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YG

YUNHONG GREEN CTI LTD. (YHGJ)·Q1 2018 Earnings Summary

Executive Summary

  • Q1 2018 net sales were $13.98M, down 9.0% year over year from $15.36M, driven by delayed ordering from two major customers in January–February; March sales were at record levels and April–May continued strong .
  • Gross profit fell to $2.87M (20.5% of sales) vs $3.62M (23.6%) in Q1 2017 as lower volume compressed margins; operating loss was $0.15M vs operating income of $0.51M in Q1 2017 .
  • Diluted EPS was -$0.13 vs $0.02 in Q1 2017; EBITDA declined to $0.33M from $0.89M, reflecting weaker volume and higher interest expense ($0.56M vs $0.37M) .
  • Management reaffirmed a 2018 outlook for higher net sales, lower operating expenses, and profitability vs 2017, citing cost actions targeting removal of $2.2M annualized OpEx; potential near-term catalyst is continued demand strength post-March and execution on cost reductions .

What Went Well and What Went Wrong

What Went Well

  • “March sales were at record levels and sales in April and May have continued to be strong,” suggesting demand snapback after delayed orders earlier in the quarter .
  • Operating expenses decreased to $3.0M from $3.1M in Q1 2017, reflecting lower G&A and advertising/marketing, partially offset by higher selling costs .
  • Management executed and expanded cost reduction initiatives, “expected to remove $2.2 million in annualized operating costs by the end of 2018,” underpinning improved 2018 profitability expectations .

What Went Wrong

  • Net sales declined to $13.98M from $15.36M, with pressure in foil balloons, vacuum sealing, and film products; gross margin contracted to 20.5% from 23.6% on lower volume .
  • Interest expense rose meaningfully to $0.56M from $0.37M, contributing to a net loss of $0.46M vs net income of $0.06M in Q1 2017 .
  • Product mix headwinds persisted: foil balloons and vacuum sealing dragged, partially offset by latex balloons and other categories; operating loss of $0.15M vs prior-year operating income of $0.51M highlighted near-term margin sensitivity to volume .

Financial Results

MetricQ1 2017Q3 2017Q4 2017Q1 2018
Revenue ($USD)$15,359,637 $13,225,954 $14,839,271 $13,979,177
Gross Profit ($USD)$3,617,448 $3,186,910 $3,833,081 $2,868,391
Gross Margin (%)23.6% 24.1% N/A20.5%
Operating Expenses ($USD)$3,109,755 $3,212,672 $3,234,588 $3,015,049
Operating Income ($USD)$507,693 $(25,762) $598,493 $(146,658)
Interest Expense ($USD)$372,865 $371,200 $476,191 $564,060
Net Income Attributable to CTI ($USD)$58,469 $(274,700) $(860,745) $(463,008)
Diluted EPS ($USD)$0.02 $(0.08) $(0.24) $(0.13)
EBITDA ($USD)$894,210 N/AN/A$325,283

Segment sales breakdown (Q1 2018 vs Q1 2017):

SegmentQ1 2017 ($USD)Q1 2018 ($USD)
Foil Balloons$8,891,000 $7,766,000
Latex Balloons$2,105,000 $2,149,000
Vacuum Sealing Products$1,708,000 $1,589,000
Film Products$838,000 $438,000
Other Sales$1,818,000 $2,037,000
Total$15,360,000 $13,979,000

Notes:

  • “Other Sales” primarily Candy Blossoms ($577k), home container products ($1,117k), and party goods ($127k) in Q1 2018 .
  • Non-GAAP EBITDA reconciliation provided in the press release .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net SalesFY 2018Not disclosedHigher vs 2017 Raised (qualitative)
Total Operating ExpensesFY 2018Not disclosedLower vs 2017; remove $2.2M annualized OpEx by year-end Lowered (quantitative cost target)
ProfitabilityFY 2018Not disclosedOperate profitably vs 2017 Raised (qualitative)

Context:

  • March 29, 2018 8-K highlighted new financing (PNC $6M term loan, $18M revolver), management additions, and cost reduction programs (> $2M achieved in 2H17), supporting 2018 execution .

Earnings Call Themes & Trends

Transcript not available in our document set; themes derived from company releases.

TopicPrevious Mentions (Q3 2017, Q4 2017)Current Period (Q1 2018)Trend
Demand cadence / customer ordersAnticipated strong Q4; re-financing and cost reductions expected to support growth Delayed orders from two major customers hurt Jan–Feb; March record sales; April–May strong Improving post-March
Cost actions / efficiencyCost control and reductions realized in 2H17; additional profit improvement measures planned Expect to remove $2.2M annualized OpEx; foundation for improved performance Accelerating
Financing / liquidityNew PNC facility: $6M term loan + $18M revolver; repaid prior loans and warrants; provides working capital No new update; higher interest expense in Q1 Funding secured; interest cost elevated
Product performance (foil)Foil balloon revenues +4.4% YTD through Q3; capacity expansion planned Foil balloon sales down YoY in Q1 Near-term softness
Product performance (latex)Latex recovered, +39.8% in Q3; +12.7% nine months Latex balloons up YoY in Q1 Positive
Product performance (vacuum sealing)YTD down 23% through Q3; normalized rate by Q3; Ziploc license extended to 12/31/2019 Vacuum sealing down YoY in Q1 Mixed; normalization pending
Geographic / expansionAggressive business development across U.S., Mexico, Europe; pipeline >50 opportunities Expand geographic/product footprints; robust new business pipeline Consistent strategic push

Management Commentary

  • “Delayed ordering from two major customers resulted in lower than anticipated sales in January and February… However, March sales were at record levels and sales in April and May have continued to be strong.” — Stephen Merrick, CEO .
  • “We have undertaken a series of initiatives that have stabilized our operations and created a foundation for improved performance in 2018… We expect to remove $2.2 million in annualized operating costs by the end of 2018.” — Stephen Merrick, CEO .
  • “We have acted to address the challenges of 2017 and to position our Company for a strong 2018: Re-financing with PNC… management enhancement… cost reduction (> $2 million)… profit improvement program… aggressive business development… strategic growth.” .

Q&A Highlights

  • No Q1 2018 earnings call transcript was found in our document set; the 8-K provided call scheduling details only, so specific Q&A themes are unavailable .

Estimates Context

  • Wall Street consensus estimates from S&P Global for Q1 2018 were unavailable at time of request due to data access constraints; as a result, direct comparisons to consensus and beat/miss determinations cannot be made. Values were intended to be retrieved from S&P Global but were unavailable at the time of the query.

Key Takeaways for Investors

  • Volume timing drove the quarter: weak Jan–Feb from two major customers, but record March and strong April–May suggest momentum into Q2/Q3; near-term trading could react favorably to confirmation of sustained post-March demand .
  • Margin sensitivity is high: a ~300 bps gross margin compression on lower volume flipped operating income to a modest loss; volume recovery and mix (foil/latex vs vacuum sealing/film) will be key to margin repair .
  • Cost actions are tangible: management targets $2.2M annualized OpEx removal by YE18, with prior reductions already achieved in 2H17; successful execution could offset margin pressure and support profitability .
  • Balance sheet/liquidity stabilized via new PNC facility; however, interest expense elevated ($0.56M in Q1) — watch cash generation and working capital to limit financing cost drag .
  • Product mix watch: foil balloons and vacuum sealing softness weighed on revenue/margins; latex and other categories improved; incremental wins in foil capacity and business development could pivot mix back to higher-margin lines .
  • With consensus unavailable, focus on company’s FY18 framework (higher sales, lower OpEx, profitable) and upcoming quarters to validate trajectory; estimate revisions may hinge on sustained demand recovery and realized cost savings .
  • Actionable: monitor Q2 sales cadence vs March record run-rate, operating expense inflection, and interest expense trend; upside if demand normalizes and OpEx reductions materialize; downside if customer order timing persists or financing costs stay elevated .