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Letter To Shareholders 

30 YEARS OF NAVIGATING THE FUTURE

The last year marked the 30th anniversary of Alpha Pro Tech and our continued efforts to protect people, products and environments with a diverse portfolio of high-value disposable protective apparel and construction weatherization building products. We are incredibly proud of our employees and their ability to adjust and respond to evolving circumstances and to successfully navigate industry changes and macro-economic cycles. Throughout our company’s history, we have continued to manage our business effectively, remaining stable and strong for our customers, our employees and our shareholders, while maintaining a solid balance sheet and constantly working to improve long-term financial results.

Our Company’s Performance in 2019

Our consolidated sales increased slightly during 2019, led by a 6.2% increase in sales of core building products. The core building products increase in sales was driven by an 11.5% increase in sales of synthetic roof underlayment and a 2.2% increase in sales of housewrap. Building Supply segment sales, which comprised 57% of consolidated sales, were driven by sales of our TECHNO family of spunbond based (SB) synthetic roof underlayment products and improved U.S. housing starts in the second half of 2019. Sales of our TECHNO family of products, which product line was expanded in 2019 following the successful launch of our TECHNO SB® 25 product, grew by 36.3% in 2019 and were a significant driver of our 11.5% overall growth in sales of synthetic roof underlayment for the year. Building Supply segment sales were negatively affected by lower sales of non-core other woven material in 2019 compared to 2018. Disposable Protective Apparel segment sales declined by 2.4% during 2019 compared to 2018, with sales of disposable protective garments down slightly, face mask sales adversely affected by a less severe flu season during 2019 and face shield sales adversely affected by a one-time sale in 2018 that did not recur in 2019.

Net income of $3.0 million for 2019 was negatively impacted compared to 2018 by lower gross profit margin, as certain products that were previously tariff free under the U.S. Customs and Borders Protection Generalized System of Preferences (“GSP”) stopped being tariff free when the GSP program was terminated during 2019. Change in product mix and increased rebates also decreased our gross profit margin. Management expects gross profit margin to be in the mid-to-high thirty percent range for 2020, excluding any improvement that may result from sales in connection with the coronavirus (“COVID-19”) pandemic.

In our history, excluding the 2009 global H1N1 Influenza A pandemic, earnings per diluted share have only been above twenty cents in the two most recent years. Earnings per diluted share were $0.23 in 2019 and $0.26 in 2018.

Confronting the Coronavirus Pandemic

As I write this letter, our company is playing a critical role in the response to the COVID-19 pandemic through the production and sale of our personal protective equipment (“PPE”) products, particularly our NIOSH-approved N-95 Particulate Respirator face masks and our face shields. As a result of the COVID-19 pandemic, demand for our PPE, including our N-95 face masks and face shields and our disposable protective garments, is exceptionally strong. Our initial response to the tremendous spike in demand for our N-95 face masks, which are 100% sourced and manufactured in the United States, was quick and demonstrates our continued commitment to navigating an ever-changing landscape. We have already increased production capacity and are currently in the process of ramping up additional production capacity for our N-95 face masks and face shields to support the demand of critical PPE products.

While the performance of our Building Supply segment will likely be dampened in 2020 by the halt to the global economy due to COVID-19, we are encouraged by the long-term revenue growth prospects for our Disposable Protective Apparel segment. We predict that sales of our N-95 face masks and face shields and our disposable protective garments will be a strong driver of our top-line growth in the coming year and into the future.

Looking Ahead – Investing in our Future

We maintained our solid balance sheet in 2019 with cash on hand at year-end of more than $6.5 million, a current ratio of 12:1, zero debt and an undrawn credit facility that provides us with additional liquidity and flexibility to weather macro-economic cycles, like the current COVID-19 pandemic that is significantly impacting many businesses. With positive cash from operations of more than $3.0 million for the year, we were able to invest nearly $1.3 million in property and equipment while also repurchasing more than 680,000 shares of our common stock at a cost of approximately $2.5 million. Throughout our 30-year history, we have proactively managed the allocation of capital in a manner that balances investment in operations for the continued development and growth of the company with returning capital to our shareholders in the form of share buybacks. As a result, our capital structure and financial health were key assets as we ramped up production of PPE in response to a significant increase in customer demand resulting from the outbreak of COVID-19 in early 2020, resulting in record shareholder liquidity and share price during the first quarter of 2020. We are highly optimistic and anticipate much success for our company in 2020 and beyond based on the dynamic environment in which we are operating. We believe that we are well positioned to continue to develop and produce innovative, high-value products for our customers, grow our revenues and provide favorable returns for our shareholders. On behalf of our management team and the Board of Directors, I want to thank you for your continued support.

 

Sincerely,  

 

 Lloyd Hoffman
 President and Chief Executive Officer