.2%, to $737,000 for the three months ended September 30, 2024, compared to $1,423,000 for the three months ended September 30, 2023.

The decreased income from operations was primarily due to a decrease in gross profit of $551,000 and an increase in selling, general and administrative expenses of $115,000 and an increase in depreciation and amortization expenses of $20,000.

Income from operations as a percentage of net sales for the three months ended September 30, 2024, was 5.2%, compared to 8.9% for the same period of 2023.

Income from operations decreased by $386,000, or 12.2%, to $2,775,000 for the nine months ended September 30, 2024, compared to $3,161,000 for the nine months ended September 30, 2023.

The decreased income from operations was primarily due to an increase in selling, general and administrative expenses of $959,000 and an increase in depreciation and amortization expenses of $47,000, partially offset by an increase in gross profit of $620,000.

Income from operations as a percentage of net sales for the nine months ended September 30, 2024, was 6.3%, compared to 6.9% for the same period of 2023.

Other Income .

Other income increased by $135,000 to income of $407,000 for the three months ended June 30, 2024, compared to $272,000 for the same period of 2023.

The increase was primarily due to an increase in equity in income of unconsolidated affiliate of $97,000 and an increase in interest income of $38,000.

Other income increased by $264,000 to income of $803,000 for the six months ended June 30, 2024, compared to $539,000 for the same period of 2023.

The increase was primarily due to an increase in equity in income of unconsolidated affiliate of $126,000 and an increase in interest income of $138,000.

Other income decreased by $40,000 to income of $362,000 for the three months ended September 30, 2024, compared to $402,000 for the same period of 2023.

The decrease was primarily due to a decrease in equity in income of unconsolidated affiliate of $83,000, partially offset by an increase in interest income of $13,000 and a gain on sale of assets of $30,000.

Other income increased by $224,000 to income of $1,165,000 for the nine months ended September 30, 2024, compared to $941,000 for the same period of 2023.

The increase was primarily due to an increase in equity in income of unconsolidated affiliate of $43,000, an increase in interest income of $151,000 and a gain on sale of assets of $30,000.

Income before Provision for Income Taxes .

Income before provision for income taxes for the three months ended June 30, 2024, was $2,119,000, compared to income before provision for income taxes of $1,584,000 for the same period of 2023, representing an increase of $535,000, or 33.8%.

This increase in income before provision for income taxes was due to an increase in income from operations of $400,000 and an increase in other income of $135,000.

Income before provision for income taxes for the six months ended June 30, 2024, was $2,841,000, compared to income before provision for income taxes of $2,277,000 for the same period of 2023, representing an increase of $564,000, or 24.8%.

This increase in income before provision for income taxes was due to an increase in income from operations of $300,000 and an increase in other income of $264,000.

Income before provision for income taxes for the three months ended September 30, 2024, was $1,099,000, compared to income before provision for income taxes of $1,825,000 for the same period of 2023, representing a decrease of $726,000, or 39.8%.

This decrease in income before provision for income taxes was due to a decrease in income from operations of $686,000 and a decrease in other income of $40,000.

Income before provision for income taxes for the nine months ended September 30, 2024, was $3,940,000, compared to income before provision for income taxes of $4,102,000 for the same period of 2023, representing a decrease of $162,000, or 3.9%.

This decrease in income before provision for income taxes was due to a decrease in income from operations of $386,000, partially offset by an increase in other income of $224,000.

Provision for Income Taxes.

The provision for income taxes for the three months ended June 30, 2024, was $475,000, compared to $438,000 for the same period of 2023.

The estimated effective tax rate was 22.4% for the three months ended June 30, 2024, compared to 27.7% for the three months ended June 30, 2023.

The provision for income taxes for the six months ended June 30, 2024, was $621,000, compared to $579,000 for the same period of 2023.

The estimated effective tax rate was 21.9% for the six months ended June 30, 2024, compared to 25.4% for the six months ended June 30, 2023.

The provision for income taxes for the three months ended September 30, 2024, was $237,000, compared to $395,000 for the same period of 2023.

The estimated effective tax rate was 21.6% for the three months ended September 30, 2024, compared to the same 21.6% for the three months ended September 30, 2023.

The provision for income taxes for the nine months ended September 30, 2024, was $858,000, compared to $974,000 for the same period of 2023.

The estimated effective tax rate was 21.8% for the nine months ended September 30, 2024, compared to 23.7% for the nine months ended September 30, 2023.

The Company does not record a tax provision on equity in income of unconsolidated affiliate, which reduces the effective tax rate.

Net income for the three months ended June 30, 2024, was $1,644,000 compared to net income of $1,146,000 for the same period of 2023, representing an increase of $498,000, or 43.5%.

The net income increase between 2024 and 2023 was due to an increase in income before provision for income taxes of $535,000, partially offset by an increase in provision for income taxes of $37,000.

Net income as a percentage of net sales for the three months ended June 30, 2024, was 10.1%, and net income as a percentage of net sales for the same period of 2023 was 7.1%.

Basic and diluted earnings per common share for each of the three months ended June 30, 2024 and 2023, was $0.15 and $0.10, respectively.

Net income for the six months ended June 30, 2024, was $2,220,000 compared to net income of $1,698,000 for the same period of 2023, representing an increase of $522,000, or 30.7%.

The net income increase between 2024 and 2023 was due to an increase in income before provision for income taxes of $564,000, partially offset by an increase in provision for income taxes of $42,000.

Net income as a percentage of net sales for the six months ended June 30, 2024, was 7.5%, and net income as a percentage of net sales for the same period of 2023 was 5.7%.

Basic and diluted earnings per common share for each of the six months ended June 30, 2024 and 2023, was $0.20 and $0.14, respectively

Net income for the three months ended September 30, 2024, was $862,000 compared to net income of $1,430,000 for the same period of 2023, representing a decrease of $568,000, or 39.7%.

The net income decrease between 2024 and 2023 was due to a decrease in income before provision for income taxes of $726,000, partially offset by a decrease in provision for income taxes of $158,000.

Net income as a percentage of net sales for the three months ended September 30, 2024, was 6.0%, and net income as a percentage of net sales for the same period of 2023 was 8.9%.

Basic and diluted earnings per common share for each of the three months ended September 30, 2024 and 2023, was $0.08 and $0.12, respectively.

Alpha Pro Tech, Ltd.

Net income for the nine months ended September 30, 2024, was $3,082,000 compared to net income of $3,128,000 for the same period of 2023, representing a decrease of $46,000, or 1.5%.

The net income decrease between 2024 and 2023 was due to a decrease in income before provision for income taxes of $162,000, partially offset by a decrease in provision for income taxes of $116,000.

Net income as a percentage of net sales for the nine months ended September 30, 2024, was 7.0%, and net income as a percentage of net sales for the same period of 2023 was 6.8%.

Basic and diluted earnings per common share for each of the nine months ended September 30, 2024 and 2023, was $0.28 and $0.26, respectively

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2024, the Company had cash and cash equivalents (“cash”) of $16,207,000 and working capital of $50,741,000.

As of June 30, 2024, the Company’s current ratio (current assets/current liabilities) was 28:1, compared to a current ratio of 21:1 as of December 31, 2023.

Cash decreased by 20.5%, or $4,171,000, to $16,207,000 as of June 30, 2024, compared to $20,378,000 as of December 31, 2023, and working capital increased by $243,000 from $50,498,000 as of December 31, 2023.

The decrease in cash from December 31, 2023, was due to cash used in operating activities of $2,042,000, cash used in investing activities of $218,000 and cash used in financing activities of $1,913,000.

Net cash used in operating activities of $2,042,000 for the six months ended June 30, 2024, was due to net income of $2,220,000, as adjusted primarily by the following:

stock-based compensation expense of $218,000, depreciation and amortization expense of $489,000, equity in income of unconsolidated affiliate of $338,000, operating lease asset amortization of $434,000, an increase in accounts receivable of $2,302,000, a decrease in prepaid expenses of $740,000, an increase in inventory of $654,000, a decrease in accounts payable and accrued liabilities of $923,000, and an decrease in lease liabilities of $444,000, all compared to December 31, 2023.

Accounts receivable increased by $2,302,000, or 35.2%, to $8,847,000 as of June 30, 2024, from $6,545,000 as of December 31, 2023.

The increase in accounts receivable was primarily related to higher sales in the second quarter of 2024 compared to the quarter ending December 2023.

The number of days that sales remained outstanding as of June 30, 2024, calculated by using an average of accounts receivable outstanding and annual revenue, was 43 days, compared to 40 days as of December 31, 2023.

The increase in days was due to higher sales in the last month of the first quarter of 2024 compared to the last month of 2023.

Inventory increased by $654,000, or 3.2%, to $20,785,000 as of June 30, 2024, from $20,131,000 as of December 31, 2023.

As of September 30, 2024, the Company had cash and cash equivalents (“cash”) of $18,394,000 and working capital of $48,704,000.

As of September 30, 2024, the Company’s current ratio (current assets/current liabilities) was 19:1, compared to a current ratio of 21:1 as of December 31, 2023.

Cash decreased by 9.7%, or $1,984,000, to $18,394,000 as of September 30, 2024, compared to $20,378,000 as of December 31, 2023, and working capital decreased by $1,794,000, to $48,704,000, from $50,498,000 as of December 31, 2023.

The decrease in cash from December 31, 2023, was due to cash used in investing activities of $2,333,000 and cash used in financing activities of $2,936,000, partially offset by cash provided by operating activities of $3,285,000.

Net cash provided by operating activities of $3,285,000 for the nine months ended September 30, 2024, was due to net income of $3,082,000, as adjusted primarily by the following:

stock-based compensation expense of $327,000, depreciation and amortization expense of $734,000, equity in income of unconsolidated affiliate of $435,000, gain on sales of assets of $30,000, operating lease asset amortization of $674,000, an increase in accounts receivable of $274,000, a decrease in prepaid expenses of $342,000, an increase in inventory of $946,000, a decrease in accounts payable and accrued liabilities of $70,000, and a decrease in lease liabilities of $667,000, all compared to December 31, 2023.

Accounts receivable decreased by $274,000, or 4.2%, to $6,271,000 as of September 30, 2024, from $6,545,000 as of December 31, 2023.

The decrease in accounts receivable was primarily related to lower sales in the third quarter of 2024.

The number of days that sales remained outstanding as of September 30, 2024, calculated by using an average of accounts receivable outstanding and annual revenue, was 41 days, compared to 40 days as of December 31, 2023.

Inventory increased by $946,000, or 4.7%, to $21,077,000 as of September 30, 2024, from $20,131,000 as of December 31, 2023.

The increase was due to an increase in inventory for the Building Supply segment of $2,343,000, or 33.6%, to $9,313,000, partially offset by a decrease in inventory for the Disposable Protective Apparel segment of $1,397,000, or 10.6%, to $11,764,000.

Prepaid expenses increased by $742,000, or 12.3%, to $6,752,000 as of June 30, 2024, from $6,010,000 as of December 31, 2023.

The increase was primarily due to increased prepaid equipment and inventory.

Right-of-use assets as of June 30, 2024, increased by $4,369,000 to $9,179,000 from $4,810,000 as of December 31, 2023, primarily as a result of our new Nogales, Arizona lease, partially offset by amortization of the right of use asset.

Lease liabilities as of June 30, 2024, increased by $4,359,000 to $9,207,000 from $4,848,000 as of December 31, 2023.

The increase in the lease liabilities was primarily the result of our new Nogales, Arizona lease in March 2024 and the assumption we will lease that facility for at least 5 years, partially offset by lease payments made during the year.

Accounts payable and accrued liabilities as of June 30, 2024, decreased by $923,000, or 48.5%, to $982,000, from $1,905,000 as of December 31, 2023.

Prepaid expenses decreased by $342,000, or 5.7%, to $5,668,000 as of September 30, 2024, from $6,010,000 as of December 31, 2023.

The decrease was primarily due to a decrease in prepaid equipment.

Right-of-use assets as of September 30, 2024, increased by $4,129,000 to $8,939,000 from $4,810,000 as of December 31, 2023, primarily as a result of our new Nogales, Arizona lease, partially offset by amortization of the right of use asset.

Lease liabilities as of September 30, 2024, increased by $4,136,000 to $8,984,000 from $4,848,000 as of December 31, 2023.

Accounts payable and accrued liabilities as of September 30, 2024, decreased by $70,000, or 3.7%, to $1,835,000, from $1,905,000 as of December 31, 2023.

The decrease was primarily due to a decrease in accrued bonuses.

Net cash used in investing activities was $216,000 for the six months ended June 30, 2024, compared to net cash used in investing activities of $390,000 for the same period of 2023.

Investing activities for the six months ended June 30, 2024 and 2023, consisted of the purchase of property and equipment.

Net cash used in financing activities was $1,913,000 for the six months ended June 30, 2024, compared to net cash used in financing activities of $1,538,000 for the same period of 2023.

Net cash used in financing activities for the six months ended June 30, 2024, resulted from the payment of $2,701,000 for the repurchase of common stock and $27,000 for treasury stock excise tax, partially offset by $815,000 in proceeds from the exercise of stock options.

Net cash used in financing activities for the six months ended June 30, 2023, resulted from the payment of $1,930,000 for the repurchase of common stock and $11,000 for treasury stock excise tax, partially offset by $403,000 in proceeds from the exercise of stock options.

Net cash used in investing activities was $2,333,000 for the nine months ended September 30, 2024, compared to net cash used in investing activities of $487,000 for the same period of 2023.

Investing activities for the nine months ended September 30, 2024 and 2023, consisted of the purchase of property and equipment primarily for our Building Supply segment partially offset by the sale of assets.

Alpha Pro Tech, Ltd.

As of June 30, 2024, we had $1,493,000 available for stock purchases under our stock repurchase program.

During the six months ended June 30, 2024, we repurchased 515,000 shares of common stock at a cost of $2,701,000.

As of June 30, 2024, we had repurchased a total of 20,926,627 shares of common stock at a cost of approximately $53,027,000 through our repurchase program which commenced in 1999.

Net cash used in financing activities was $2,936,000 for the nine months ended September 30, 2024, compared to net cash used in financing activities of $2,569,000 for the same period of 2023.

Net cash used in financing activities for the nine months ended September 30, 2024, resulted from the payment of $3,731,000 for the repurchase of common stock and $37,000 for treasury stock excise tax, partially offset by $832,000 in proceeds from the exercise of stock options.

Net cash used in financing activities for the nine months ended September 30, 2023, resulted from the payment of $2,979,000 for the repurchase of common stock and $30,000 for treasury stock excise tax, partially offset by $440,000 in proceeds from the exercise of stock options.

As of September 30, 2024, we had $1,463,000 available for stock purchases under our stock repurchase program.

During the nine months ended September 30, 2024, we repurchased 695,000 shares of common stock at a cost of $3,731,000.

As of September 30, 2024, we had repurchased a total of 21,106,627 shares of common stock at a cost of approximately $54,057,000 through our repurchase program which commenced in 1999.

We retire all stock upon repurchase.

17 unchanged sentences

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What changed 10-Q

Item 2. Management’s Discussion and Analysis