Omega Flex, Inc.: Form 10-Q for the period ended Sep 30, 2026

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes thereto included in Part I, Item 1 of this Form 10-Q. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Part I, Item 1A. Risk Factors, and other parts of the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. See “Cautionary Note Regarding Forward-Looking Statements” in this Form 10-Q.

OVERVIEW

The Company is a leading manufacturer of flexible metal hose and is currently engaged in a number of different markets, including construction, manufacturing, transportation, petrochemical, pharmaceutical and other industries.

The Company’s business is managed as a single operating segment that consists of the manufacture and sale of flexible metal hose, fittings, and accessories. The Company’s products are concentrated in residential and commercial construction within buildings, and general industrial markets, with a comprehensive portfolio of intellectual property and patents issued in various countries around the world. The residential and commercial construction market also utilizes corrugated stainless steel tubing (“CSST”) primarily for flexible gas piping. Through its flexibility and ease of use, the Company’s TracPipe® CSST and TracPipe® CounterStrike® CSST, along with its fittings distributed under the trademark AutoFlare®, allows users to substantially cut the time required to install gas piping, as compared to traditional methods. The Company’s newest product line MediTrac® corrugated medical tubing (“CMT”) is used for piping medical gases (oxygen, nitrogen, nitrous oxide, carbon dioxide, and medical vacuum) in health care facilities. Building on the recognized strengths and strategies employed in the flexible gas piping market, MediTrac® CMT can be used in place of rigid copper pipe, and due to its long continuous lengths and flexibility, it can be installed approximately five times faster than rigid copper pipe, saving on installation labor and construction schedules. The Company’s products are manufactured at its Exton, Pennsylvania and Houston, Texas facilities in the U.S., and in Banbury, Oxfordshire in the U.K. A majority of the Company’s sales across all industries are generated through independent outside sales organizations such as sales representatives, wholesalers and distributors, or a combination of both. The Company has a broad distribution network in North America and to a lesser extent in other global markets.

On July 1, 2026, the Company discontinued use of its CounterStrike branding and re-branded its black-jacketed CSST as TracPipe® AP CSST. In addition, on July 1, 2026, the Company introduced a re-engineered flexible gas piping fitting designed to support a broader range of applications across both residential and commercial construction markets. The new fitting eases installation while enhancing overall safety and reliability. The Company believes that in the commercial sector, the fitting is particularly well suited for larger-diameter systems, including sizes up to two inches, helping to address the requirements of more demanding installations.

In August 2026, the Company received Conformité Européenne (CE) mark certification under the European Union Medical Device Regulation (EU MDR 2017/745) for its MediTrac® corrugated medical tubing (CMT) product line.

CHANGES IN FINANCIAL CONDITION

For the period ended September 30, 2026 vs. December 31, 2025

The Company’s cash and cash equivalents balance of $42,823,000 on September 30, 2026 decreased $10,403,000 (19.5%) from a $53,226,000 balance at December 31, 2025. Consistent with prior years, the Company paid a significant amount of cash during the first quarter for obligations that were accrued as of the end of the preceding year such as incentive related compensation. The Company also paid dividends during 2026 totaling $10,295,000, as detailed in Note 9, Shareholders’ Equity, to the Condensed Consolidated Financial Statements included in this report, and capital expenditures of $1,190,000 partially offset by cash provided by operating activities of $972,000. See the Company’s Condensed Consolidated Statements of Cash Flow for further details regarding the change in cash.

Accounts Receivable was $15,874,000 and $13,665,000 as of September 30, 2026 and December 31, 2025, respectively, increasing $2,209,000 or 16.2%. This is mostly timing related, associated with higher sales during the current quarter versus the fourth quarter of the previous year.

Inventory was $17,071,000 and $13,397,000 as of September 30, 2026 and December 31, 2025, respectively, increasing $3,674,000 or 27.4%. The increase is mainly the result of the purchase of inventory to targeted inventory levels, for the new re-engineered flexible gas piping fitting introduced on July 1, 2026.

Retained earnings were $70,794,000 and $73,979,000 as of September 30, 2026 and December 31, 2025, respectively, decreasing $3,185,000 or 4.3%. The decrease was primarily due to dividends declared during 2026, as discussed in detail in Note 9, Shareholders’ Equity, to the Condensed Consolidated Financial Statements included in this report, partially offset by net income during the year, as provided on the Company’s Condensed Consolidated Statements of Income.

RESULTS OF OPERATIONS

Three months ended September 30, 2026 compared to three months ended September 30, 2025

The Company reported comparative results from operations for the three month periods ended September 30, 2026 and 2025 as follows:

(in thousands)

Net Sales. The Company’s 2026 third quarter sales of $25,697,000 increased $1,463,000 or 6.0% compared to the third quarter of 2025, which generated sales of $24,234,000.

Gross Profit. The Company’s gross profit margins were 51.6% and 60.2% for the quarters ended September 30, 2026 and 2025, respectively. The decrease in gross profit is mostly attributable to an increase in raw material costs, including inbound transportation costs and tariffs, for the new re-engineered flexible gas piping fitting introduced on July 1, 2026.

Selling Expenses. Selling expenses consist primarily of employee salaries and associated overhead costs, commissions, and the cost of marketing programs such as advertising, trade shows and related communication costs, and freight. Selling expenses were $5,633,000 and $4,993,000 for the quarters ended September 30, 2026 and 2025, respectively, representing an increase of $640,000 or 12.8%. The increase is mostly related to higher trade shows and advertising expenses, outbound freight, and travel. Selling expenses increased as a percentage of net sales compared to last year, being 21.9% for the quarter ended September 30, 2026, and 20.6% for the quarter ended September 30, 2025.

General and Administrative Expenses. General and administrative expenses consist primarily of employee salaries, benefits for administrative, executive and finance personnel, legal and accounting, and corporate general and administrative services. General and administrative expenses were $3,781,000 and $4,082,000 for the quarters ended September 30, 2026 and 2025, respectively, decreasing by $301,000 or 7.4%. The decrease is mostly due to lower stock based compensation, which moves in relation to the Company’s stock price, as detailed in Note 7, Stock Based Compensation Plans, product liability reserves and expenses, and incentive compensation expenses, which are aligned with profitability. As a percentage of sales, general and administrative expenses decreased to 14.7% for the quarter ended September 30, 2026 from 16.8% for the quarter ended September 30, 2025.

Engineering Expense. Engineering expenses consist of development expenses associated with the development of new products and enhancements to existing products, and manufacturing engineering costs. Engineering expenses were $1,269,000 and $1,321,000 for the quarters ended September 30, 2026 and 2025, respectively, decreasing by $52,000 or 3.9%. The decrease is mostly due to lower product development and certification related expenses. Engineering expenses decreased as a percentage of sales, being 4.9% for the quarter ended September 30, 2026, and 5.5% for the same quarter in 2025.

Operating Profits. Reflecting all of the factors mentioned above, operating profits were $2,579,000 and $4,185,000 for the quarters ended September 30, 2026 and 2025, respectively, decreasing by $1,606,000 or 38.4%.

Interest Income. Interest income is recorded on cash investments, and interest expense is recorded at times when the Company has debt amounts outstanding on its line of credit. The Company recorded $405,000 of interest income for the third quarter of 2026 and $509,000 for the third quarter of 2025, decreasing by $104,000 or 20.4%. The decrease is due to lower interest rates and cash balances.

Other Income (Expense). Other income (expense) primarily consists of foreign currency exchange gains (losses) on transactions settled in currencies other than the Company’s local currency, typically related to the Company’s foreign U.K. and France subsidiaries, and gains and losses on the sale or disposal of property and equipment. There was a gain on the sale of property and equipment of $95,000 offset by a loss on foreign exchange of $29,000 during the third quarter of 2026 compared to a loss on foreign exchange of $1,000 during the third quarter of 2025. There were no gains or losses on the sale or disposal of property and equipment during the third quarter of 2025.

Income Tax Expense. Income tax expense was $756,000 for the third quarter of 2026, compared to $1,062,000 for the third quarter in 2025, decreasing $306,000 or 28.8%, mostly the result of lower income before income taxes. The effective tax rates were 24.8% and 22.6% for the quarters ending September 30, 2026 and September 30, 2025 respectively.

Nine months ended September 30, 2026 compared to nine months ended September 30, 2025

The Company reported comparative results from operations for the nine month periods ended September 30, 2026 and 2025 as follows:

(in thousands)

Net Sales. The Company’s sales for the first nine months of 2026 of $72,847,000 decreased $242,000 or 0.3% compared to the first nine months of 2025, which generated sales of $73,089,000.

Gross Profit. The Company’s gross profit margins were 54.3% and 60.3% for the nine months ended September 30, 2026 and 2025, respectively. The decrease in gross profit is mostly attributable to an increase in raw material costs, including inbound transportation costs and tariffs.

Selling Expenses. Selling expenses consist primarily of employee salaries and associated overhead costs, commissions, and the cost of marketing programs such as advertising, trade shows and related communication costs, and freight. Selling expenses were $16,538,000 and $15,211,000 for the nine months ended September 30, 2026 and 2025, respectively, representing an increase of $1,327,000 or 8.7%. Significant, notable items include increases in trade shows and advertising, outbound freight, staffing related costs, and annual sales meeting expenses. Selling expenses increased as a percentage of net sales compared to last year, being 22.7% for the nine months ended September 30, 2026, and 20.8% for the nine months ended September 30, 2025.

General and Administrative Expenses. General and administrative expenses consist primarily of employee salaries, benefits for administrative, executive and finance personnel, legal and accounting, and corporate general and administrative services. General and administrative expenses were $11,013,000 and $12,106,000 for the nine months ended September 30, 2026 and 2025, respectively, decreasing by $1,093,000 or 9.0%. The decrease is mostly due to lower product liability reserves and expenses and incentive compensation expenses, which are aligned with profitability, partly offset by higher staffing related costs. As a percentage of sales, general and administrative expenses decreased to 15.1% for the nine months ended September 30, 2026 from 16.6% for the nine months ended September 30, 2025.

Engineering Expense. Engineering expenses consist of development expenses associated with the development of new products and enhancements to existing products, and manufacturing engineering costs. Engineering expenses were $4,074,000 and $3,801,000 for the nine months ended September 30, 2026 and 2025, respectively, increasing by $273,000 or 7.2%. The increase is mostly due to higher staffing related and product development and certification related expenses. Engineering expenses increased as a percentage of sales, being 5.6% for the nine months ended September 30, 2026, and 5.2% for the nine months ended September 30, 2025.

Operating Profits. Reflecting all of the factors mentioned above, operating profits were $7,943,000 and $12,957,000 for the nine months ended September 30, 2026 and 2025, respectively, decreasing by $5,014,000 or 38.7%.

Interest Income. Interest income is recorded on cash investments, and interest expense is recorded at times when the Company has debt amounts outstanding on its line of credit. The Company recorded $1,289,000 and $1,513,000 of interest income during the first nine months of 2026 and 2025, respectively, decreasing by $224,000 or 14.8%. The decrease is due to lower interest rates and cash balances.

Other Income (Expense). Other income (expense) primarily consists of foreign currency exchange gains (losses) on transactions settled in currencies other than the Company’s local currency, typically related to the Company’s foreign U.K. and France subsidiaries, and gains and losses on the sale or disposal of property and equipment. There was a loss on foreign exchange of $115,000 offset by a gain on the sale of property and equipment of $95,000 during the nine months ended September 30, 2026 compared to a gain on foreign exchange of $311,000 during the nine months ended September 30, 2025. There were no gains or losses on the sale or disposal of property and equipment during the nine months ended September 30, 2025.

Income Tax Expense. Income tax expense was $2,302,000 for the first nine months of 2026, compared to $3,527,000 for the first nine months in 2025, decreasing $1,225,000 or 34.7%, mostly the result of lower income before income taxes. The effective tax rates were 25.0% and 23.9% for the nine months ending September 30, 2026 and September 30, 2025 respectively.

LIQUIDITY AND CAPITAL RESOURCES

Historically, the Company’s primary cash needs have been related to working capital items, which the Company has largely funded through cash generated from operations.

As of September 30, 2026, the Company had a cash balance of $42,823,000. Additionally, the Company has a $15,000,000 line of credit available, as discussed in detail in Note 5, which had no borrowings outstanding upon it as of September 30, 2026. As of December 31, 2025, the Company had a cash balance of $53,226,000, also with no borrowings against the line of credit.

We believe our existing cash and cash equivalents, along with our borrowing capacity, will be sufficient to meet our anticipated cash needs for at least the next twelve months. Our future capital requirements will depend upon many factors including our rate of revenue growth, the timing and extent of any expansion efforts, and the potential for investments in, or the acquisition of any complementary products, businesses, or supplementary facilities for additional capacity.

See Notes 6 and 8 to the Company’s Condensed Consolidated Financial Statements included in this Form 10-Q for a description of the Company’s commitments and contingencies.

CASH FLOWS

Operating Activities

Cash provided or used by operating activities is net income adjusted for certain non-cash items and changes in certain assets and liabilities, such as those included in working capital.

For the nine months ended September 30, 2026, the Company’s operating activities provided cash of $972,000, compared to the nine months ended September 30, 2025 which provided cash of $9,668,000, a decrease of $8,696,000. For details of the operating cash flows refer to the Condensed Consolidated Statements of Cash Flows in Part I – Financial Information on page nine.

As a general trend, the Company tends to deplete or generate lower amounts of cash early in the year, as significant payments are typically made for incentive compensation and accrued promotional incentives. Cash has then historically shown a tendency to be restored and accumulated during the latter portion of the year.

Investing Activities

Cash used in investing activities during the nine months ended September 30, 2026 and 2025 was $1,140,000 and $1,613,000, respectively, mainly as a result of payments for manufacturing equipment capital expenditures and leasehold improvements.

Financing Activities

All financing activities relate to dividend payments, which are detailed in Note 9, Shareholders’ Equity. Dividend payments through the first nine months of 2026 and 2025 amounted to $10,295,000 and $10,296,000, respectively.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

See our Annual Report on Form 10-K for the year ended December 31, 2025 for a discussion of our critical accounting policies and estimates. There have been no material changes to our critical accounting policies and estimates discussed in such report.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU expands public entities tax disclosures including improving disclosures surrounding the company’s rate reconciliation, cash taxes paid, and disaggregation of income tax expense (or benefit) from continuing operations. The amendment is effective for annual periods beginning after December 15, 2024. In 2025, the Company adopted ASU No. 2023-09 retrospectively and reflected these improvements in Note 9. Income Taxes of the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.

In November 2024, the FASB issued ASU No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The ASU requires new tabular disclosures disaggregating prescribed expense categories within relevant income statement captions. The amendment is effective for annual periods beginning after December 15, 2026 and interim periods in fiscal years beginning after December 15, 2027. The Company is in the process of evaluating the impact of ASU No. 2024-03 on its Condensed Consolidated Financial Statements.

The Company does not engage in the purchase or trading of market risk sensitive instruments. The Company does not presently have any positions with respect to hedge transactions such as forward contracts relating to currency fluctuations. No market risk sensitive instruments are held for speculative or trading purposes.

(a) Evaluation of Disclosure Controls and Procedures.

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Form 10-Q. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of the period covered by this Form 10-Q, our disclosure controls and procedures were effective at the reasonable assurance level. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

(b) Changes in Internal Controls.

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent quarter ended September 30, 2026, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.