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YG

YUNHONG GREEN CTI LTD. (YHGJ)·Q3 2018 Earnings Summary

Executive Summary

  • Q3 2018 was seasonally weak with net sales of $11.53M, down 13% year over year, gross margin compressed to 19%, and EBITDA near breakeven; management reiterated full-year expectations for higher net sales, lower OpEx, and higher operating profitability versus 2017 .
  • Management removed $1.4M of expenses year-to-date and targeted ~$3.0M in annualized operating cost reductions by year-end, citing improved manufacturing efficiencies and capacity as drivers .
  • Financing and liquidity were a focus: the company deferred a planned rights offering (later terminated) and disclosed reclassification of long-term debt to current and a going-concern footnote while negotiating revised credit terms with PNC .
  • Product mix dynamics: vacuum sealing product sales increased amid tariff risk; balloons and Candy Blossoms saw seasonal declines; a film customer trial is underway to utilize underutilized capacity .

What Went Well and What Went Wrong

  • What Went Well

    • Cost structure improvement: “We have removed $1.4 million of expenses… and are on track to remove approximately $3 million of annualized operating costs by the end of 2018.” – Jeffrey Hyland, President .
    • Manufacturing and capacity: “Our manufacturing efficiencies have improved, capacity has increased, and we have implemented a robust business development program.” – Jeffrey Hyland .
    • Category resilience: vacuum sealing products rose year over year in Q3 despite tariff risks; EBITDA for the first nine months improved to $1.62M from $1.18M in 2017 .

  • What Went Wrong

    • Demand softness and seasonality: Q3 net sales fell 13% YoY to $11.53M; gross margin declined to 19% vs. 24% in Q3 2017, compressing profitability and yielding an operating loss of $0.33M .
    • Higher interest burden: net interest expense increased to $0.47M in Q3 (vs. $0.37M in Q3 2017) on higher rates and debt, widening net loss to $0.56M (EPS $(0.16)) .
    • Financing uncertainty: rights offering was deferred and then terminated; long-term debt reclassified as current, and going concern referenced pending lender discussions, elevating balance sheet risk .

Financial Results

MetricQ1 2018Q2 2018Q3 2018
Revenue ($USD Millions)$13.98 $15.99 $11.53
Gross Profit ($USD Millions)$2.87 $3.80 $2.19
Gross Margin %20.5% N/A19.0%
Operating Income (Loss) ($USD Millions)$(0.15) $0.85 $(0.33)
Diluted EPS ($USD)$(0.13) $0.07 $(0.16)
EBITDA ($USD Millions)$0.33 N/A$0.03
MetricQ3 2017Q3 2018
Revenue ($USD Millions)$13.23 $11.53
Gross Profit ($USD Millions)$3.19 $2.19
Gross Margin %24.0% 19.0%
Operating Income (Loss) ($USD Millions)$(0.03) $(0.33)
Diluted EPS ($USD)$(0.08) $(0.16)
EBITDA ($USD Millions)$0.34 $0.03

Segment/Product Mix – Q3 2018 vs Q3 2017

Category ($USD Millions)Q3 2018Q3 2017
Foil Balloons$4.58 $5.77
Latex Balloons$2.47 $2.62
Vacuum Sealing Products$2.52 $2.40
Film Products$0.32 $0.66
Other Sales$1.65 $1.78
Total$11.53 $13.23

Key Quarterly KPIs

KPIQ3 2018
Operating Expenses ($USD Millions)$2.52
OpEx as % of Net Sales22%
Net Interest Expense ($USD Millions)$0.47
Net Loss Attributable to CTI ($USD Millions)$(0.56)
Cash and Equivalents (Quarter-end) ($USD Millions)$0.27
Total Current Liabilities (Quarter-end) ($USD Millions)$28.14
Long-term Debt, Less Current (Quarter-end) ($USD Millions)$2.26

Estimates vs. Actuals

MetricQ3 2018 ConsensusQ3 2018 Actual
Revenue ($USD Millions)N/A$11.53
Diluted EPS ($USD)N/A$(0.16)

Note: Wall Street consensus via S&P Global was unavailable for Q1–Q3 2018; estimates comparison not possible.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net SalesFY 2018Higher vs 2017 Higher vs 2017 Maintained
Total Operating ExpensesFY 2018Lower vs 2017 Lower vs 2017 Maintained
Operating ProfitabilityFY 2017→2018Operate profitably vs 2017 Higher operating profitability vs 2017 Maintained
Annualized Cost ReductionFY 2018~$2.2M by YE 2018 ~$3.0M by YE 2018; $1.4M removed YTD Raised
Rights Offering / Capital Raise2018Raise ≥$7.5M by Nov 15; $2.0M term loan prepay planned Deferred on Nov 13; terminated Nov 29 Withdrawn
Tariffs Mitigation2018Tariff risk identified; may impact cost/profitability Continuing evaluation; some price increases implemented Ongoing

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q3 2018)Trend
Tariffs/MacroIdentified tariff risk (China) impacting vacuum sealing and Clever Container profitability Reiterated tariff evaluation; some price increases implemented to mitigate Persistent headwind; mitigation actions underway
Product Performance – Candy BlossomsQ2: Candy Blossoms drove sales; “Other” up 207% YoY; $3.47M contribution in H1 Seasonal weakness; “Other” down YoY in Q3 Volatile; seasonal sensitivity
Vacuum Sealing ProductsQ2: +19% YoY; tariff risk assessed Higher Q3 sales YoY; tariff exposure noted Resilient despite external pressure
Cost Reduction & EfficiencyQ1: Actions to remove $2.2M costs and stabilize operations $1.4M removed YTD; targeting ~$3.0M by YE; improved efficiencies/capacity Strengthening execution
Financing/CovenantsQ2: Covenants amended/waived; higher interest; leverage/fixed charge covenants Amendment No.2 adds $7.5M raise covenant; later deferred; going concern disclosure; debt reclassification Elevated financing risk
Leadership TransitionN/ACEO retirement announced Nov 29; President Hyland to become CEO; reiterated 2018 outlook Governance change; continuity signaled

Management Commentary

  • “Our results for Q3 2018 were indicative of the inherent seasonality of our business… We have removed $1.4 million of expenses… and are on track to remove approximately $3 million of annualized operating costs by the end of 2018. Our manufacturing efficiencies have improved, capacity has increased, and we have implemented a robust business development program.” – Jeffrey Hyland, President .
  • “For full year 2018, we continue to expect higher net sales, lower total operating expenses, and higher operating profitability when compared to 2017.” – Jeffrey Hyland, on leadership transition release .
  • “We have undertaken a series of initiatives that have stabilized our operations… We expect to remove $2.2 million in annualized operating costs by the end of 2018.” – Stephen Merrick, CEO (Q1 2018) .

Q&A Highlights

  • The company scheduled a Q3 conference call for November 13, 2018; dial-in and replay details were provided .
  • An earnings call transcript was not available in our document set; Q&A specifics and any clarifications are therefore unavailable to analyze [List: earnings-call-transcript returned none].

Estimates Context

  • Wall Street consensus estimates for revenue and EPS for Q1–Q3 2018 were unavailable via S&P Global; we cannot assess beats/misses or surprise magnitude. This is typical for microcap names with limited sell-side coverage [GetEstimates error; SPGI daily limit exceeded—no data returned].

Key Takeaways for Investors

  • Seasonal softness and mix drove Q3 margin compression; vacuum sealing product strength partially offset balloon and Candy Blossoms declines, but EBITDA was near breakeven and net loss widened, underscoring sensitivity to quarterly demand patterns .
  • Execution on cost reductions is tangible ($1.4M YTD; ~$3.0M targeted), and efficiency/capacity improvements should support margin recovery in stronger seasonal quarters (Q4), if volumes materialize as management expects .
  • Financing risk elevated near-term: rights offering withdrawn; long-term debt reclassified as current with going concern disclosure; outcome hinges on lender negotiations to modify terms without additional capital raise .
  • Tariff exposure remains a headwind for China-sourced products; the company has implemented some price increases and continues to evaluate mitigation, but elasticity and customer acceptance bear monitoring .
  • Product/customer concentration persists (top customers represent a large share of sales), amplifying volatility; continued business development and film customer trials may diversify revenue if successful .
  • Leadership transition to Hyland (already President) suggests continuity in operational priorities and 2018 outlook; governance stability could be a modest positive if financing issues are resolved amicably .
  • Near-term trading implication: lack of estimates and financing uncertainty may keep shares reactive to any lender updates or Q4 performance proof points; medium-term thesis hinges on sustaining cost/efficiency gains, tariff pass-through, and revenue diversification .