Yunhong Green CTI Ltd (YHGJ) 2017 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the CTI Industries Corporation announce its Second Quarter 2017 Financial Results Conference Call. This call is being recorded.

This conference call may contain forward-looking statements as defined in Section 27A of the Securities Act of 1933 as amended, including statements regarding, among other things, the company's business strategy and growth strategy. Expressions which identify forward-looking statements speak only as of the date the statement is made. These forward-looking statements are based largely on the company's expectations and are subject to a number of risks and uncertainties, some of which cannot be predicted or quantified and are beyond their control. Future developments and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements. In light of these risks and uncertainties, there can be no assurance that the forward-looking information will provide -- will prove to be accurate.

I will now turn the call over to Stephen Merrick, President. Please go ahead, sir.

Good morning, everyone and for thank you for participating in this call. My name is Stephen Merrick, and I will be presenting our report with Tim Patterson, our Chief Financial Officer; and Stan Brown, the Director of our company and Director of Investor Relations.

In general, our results for our second quarter are the weakest of our year and we do expect that will be the case this year as well. Even with that history though, our performance in the second quarter and the first half of this year has been below our expectations. While performance in our Foil and Latex Balloon products lines has been reasonably strong during this period, revenues in our vacuum sealing and commercials film lines have been well below the same periods of last year and have negatively affected our results. We have undertaken a number of initiatives to improve our profitability in the second half of this year, and believe that our performance will improve substantially in that period. We do anticipate improvement in our revenues for our vacuum sealing line in the second half of the year as the effects of a major sales promotion by a principal customer, late last year wears off.

We are installing 2 new foil balloon converting machines in September, which will enhance our production of foil balloons in the fourth quarter. Further, we have taken and are taking now significant actions to reduce our operating expenses and are working to achieve total annualized reductions in operating expense of at least $1.4 million.

In summary, for the second quarter this year, net sales were $12,812,000, down 9.5% from net sales of $14,151,000 for the second quarter of 2016.

For the 6-month period ended June 30, 2017, net sales were $28,171,000, down 4% from net sales of $29,355,000 for the same period of 2016.

In the second quarter, we incurred a loss of $526,000 or $0.15 per share basic, $0.14 diluted compared to a loss of $83,000 or $0.02 per share for the second quarter of 2016.

For the 6 months, we incurred a net loss of $468,000 or $0.13 per share, compared to a net loss of $76,000 or $0.02 per share for the same period of 2016. A significant factor in the decline in our sales performance has been sales of our vacuum sealing line.

In the second quarter, sales in that line were $1,563,000 compared to second quarter 2016 sales of $2,444,000, a drop of 36%. For the 6 months, sales were $3,271,000 compared to $4,768,000 for the same period of 2016. We believe that sales of our vacuum sealing line were affected during both the first and second quarters this year by the selloff of excess inventory of these products, by a principal customer, due to a sales promotion the customer implemented during the fourth quarter of 2016, for which they purchased a large quantity of machines. We believe that this excess inventory has now been sold and do anticipate increased orders for machines during the third and fourth quarters of this year. Sales of laminated film products are also off. For the 6-month sales in this product line were $1,536,000 compared to $2,370,000 for the same period last year.

Our principal customer for this line remains a long-term customer, but the volume of its purchases from us this year so far has been reduced. The declines in these 2 lines of products were a principal factor in the loss we incurred in the second quarter.

Our gross profit from sales in the second quarter was $3,117,000 compared to $3,837,000 in the second quarter of last year. Much of that decline in gross profit came about as a result of the reduced sales in the vacuum sealing line, and the laminated film products.

Revenues from our core product lines and other sources of revenue remain reasonably strong, both for the second quarter and for the 6-month period. Foil balloon sales in the second quarter were up by almost 7% to $6,788,000 compared to $6,350,000 in the second quarter last year. For the 6-month period, foil balloon sales were up 9.2% to $15,680,000 from $14,362,000 for that period last year. We saw increases in sales to a number of customers in this period, in the United States, Europe and Mexico.

Sales of latex balloons held up well and were $4,349,000 for the 6 months compared to $4,308,000 for the same period last year. Our other resources of revenue include our Candy Blossom line, our sales of container and organizing products and our sales of party goods in Mexico through our subsidiary there.

For the 6 months, revenues in these lines were at $3,335,000 compared to $3,547,000 for the 6-month last year. As we have said, our results for the second quarter and 6 months are short of our expectations. We have undertaken several initiatives to improve performance in the second half of this year and beyond.

First, we do anticipate the sales of our vacuum sealing line will increase in the second half as the effects of our customers major sales promotion wears off. We are already seeing some increases in those sales.

Second, we are installing 2 new foil balloon converting machines in September, which will enhance our production capacity by about 25%, and we believe will support additional foil balloon revenues in the second half.

Third, we have undertaken a series of actions to reduce our operating expenses for the second half of the year and beyond. These include reductions in both outside services and personnel, much of which has already been implemented, and which will reduce operating costs on an annualized basis in a range of about $1,400,000. Further, we have identified additional cost reductions or savings in our U.K. operations, health insurance and benefits, purchasing efficiencies and production efficiencies, which we believe may generate as much as an additional $1 million in savings.

Management of our company is fully committed to operating our company at profitable level, and to taking any and all actions which are necessary to accomplish that goal.

At the same time, we are engaged in negotiations and efforts to extend our lending relationship with our principal lenders, or to replace some or all of our existing debt with other sources. Despite our less than satisfactory performance this past quarter, I can report that we generated over $3.2 million in cash flow from operations over the first 6 months of this year. As of June 30, 2017, we have working capital of $6,239,000, and we had cash and cash equivalents of $456,000. That concludes our report. Operator, may we have your assistance please?

(Operator Instructions) We'll go to Jeff Rosenkranz from Metronome Partners.

Obviously, a tough quarter though it appears that the topline issue really was largely related to vacuum sealing line. It sounds like you're taking the right steps on costs, given the cost cuts, the sell-through on vacuum sealing in the new converting machines coming online, do feel like the rest of the year should be on plan?

We do feel it will be on plan. And we -- generally, our second half is our strongest half of the year in any event. And we expect that, that certainly will be the case this year as well. And with the significant cost reductions that we have already implemented, our expectation is that our performance will improve substantially in the second half of the year.

Thank you. And with no additional questions, I'd like to turn the floor back over to our speakers.

Thank you, all for participating in the call today. We were disappointed in our results for the second quarter. But as I said, we made a lot of efforts here to improve our performance, particularly during the second half and beyond. And as I said, our management is totally committed to that end. Thank you very much.

Thank you, ladies and gentleman. Again, that does conclude today's conference. Thank you all again for your participation.