Alpha Pro Tech Ltd (APT) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, thank you for standing by. Welcome to the Alpha Pro Tech fourth-quarter 2011 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, Wednesday, March 14, 2012.

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

Thank you, and good afternoon. We would like to thank everyone for joining us today for Alpha Pro Tech's fourth-quarter and full-year 2011 earnings conference call. The call today will be hosted by Mr. Al Millar, President, and Mr. Lloyd Hoffman, Chief Financial Officer. Following their discussions, there will 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 risks, 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 historical facts which address the Company's expectations or sources of capital, or to express the Company's expectations for 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 herein. Forward-looking statements may be identified by such words as believe, 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 of the date hereof. 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 change in events, conditions, or circumstances on which the statements are based.

With that, I would 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. 2011 remained a challenging year for Alpha Pro Tech, but fourth-quarter results reflected increased revenue, operating income, and net income improvement over the year-ago period, as well as lower expenses. Overall sales increased for the fourth quarter of 2011 from the year-ago period, led by another strong quarter of disposable protective apparel sales.

Disposable apparel posted revenue of $3.5 million, representing a 22.7% increase over the fourth quarter of 2010, and an 8% increase from our third quarter of 2011. And has increased each quarter since the fourth quarter of 2010, with the exception of the second quarter of 2011, which was basically flat to the prior quarter. This reflects the continued strong demand from our major international supply chain partners and users.

For the fourth quarter, building supply segment sales were up 7.4% from last year's fourth quarter, and full-year revenues were a record $21.6 million, up 11.5% from the year-ago period. This comprised 52% and 56.1% of total consolidated revenue for the 3 and 12 months ending December 31 of 2011, respectively. We expect building supply segment sales to continue to grow as a percentage of total overall sales in the coming periods. Current offerings include our REX and synthetic roof underlayment, REX housewrap, as well as our non-perforated breathable housewrap. We will broaden the product line in early 2012 when we launch an economy version of our synthetic roof underlayment. We expect this will capture market share in the lower end of the synthetic roof underlayment market.

The REX housewrap has been met with a positive endorsement from the end users; we're now confident the non-perforated breathable housewrap meets our high-quality brand recognition. Our non-perforated breathable housewrap product opens up the majority of the housewrap market we were not able to penetrate before, but its acceptance has been slower than anticipated. However, we expect the product to start contributing more significantly to the sales line commencing in 2012. To this end, we have increased our sales and marketing efforts, and remain optimistic about the future of the building supply segment as our distribution channel strategy continues to strengthen.

The growth in our building supply and disposable apparel segments was offset by a 37.9% decrease in infection control segment sales for the three months ended December 31. Infection control segment sales comprised 9.6% and 11.3% of total sales for the 3 and 12 months ended December 31, respectively.

While disposable protective apparel segment sales increased for the fourth quarter of 2011 over the same period in 2010, the decrease in full-year revenues was partially due to the decline in sales up to our former exclusive private label distributor, which we have referenced in our last three calls. The decrease was partially offset by increased sales to our major international supply chain partner, as mentioned earlier. The disposable protective apparel segment comprised 38.4% and 32.6% of total sales for the 3 and 12 months ending December 31, respectively.

Gross margin for the fourth quarter and full year declined due to a change in product mix. Selling, general, and administrative expenses from both the 3- and 12-month periods in 2011 declined in absolute dollars, as we carefully managed expenses, and also decreased as a percentage of sales. We continue to rebuild the profitability and showed significant increases at both the operating and net income levels.

I will now turn the call over to Lloyd who will take you through the financials and provide more details.

Thanks, Al. Consolidated sales for the fourth quarter of 2011 increased by 5.1% to $9.2 million from $8.7 million. Sales for the full year decreased by 8.1% to $38.5 million from $41.9 million.

Let's spend a few minutes here to discuss the segment sales for the fourth quarter and the year. Building supply segment sales for the fourth quarter increased 7.4% to $4.8 million from $4.5 million. The increase is primarily due to an 8% increase in REX synthetic roof underlayments, and a 6% increase in sales of REX housewrap. For the year, building sales increased by 11.5% to a record $21.6 million from $19.4 million. That increase is due to a 12% increase in roof underlayment, and a 10% increase in housewrap. For both 2010 and 2011, the sales mix was 69% for synthetic roof underlayment, and 31% for housewrap. As Al had mentioned, we remain optimistic, and continue to see significant opportunities in the building supply segment.

Sales for the disposable protective apparel segment for the fourth quarter increased by 22.7% to $3.5 million from $2.8 million. The increase in this quarter was primarily due to strong demand from a major international supply chain partner. For 2011, sales of disposable apparel decreased by 23.7% to $12.6 million from $16.4 million. However, as Al mentioned, we did see sequential increases in each of the past four quarters, with the exception of the second quarter, which was basically flat to the prior quarter. We expect that we've hit the low point, and will continue increased sales in the segment going forward.

Infectious control segment sales for the fourth quarter decreased by 37.9% to $877,000 from $1.4 million. And infection control for the year decreased by 28.2% to $4.3 million from $6.1 million. This decrease was attributable to a decline in mask sales. Overall, the mask sales decline for the quarter and the year was primarily due to a decline in industrial mask sales as a result of our former largest industrial distributor launching its own line of masks, and to a lesser extent a decline in medical mask sales.

Turning to gross profit. Gross profit for the fourth quarter decreased to 35.3% as compared to 39.3%, and for the full year decreased to 36.5% as compared to 39.2%. As Al previously mentioned, gross profit margins for both the quarter and the year were negatively affected by the change in product mix in which building supply segment sales, which have lower margins, increased as a percentage of total sales. In 2011, building supply segment sales comprised 56% of total sales as compared to 46% the prior year.

For 2011, gross profit margins for the disposable protective apparel segment, although fairly stable in the past four quarters, was down as compared to 2010 due to competitive pricing pressures from our former largest distributor. We expect overall gross margins to be in the 36% range going forward.

Selling, general, and administrative expenses for the fourth quarter decreased by 17.2% to $2.6 million from $3.2 million. And SG&A decreased for the year, decreased by $1.5 million for the year or 11% to $12.3 million from $13.8 million. As a percentage of sales, expenses decreased to 32% as compared to 33%. The 2011 decrease in expenses was primarily due to a decrease in expenses for disposable protective apparel segment, infection control segment, as well as decreases in corporate expenses, partially offset by increased expenses for the building supply segment.

Net income for the fourth quarter was $355,000 as compared to $49,000 from the year-ago period. Basic and diluted income per share was $0.02 as compared to zero. For 2011, net income decreased to $933,000 as compared to $1.3 million, and as a percentage of sales, net income for 2011 and 2010 was 2.4% and 3.1%, respectively. Basic and diluted income for 2011 was $0.04, as compared to $0.06 for 2010.

Turning now to the balance sheet. The balance sheet remains strong with a current ratio of 35 to 1. Cash increased to $7.5 million as compared to $5.3 million as of December 31, 2010. And working capital was basically flat, at just under $30 million. The $2.5 million increase in cash was primarily due to an increase in cash from operations.

Inventory over the year decreased by $1.8 million or 10.1%. The disposable protective apparel inventory was down $2.1 million or 31.8%. Infection control inventory was down $800,000 or 17.6%. And the building supply segment inventory was up $1.2 million or 20.5%.

During 2011, we repurchased 1.3 million shares of common stock at a cost of $1.6 million. And as of year-end we have repurchased approximately 7.5 million shares of common stock at a cost of $9.2 million through our repurchase program. 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 over to Al for closing comments.

Thanks, Lloyd. During 2011, we began to broaden our disposable protective apparel distribution channels with new distribution partners, and expect to capitalize on opportunities we see going forward that should help us expand our market penetration. We are encouraged by the progress we have made, particularly in the second half of 2011. In addition, we expect to expand our building supply product offerings with the launch of an economy version of our synthetic roof underlayment in the first quarter of 2012. We expect this will help capture market share in the lower end of synthetic roof underlayment market.

Our expectation for 2012 is that we will see a continued expansion in our protective apparel segment with year-over-year revenue growth as we continue to gain traction from our low point in quarter 2 in '11. In our building supply segment, we also expect continued revenue growth from our record 2011 sales of $21.6 million. We expect to sustain our growth rate we have seen throughout 2011 with an additional upside potential from our breathable housewrap, the launch of our economy synthetic roof underlayment, and any rebound in the new-home construction market. With these two new products, we have now increased the market opportunity in the housewrap and synthetic roof underlayment markets.

Infection control segment sales in 2012 are expected to be flat to 2011. Gross margins are expected to remain stable in the 36% range. We also expect to see significant leverage on all incremental sales over our 2011 revenue threshold, with the majority of the gross profit from these incremental sales contributing to operating income.

That concludes our prepared remarks for the day. I would now like to open the call up for your questions. Thank you.

(Operator Instructions)

There are no questions in the queue at this time. Please continue.

I would like to thank everybody for joining us today. And thank you for your continued support and interest. We will continue to update you on our next earnings call. Thank you.

Ladies and gentlemen, this concludes the Alpha Pro Tech fourth quarter 2011 earnings conference call. Thank you for your participation. You may now disconnect.