Alpha Pro Tech Ltd (APT) 2009 Q4 法說會逐字稿

Welcome to the Alpha Pro Tech Ltd. fourth quarter 2009 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions) This conference is being recorded today, Tuesday, March 9th, 2010.

I would like to turn the conference over to Cameron Donahue of Hayden IR. Please go ahead.

Thank you and good afternoon. We'd like to thank everyone for joining us today for Alpha Pro Tech's fiscal 2009 fourth quarter and year end earnings conference call. Our call today will be hosted by Mr. Al Millar, President, and Mr. Lloyd Hoffman, Chief Financial Officer. Following Management's discussion, there'll be a formal Q&A session open to participants on the call.

Before we get started I'm going to review the Safe Harbor Statement. This conference call contains forward-looking statements that are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risk, uncertainties and assumptions as described from time-to-time in registration statements, annual reports and other periodic reports that the Company has filed with the Securities and Exchange Commission. All statements, other than statements of historical facts, which address the Company's expectations or sources of capital or to express the Company's expectations to the future with respect to financial performance or operational strategies, can be identified as forward-looking statements. As a result, there can be no assurance that the Company's results will not be materially different from those described here in.

Forward-looking statements can be identified by such words as believes, anticipate, estimate or expect which reflect the current views of the Company with respect to future events. We caution listeners that these forward-looking statements speak only to the date here of. The Company hereby expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any such statements to reflect any change in the Company's expectations or any change in events, conditions or circumstances on which such statements are based. With that I'd like to turn the call over to Mr. Al Millar, President, for opening comments. Al, the floor is yours.

Thanks, Cameron. Thanks to everyone who joined us for our earnings call today. I'm joined by Lloyd Hoffman, our CFO. Our fourth quarter 2009, the period which ended December 31st, 2009 capped off a year of tremendous top and bottom line growth for the Company. We continued to experience significant demand for our products in all three of our segments. Due to strong sales activity, we again experienced record revenues for the fourth quarter and full year even after strong and record breaking second and third quarters. Our outstanding top and bottom line results for the three and 12 months reflect our careful management of the business during this upsurge. We continue to demonstrate our ability to leverage the infrastructure we built to take advantage of this increased demand. We're gratified not only by our strong revenue performance through 2009, but our ability to significantly expand profitability.

Our consolidated sales for the 2009 fourth quarter increased by triple digits 107.3%, to be exact, to $18.9 million. For the 12 months, revenue increased by 66.8% to $59.7 million. I will leave the sales details for Lloyd to cover in a few minutes, but our fourth quarter was also up 12.1% from our extraordinarily strong and record breaking third quarter ended September 30th, 2009.

Our sales growth continued its momentum during the fourth quarter due to our ability to ramp up manufacturing to meet the unexpected demand for our N-95 Respirator Mask for the H1N1 Swine Flu outbreak as well as the demand for our synthetic underlayment and house wrap. Sales for the Disposable Protective Apparel segment, while a quarterly record, were adversely affected again in the fourth quarter as in the third quarter, by a supply chain issue in which goods from Asia were delayed due to the high demand for H1N1 products. We expect increased sales for the Disposable Protective Apparel segment from a broad base of our distributors in 2010. But sales to our largest distributors which were up in 2009 are were expected to soften in 2010.

We are thrilled and delighted to have received the 2009 Outstanding Supplier Performance Award for controlled environments from a major national distributor of our Disposable Protective Apparel.

Our N-95 Respirator Mask sales started to slow down in the later part of the fourth quarter. We expect them to return to pre-H1N1 levels in 2010 unless concerns relating to the global H1N1 Influenza A Pandemic resume. However, we know we've taken market share because in some cases this year, the traditional supply channel became very tight due to demand and some healthcare professionals have switched to an Alpha N-95. We believe that going forward, some people that have switched will continue to be happy with Alpha's product and stay with us after the pandemic eases, because, as most say, it is easier to breathe with our mask, it's also more comfortable on the face.

Our decision to reposition our building supply channel strategy over two years ago continues to reap benefits we knew were available to us by expanding into more distribution relationships. In our Building Product segment, sales gained significant traction, 86.1% throughout 2009, even in the down economy and down housing market. We are nearing completion of an additional 115,000 square feet of space to our Valdosta, Georgia building supply manufacturing facility.

In addition, Harmony, our joint venture in India, which manufactures our roof underlayment and house wrap to a semi-finished state, has just completed a 20,000 square foot addition to accommodate increased demand. We do not incur any capital expenditures for the expansions in India, as the joint venture paid for these costs. As a reminder, one of the factors that our Building Supply distributors really like is that we are vertically integrated, so we have control of the supply chain where our competitors basically outsource their underlayment and house wrap production. This helps us control cost, quality, time to market, and gives us more control of the supply chain.

We believe the current market for roof underlayment is approximately $500 million, which is down from $1 billion during the housing boom, and the vast majority of the market is currently felt paper. We believe that over the next two to five years, synthetic roof underlayment will become the major share of that market. You can see that we have significant upside opportunity as this market moves forward from felt paper to synthetic roof underlayment. Then you'll also want to factor in a turn around in the building industry when that occurs.

We are now the market leader in the synthetic roof underlayment space and expect to keep and expand our market share during the transition to synthetic roof underlayment. One of the driving forces in this transition is that synthetic is now priced at similar levels of traditional felt and provides a labor saving of 50% with a superior product. We are currently working on opportunities with existing and new distributors and are very excited about this segment through 2010 and into the future. With that I'll turn the call over to Lloyd to review our top and bottom line details and selected balance sheet data, then I'll make some final comments. Lloyd?

Thanks, Al. Consolidated sales for the fourth quarter of 2009 increased 107.3% to $18.9 million from $9.1 million. Consolidated sales for the full year increased 66.8% to a record $59.7 million from $35.8 million. Let's break down the segment sales for the fourth quarter and the 12 months.

Building Supply segment sales for the fourth quarter of 2009 increased 124% to $4 million as compared to $1.8 million. The increase for the quarter is primarily due to 113.6% increase in the REX Synfelt synthetic roof underlayment and a 73% increase in REX Wrap house wrap. For the year, Building Supply segment sales increased 86.1% to an annual record of $15.3 million from $8.2 million in 2008. This is due to 103.6% increase in synthetic roof underlayment and a 41% increase in house wrap. The sales mix of the Building Supply segment for the full year was 72% synthetic roof underlayment and 28% house wrap.

Disposable Protective Apparel segment sales for the fourth quarter increased by 31.1% to a quarterly record of $6.5 million compared to $5 million. Year-to-date, Disposable Protective Apparel segment increased 12.4% to an annual record of $22.7 million from $20.2 million primarily related to increased sales to the Company's largest contributor as well as increased sales to a broad base of the Company's distribution network.

Infection Control segment sales for the fourth quarter increased by 254% to a quarterly record of $8.4 million compared to $2.4 million for the same period in 2008. Of the $6 million increase for the quarter, most of it was due to increased N-95 Respirator Mask sales. Infection Control segment sales increased by $14.3 million or 194.7% to an annual record of $21.7 million from $7.4 million. Mask sales for 2009 were up 283% or $12.8 million to $17.4 million, and shield sales were up 86.8% to 1-- or $1.8 million to a total of $3.8 million in sales. Of the $17.4 million in sales for the year, in mask sales, $12 million of it came from the N-95 Respirator sales. The increase in shield sales of $1.8 million is primarily due to a nonrecurring shield order we received in the fourth quarter of 2008. In summary, 2009 was an outstanding year for the Company with record annual revenues for all three business segments.

Turning to gross profit. Gross profit margin for the fourth quarter was 51.1% as compared to 41.1% for the same period of 2008. For the year, gross profit margin increased to 48.4% compared to 43.3%. Gross profit margin for both the fourth quarter and the year was positively reflected by the change in product mix in which Infection Control sales, which have higher margins, increased as a percentage of total sales. The gross profit margin in 2010 is expected to be in the lower 40% range as our mix will change more towards the Building Supply.

For the fourth quarter and full year, selling, general and administrative expenses have increased in actual dollars but have decreased significantly as a percentage of net sales. For the fourth quarter, expenses decreased to 23.2% of sales as compared to 35.3%. And for the four year-- for the full year decreased to 24.6% from again 35.3%. We have effectively leveraged the infrastructure we have built to substantially grow revenue without increasing expenses as the same rate of growth as revenue.

The effective tax rate for the year was 34.8% as compared to 37.9% in 2008. We expect the effective rate in-- to be in the 36% range going forward.

Net income increased approximately 1100% for the fourth quarter of 2009 to a record $3.5 million as compared to $295,000. Diluted income per share for the fourth quarter 2009 and 2008 was $0.15 and $0.01 respectively. Net income for the full year increased to $9 million compared to $1.6 million, an increase of 478%. Net income as a percentage of sales for 2009 and 2008 was 15.1% and 4.4% respectively. Diluted income per share for 2009 and 2008 for the year was $0.39 as compared to $0.06.

Turning to the balance sheet. The balance sheet continues to remain strong with a current ratio of six to one on December 31st, 2009. We had working capital of $28.9 million, an increase of $33.7 million over the previous December. Our strong financial performance has led to a cash position of $9.8 million as of December 31st, up 113% from the $4.6 million as of the prior December.

The increase in cash was primarily due to cash provided by operating activities of $7.6 million, partially offset by $2.1 million in cash used to repurchase stock and $500,000 for the purchase of property and equipment. Inventory as of December 31st, 2009 increased by $1 million to $13.1 million as compared to $12.1 million the previous December. The increase was primarily due to an increase in inventory for the Infection Control segment of $2.6 million, an increase for the Disposable Protective Apparel segment of $800,000 partially offset by a decrease in the inventory for our Building Supply segment of approximately $2.4 million.

In 2009, we repurchased and retired approximately 1.6 million shares of common stock at a cost of $2.1 million. As of December 31st, 2009 we have repurchased a total of 6.2 million shares of common stock at a total cost of $7.7 million through our repurchase program. Future repurchases are expected to be funded from cash on hand and cash flow from operations. The Company currently has no outstanding debt and maintains an unused $3.5 million credit facility. With that, I'd like to turn the call back to Al for closing comments. Al?

Thanks, Lloyd. 2009 was an extraordinary year for us. We rose to the challenge of managing 67% growth while significantly expanding our profitability. Everyone in the organization, employees, Management and the Board, can be proud of their part in these results. During 2010, we expect to broaden our distribution channels with existing and new distribution partners to take advantage of market opportunities during the year and into the future. And we will continue to leverage our expense structure with the same effectiveness we demonstrated this year.

In 2009 we hit or beat all estimates in all sections of our business. However with the uncertainty of the H1N1 in 2010, the $14 million increase we had for Infection Control sales in 2009 is a large question mark for 2010. As you are well aware, several parts of the world are now entering the winter season. Here in North America, we saw the start of H1N1 at the end of April and early May in 2009. The World Health Organization feels at this time that the pandemic is not necessarily over. However, this is one we're going to have to wait and see whether or not we have the H1N1 return to North America.

We currently have a large stocking position of the N-95s as well as raw materials to meet a demand for the return of the H1N1 or the next respiratory virus. We're encouraged about building products through 2010 and beyond. With our increased manufacturing capacity in both India and the United States, we believe this will be larger growth area for Alpha going forward. I want to thank everyone for the continued interest and support. That concludes our prepared remarks for the day, and would now like to open the call up to your questions. Douglas?

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions) And our first question comes from the line of Joe Maxa with Dougherty & Company. Please go ahead.

Thank you. Just one quick question on the N-95 side, and then I'll move on. Did you increase capacity in case this does come back let's say later in the year, and wondering what that capacity might be?

As you know, Joe, we had four lines going forward last year with a capacity of around $32 million. We currently have approved the building of three new lines. We have started manufacturing one and are waiting to see on the other two.

Okay. And you plan on finishing that first one?

Oh, yes.

Okay. Question on the Protective Apparel. Largest distributor softening, offset by growing distribution with others. What are you looking for in the year? And I guess what I'm getting at, the $6.5 million in Q4, is that sustainable or should we see some type of-- what kind of issues may we have with supply going forward, maybe in Q1?

Joe, I think that you'll see, my guess is a softer Q1. I believe that our supply issues will all be straightened out by the end of the first quarter and we'll be fine going forward after that point.

Okay, okay, very good. And on the Building Supply, now that was a little softer than I would have anticipated, though I know there is some seasonality in Q4. What type of growth rate do you think you can see in 2010?

Joe, that's-- I can ask you the question is building going to resume in 2010? And I don't know how much more you're going to pick up. I certainly think that-- I mean, we're not going to hit an 86% growth factor in 2010, not off of tackling the numbers of last year. But I certainly think that we can pick up a 30% number without too much difficulty.

Let me ask you, does Q1-- do you see Q1 roughly in line with Q4 given that we're still in the winter season? Do we see it coming off from that level before we hit the summer?

What was that question, Joe?

I'm just wondering, based-- I mean your distribution channel has been growing. So I'm wondering what Q1 looks like sequentially? Should we see roughly a similar number to Q4?

Joe, I don't even think I can legally answer the question.

Not enough visibility?

Right.

Okay, fair enough. I'll jump back in the queue. Thank you.

Okay.

Thank you. Our next question comes from the line of [Larry Booth]. Please go ahead.

Good afternoon, gentlemen. It's a pleasure to talk to you all again. Cameron, Mr. Millar, Mr. Hoffman. I've got three questions today. One, I know that it's difficult to predict the future on the roofing products, but have you gotten any kind of a feel yet for the effects of the incredibly poor weather in a large part of the country damaging so many properties? I'm originally from Alaska and know the effects of a lot of snow on a roof, and can only anticipate that there's going to be a tremendous amount of reroofing activities as soon as the weather permits. Have you gotten any kind of an indication of how this might play out with your product?

Larry, no we don't have that indication yet. As you know, we sell all our products through distribution. I mean some of our distributors may have seen a pickup. We have not as of yet.

Okay. Great. Second question, I noticed on your website for the first time within my memory that you're showing sales of a lot of slightly damaged potentially obsolete slow moving, et cetera merchandise. And my question is, would there be any possibility or benefit to the Company to consider either trying to market that inventory at cost or possibly outright donate that material to one of the recently devastated earthquake areas such as Haiti or Chile, and generate, if you're in a 36% tax bracket and can discount or give that merchandise at fair market value, it would seem that that might take that stuff off the books, generate a lot of goodwill and give that money back to the Company to be used for other purposes?

Yes, no that's a very good question. The inventory that's online is inventory that we think some of our distributors might want at a reduced price. Nothing wrong with the material, it's just it's on a slower move, it's generally set up in our obsolescence. We do for the last, I would say five years, a reasonably sized donation to Globus Release-- Relief every year. So we do do that.

Excellent. And thirdly, if I may, the last question, I'm a little bit confused on the joint venture in terms of how the Harmony affiliation is done in terms of equity. I understand that there's been a new facility built that doesn't involve any capitalization from Alpha Pro Tech directly and is being paid for by the joint venture, which I understand you own roughly 41% of. My question is how is the equity or the value of that joint venture accounted for on the Alpha Pro Tech balance sheet?

If you look on our-- on the financials, when the 10-K gets released in the next day or two, there's a line on the balance sheet that is equity investment and advances to unconsolidated affiliates. And there is a note that fully explains the value of that asset.

Okay, great. Thank you very much for answering my questions. And again, congratulations on a terrific quarter and an outstanding year.

Thank you.

Thank you. (Operator Instructions) Our next question comes from the line of Ali Motamed with Boston Partners. Please go ahead.

Hi, guys nice quarter and good year. Couple questions, I don't know if they were asked already, I was a little late, so sorry in advance. Margins we're targeting for the Building Products segment, approximately what kind of-- you didn't have a breakdown of contribution margin by segment, sometimes you do. What are we targeting on a full year basis for Building Supply?

Ali, as you know we don't break out our segment gross profit but suffice it to the say that it is lower than the other segments.

But you break out operating profit, and that's-- I mean, you break out some kind of profit, right? I see --

Yes, we have-- yes, there's a note-- there's-- for segment income?

Yes, so what is the segment income we should be looking at, like almost pushing 20% or 18% or something on that level of Building Supply?

It won't be that high.

A little lower than that?

I mean your gross profit with our standard being in the 40s and that being lower.

Okay. And then the growth in there, how much is channel fill this past year? How much has been sort of end market demand? And did you say anything about where you expect that business to be going in the next year?

Yes, we talked about a 30% increase, Ali. And to our belief, everything we ship to our distributors, they ship to the end user.

So we shouldn't have had any of that in 30% growth. And then you think there's going to be-- there is channel that it was filled too much with the Infection Control product, or do you feel like you say going back to pre-H1N1 days level of profit, well it was still a good business it still had a nice contribution margin?

It will still be a good business for Alpha Pro Tech going forward. I think what you saw was a pretty abrupt end in North America at H1N1. It's continuing worldwide but not in North America at this point in time. Now, as I mentioned, it never really surfaced here until April, early May last year. And if it's going to return, that's when it is. But when they-- when it started to soften, I think several of the distributors, not only Alpha's, for 3M and everybody else, ended up with N-95s in stock and currently have them in stock.

Okay. And then the one last thing is looking at your unallocated corporate expenses, I know you guys probably got good bonuses this year and accrued for that in the process. Is there a sort of -- some level we should expect of that next year? I doubt it's going to be nearly as high, and it's just off of the fact that you don't have H1N1, so the cost structure moves down a little bit. Any-- should that move right back to sort of 2008 levels?

Yes, well the Executive bonus is all based on income, so it'll change relative to our income.

And how much of that -- what was there a big accrual this-- there was a big accrual because we had so much success this year, right, so that should reverse itself relatively naturally?

Yes.

Okay, thank you very much.

Thanks, Ali.

Thank you. Our next question comes from the line of [David Garcia]. Please go ahead.

Good quarter, guys.

Thanks, David.

Regarding the N-95, since you have inventory and you're looking for it to the come back down a little bit, do you expecting any layoffs in Salt Lake or any of the other places?

David, we're -- I would say at this point it's a little early to tell. We are-- we're continuing to get inquiries offshore on N-95s. We're looking at some major pieces of business that we have a pretty good shot of getting, and of course that would change the picture entirely. We're quoting a lot of international business, and I gather in the next six to eight weeks we'll get a better look at that and see where we are, and then could I answer that question a little clearer.

Okay. Are you --

If we're lucky --

Are you still running three shifts?

No, we're currently running one.

Okay.

But a little bit of luck and we'll get back there.

Okay. One other question. The shipping delays in the third and fourth quarters, you said affected the quarters. So would the delay in the fourth quarter help first quarter? Product that wasn't delivered in the fourth quarter do you expect to be delivered in the first quarter?

Kind of a yes and no, David.

Okay, how about the yes part?

Can't put an answer on it today.

Okay. Regarding your stock repurchase program that you announced after the end of the year.

Yes.

Have you bought any stock back yet, or --

We have not bought a share back yet, David. We've actually been chatting about that all this week.

Okay. Okay, well that's all I had.

Thanks very much.

Okay, thanks a lot.

Thank you. Our next question comes from the line of [Don Schumatty]. Please go ahead.

Good quarter, guys.

Thank you.

First question, I got a few questions here. On the market, the $500 million market on the roofing --

Yes, sir.

What percentage is synthetic?

10%.

And what percentage of the 10% do we have?

About 20%.

And we're the largest player -- 20% is the largest player that in segment then?

Largest single player.

Okay. In a conference call last year, next question, you mentioned new products. What division are the new products going to come in and when do we expect to see them in 2010?

We are still looking at new products in our Apparel division and new products in our Building division.

And should we see those new product in 2010?

I'm not convinced that they'll be that visible to the naked eye as it will be in our dollar growth.

Okay. And next question, when you announced last year you were going triple the production, was that based on any private label business from competitors?

No, when we talked about the increase in production last year, that was in reference to the N-95 face mask.

So there was no inquiries from competitors for you to make masks then?

No sir, no. We did not manufacture for any competitors. We do a private label on masks for some of our distribution centers.

Okay. And going forward here, on the India operation, in India sales to a competitor, is that-- are we the exclusive?

Did you ask did-- can India sell to our competitors?

Correct.

Not building product.

Not building product. So we have an exclusive for the product we get from them in the states?

Correct, it is our product.

Okay.

It's our joint venture partner.

Okay.

Yes, they do sell other products but not Building.

Okay.

They sell other product to other people.

Okay. Then on the shares bought back that are already in the books for 2009, what's the highest price we paid for a share?

$4.54, I believe.

$4.54, okay. And last question, what percentage, the largest distributor in Apparel that's softening, what percentage of the Apparel market did he represent?

Represented about 25% of our business last year.

Okay. Thank you.

You're welcome.

Thank you. Our next question comes from the line of [Hank Sawerink]. Please go ahead.

Hi, guys. Well all my questions have been sort of answered. So all I want to say is thank you and I'll see you in June. Good job.

Right, Hank.

Take care.

Thank you. Our next question comes from the line of [Efram Beherenbaum]. Please go ahead.

Good afternoon, thank you. I'm one of the shareholders. The question, if you can hear me, and this is not your fault, but if you could comment on it. Looking at the Yahoo, they've have-- they had an estimate of how much per share would be earned for the quarter, and -- or for the last quarter and for the years and that estimate started out supposedly at $0.14, went down to $0.12, obviously they were wrong. And their estimate for the year was $0.38 and had done down to $0.36 and obviously they were wrong. For the first quarter, they have an -- started out with an estimate of $0.14 and they're down to $0.04, can you comment on that?

Yes, Efram, I cannot comment on it. We absolutely do not talk to Yahoo, we don't go on the message board, we very seldom read the message board, nor do I pay any attention to the message board.

No, this apparently it's based on some analyst or something, how they're coming up with these.

Efram, you'd have to ask the analyst. I can't answer it.

Okay. Does it make sense that it would be down to $0.04 for the first quarter?

I can't comment on that.

Can't comment on it. Okay. And the other question, India, is the India joint venture profitable?

Yes.

Okay. Thank you very much and good luck.

Right.

Thank you. (Operator Instructions) Our next question comes from the line of Larry Booth. Please go ahead.

Yes, sorry to come in again. I just wanted one very, very brief question. A few minutes ago you mentioned offshore sales potentially pending on N-95. And my question is, when you go outside of the United States, are you still using your distribution network, or did that comment pertain to a direct sales by the Company?

We use both.

I see. Thank you.

Thank you. Our next question comes from the line of Jamie Wyland with Wyland Management. Please go ahead.

I have additional questions on the Building Products line are we solely have the rights to the United States or are there large territories available?

We can sell it anywhere in the world, Jamie, doesn't matter where we sell.

And what are the dynamics of that market beyond the United States?

Well I mean last year we had our hands full just supplying the United States. And if the business continues to grow the way it is, I think it would be a long time before we ever started to look at supplying product offshore.

Do you supply product to Canada at this point?

Yes, sir, we do. North America, we do cover.

Okay and how much capacity do you have right now, volume wise?

Currently, we're sitting at around the $40 million annually capacity wise.

Okay and how easy is it to increase that capacity?

Probably by the time we required it, we'd be up and running with increased capacity. It's something we can probably increase in about six weeks time.

Okay. Are the dynamics of roofing in Europe similar to the United States as far as the trends toward synthetic?

I can't even answer that. I don't know.

Okay. And lastly, SG&A in 2010, should that be at the same level of 2009, or will you be able to actually reduce that?

It should be at a similar level.

Okay very good. Thank you, fellows.

Right.

Our next question comes from the line of [Pat Beard]. Please go ahead.

Hello. Hello. Thanks, guys, for taking the Company so far in the last few years. I've been an investor for quite awhile. My question concerns the short position on the shares.

Yes.

Whether there's like 1.5 million shares short and so somebody is pretty certain that--

I saw 1.4 million.

Yes, well close to 0.5, 1.5 million. My question, or suggestion is that the hope that you would given further consideration to initiating a dividend.

It's funny, we've talked about that today, and it is not something that is in our plans. And we noted with interest that Steve Jobs at Apple was asked the same question and he expressed the, about the same opinion as we have, that we would rather use our cash for opportunities that come along to help the Company grow.

Very good. That about answers my question. Thanks.

Thank you. Our next question comes from the line of [David Cole] with [Yield Capital Incorporated]. Please go ahead.

Congratulations on great year and a good fourth quarter, Al and staff. Appreciate all you've been doing and just want to reiterate maybe one question on your stock repurchase. Is that a direct benefit to your operational profit expectations? Or what effect does that have on your business plan?

Well as Al indicated, at this point, we haven't bought shares back for the last little while. Certainly buying shares back would reduce the outstanding shares, which would increase the earnings per share. But at this point in time, we're just sitting on our cash, and as Al just indicated, we want to have a hoard of cash, and we -- for the opportunities that are in front of us to be able to grow. So we will look at it, but right now, we are not looking at buying back shares.

Okay, very good. Then thanks for the great report.

You're welcome.

Thank you. And our next question comes from the line of Brian Adams with Carter Terry and Company.

Great year, guys. Thanks for the time. Really quickly, couple things. The expected increase from the broad end distribution channels, will that in theory make up for the loss in sales from the masks, if you hit a couple of these things, either on the international level or some of your North American initiatives?

In the-- on the masks side of the sales, Brian, if we get a little bit lucky and catch a couple of these offshore deals that we're working on, yes, it'll certainly go a long way to beating the numbers of 2009. But we have to get a little bit lucky and get the business, but we like where we're looking.

Okay. And then real quick, also, any word on if the short covering has been maybe-- or if the shorting has been covered or has there been an increase in the short position? How does that look from your standpoint?

Brian, every time I've looked at it, it's up. It is continuing to increase. I don't honestly understand it at this point, but, yes, it has been increasing.

Okay. And then the final thing is, on the Synfelt what would you need to do to increase your market share from 20% of that $50 million to maybe double? Would that just be simply a distribution situation or another segment of the country that you're not involved with in a heavy way, or where would that come from?

Yes, I think we can pick up market share but I think where the real growth is going to come from is even if we maintain our 20% market share, what's going to happen is the evolution right now it's 10% of the market, and over the next two to five years, it's predicted that synthetics will become the majority. So basically if it now becomes 40%, 60%, 80% of the market and we still got a 20% market share, that's where our growth is going to be.

So you said the margins on that were in the 40% area?

We don't give specific margins, but it's less than our average.

Okay. Thank you, very much, gentlemen. Appreciate it.

All right, thank you.

Thank you. At this time, I'd like to turn the call back over to Management for closing remarks.

We want to thank everybody for joining us today. Certainly hope that you'll continue with your interest in Alpha Pro Tech, and we look forward to talking to you in the near future. Thanks very much.

Thank you. Ladies and gentlemen, this concludes the Alpha Pro Tech Ltd. fourth quarter 2009 earnings conference call. Thank you for your participation, and you may now disconnect.