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CTI Industries Announces 2018 Second Quarter Financial Results

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CTI Industries Announces 2018 Second Quarter Financial Results

Reiterates Outlook for Improved Operating Performance in 2018

Q2 2018 Overview

- Net sales increased 24.8% to $16.0 million from $12.8 million

- Operating income improved to $0.8 million from an operating loss of $0.5 million

- Net income attributable to CTI improved to $0.3 million, or $0.07 per diluted share, from a net loss attributable to CTI of $0.5 million, or $0.14 per diluted share

PR Newswire

BARRINGTON, Ill., Aug. 13, 2018 /PRNewswire/ -- CTI Industries Corporation (NASDAQ:CTIB) ("CTI"), a manufacturer and global marketer of novelty balloons, vacuum and flexible packaging and storage products, printed and laminated films, party goods, Candy Blossoms and home container products, today reported financial results for the second quarter ("Q2 2018") and six months ended June 30, 2018.  

CTI Industries Corporation

"We are very pleased to be able to report one of the strongest second quarter results in CTI's history," said Stephen Merrick, Chief Executive Officer of CTI.  "The sales momentum that commenced in March of this year continued through June, allowing us to grow Q2 2018 net sales by approximately 25% from Q2 2017. The operational improvement initiatives that we commenced during 2017 resulted in a 17.4% decline in total operating expenses, improved manufacturing efficiencies, and higher production capacity.  The combined effect of higher net sales, a lower cost structure, and an improved manufacturing and production profile allowed us to return to profitability in Q2 2018.  We believe that these results reflect the ongoing transformation at CTI and validate the efforts of our new management team to deliver long-term value to our shareholders."      

Q2 2018 Review

Net sales increased by $3.2 million, or 24.8%, to $16.0 million from $12.8 million in Q2 2017, reflecting higher sales of the Candy Blossoms product line, latex balloons, and vacuum sealing products.  Candy Blossoms had a particularly strong quarter, generating Q2 2018 sales of $2.9 million.  

See table below, in $000s.


Three Months Ended


Six Months Ended


June 30,

2018

June 30,

2017


June 30,

2018

June 30,

017







Foil Balloons

$    6,508

$     6,788


$  14,274

$   15,680

Latex Balloons

$    2,333

$     2,244


$    4,482

$     4,349

Vacuum Sealing Products

$    1,865

$     1,563


$    3,453

$     3,271

Film Products

$       609

$        699


$    1,047

$     1,536

Other Sales (1)

$    4,670

$     1,518


$    6,708

$     3,335

Total

$  15,985

$   12,812


$  29,964

$   28,171

(1)

   Primarily comprised of sales of Candy Blossoms, home container products and party goods

Gross profit increased to $3.8 million, or 23.7% of net sales, as compared to gross profit of $3.1 million, or 24.3% of net sales, in Q2 2017. 

Operating expenses, which include general and administrative, selling, and advertising and marketing costs, as well as gains and losses on asset sales, declined to $2.9 million, or 18.4% of net sales, in Q2 2018 from $3.6 million, or 27.9% of net sales, in Q2 2017.  These declines are the direct result of profit improvement actions implemented during 2017 and 2018, offset by cost increases in specific items.

Higher net sales and resulting gross profit, along with lower operating expenses produced operating income of $0.8 million in Q2 2018, compared to an operating loss of $0.5 million in Q2 2017. 

Interest expense, net, rose to $0.5 million in Q2 2018 from $0.4 million in Q2 2017.  Higher interest rates and a larger overall debt position are the primary elements for that increase.   

Net income attributable to CTI was $0.3 million, or $0.07 per diluted share, as compared to a net loss of $0.5 million, or $0.14 per diluted share, in Q2 2017. 

EBITDA for Q2 2018 was $1.2 million as compared to an EBITDA loss of less than $0.1 million in Q2 2017. 

First Six Months 2018 Results Overview

Net sales rose to $30.0 million from $28.2 million in the same period last year.  

Gross profit for the six-month periods ended June 30, 2018 and 2017 was $6.7 million, or 22.2% and 23.9% of sales, respectively.     

Total operating expenses declined to $6.0 million from $6.7 million in the comparable period of 2017. 

Operating income improved to $0.7 million from $0.1 million in the 2017 six-month period.   

Interest expense, net, was $1.1 million, up from $0.7 million in the same period one year ago.

Net loss attributable to CTI was $213,000, or $0.06 per diluted share, as compared to a net loss attributable to CTI of $0.5 million, or $0.12 per diluted share, in the same period one year ago.       

EBITDA was $1.6 million, up from $0.9 million in the 2017 six-month period.

2018 Outlook

While acknowledging that certain challenges and uncertainties remain in its business and industry, for the full year of 2018 CTI expects higher net sales, lower total operating expenses, and profitable operations when compared to 2017.   CTI re-iterated this outlook after taking into account the following factors:  i.) as typically occurs in our business as a result of seasonality, we tend to have lower revenues in Q3 with a strong rebound in Q4; and ii.) we continue to evaluate the impact of recently imposed tariffs to our China-manufactured vacuum sealing and home container products, and are pursuing  actions  which may mitigate their effect on our results.

Conference Call 

Management will host a conference call to discuss Q2 2018 results and other matters on Monday, August 13, 2018 at 9:00 a.m. Central Time / 10:00 a.m. Eastern Time.  Interested parties may participate in the call by dialing:

  • 866-619-8760
  • and entering the Conference ID code 4287045. 

Participants are advised to dial into the call five to ten minutes prior to the starting time to register.  A replay of the conference call will be available from August 13–20, 2018 by dialing 855-859-2056.  The replay passcode is 4287045.

Non-GAAP Measures
To provide additional information regarding the Company's results, we have disclosed in this press release EBITDA (Earnings Before Interest Taxes Depreciation and Amortization).  The Company defines EBITDA as earnings (loss) before net interest, other expense, taxes, depreciation and amortization expense. The Company has included EBITDA as a supplemental financial measure in this press release because it is a key measure used by management and the board of directors to understand and evaluate the core operating performance of the Company, to prepare budgets and operating plans, and because management believes such measure provides useful information in understanding and evaluating the Company's operating results.  However, use of EBITDA as an analytic tool has its limitations and you should not consider this measure in isolation or as a substitute for analysis of the Company's financial results as reported under GAAP.  A reconciliation to the closest GAAP statement of this non-GAAP measure is contained in the accompanying tables.

About CTI

CTI Industries Corporation is one of the leading manufacturers and marketers of foil and latex balloons, develops, produces and markets vacuum sealing systems for household use and produces laminated and printed films for commercial uses.  CTI also distributes products for home organization and storage, Candy Blossoms and other gift items and, in Mexico, party goods.  CTI markets its products throughout the United States and in a number of other countries.

Forward Looking Statements

Statements made in this release that are not historical facts are "forward-looking" statements (within the meaning of Section 21E of the Securities Exchange Act of 1934) that involve risks and uncertainties and are subject to change at any time.  These "forward-looking" statements may include, but are not limited to, statements containing words such as "may," "should," "could," "would," "expect," "plan," "goal," "anticipate," "believe," "estimate," "predict," "potential," "continue," or similar expressions. We have based these forward-looking statements on our current expectations and projections about future results.  Although we believe that our opinions and expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements, and our actual results may differ substantially from statements made herein.  We cannot anticipate the duration of increased tariffs between the United States and other countries, particularly China.  We do not know whether we will be successful in passing such additional costs through to customers.  Any failure to do so would have a negative impact on our financial condition.  More information on factors that could affect CTI's business and financial results are included in its public filings made with the Securities and Exchange Commission, including its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.

 

CTI Industries Corporation and Subsidiaries



Condensed Consolidated Balance Sheets













June 30, 2018

December 31, 2017

ASSETS



(unaudited)


Current assets:




Cash and cash equivalents (VIE $9,000 and $51,000, respectively)

$                            452,826

$                          181,026


Accounts receivable, (less allowance for doubtful accounts of $100,000 and $114,000, respectively)




11,877,381

11,235,834


Inventories, net (VIE $470,000 and $498,000, respectively)

19,293,662

18,865,932


Prepaid expenses (VIE $131,000 and $80,000, respectively)

672,242

887,885


Other current assets

1,243,335

1,120,808









Total current assets

33,539,446

32,291,485







Property, plant and equipment:




Machinery and equipment

23,431,338

23,439,781


Building

3,367,082

3,367,082


Office furniture and equipment (VIE $298,000 and $268,000, respectively)

2,653,532

2,591,159


Intellectual property

752,044

752,044


Land


250,000

250,000


Leasehold improvements

402,482

402,963


Fixtures and equipment at customer locations

518,450

518,450


Projects under construction

160,283

121,241





31,535,211

31,442,720



Less : accumulated depreciation and amortization (VIE $77,000 and $36,000, respectively)

(27,554,722)

(26,886,139)










Total property, plant and equipment, net

3,980,489

4,556,581







Other assets:




Goodwill (VIE $440,000 and $440,000, respectively)

1,473,176

1,473,176


Net deferred income tax asset (VIE $97,000 and $52,000, respectively)

1,222,447

1,102,467


Other assets

527,704

560,329










Total other assets

3,223,327

3,135,972







TOTAL ASSETS

$                       40,743,262

$                    39,984,038







LIABILITIES AND EQUITY



Current liabilities:




Checks written in excess of bank balance (VIE $9,000 and $16,000, respectively)

$                                 8,996

$                          454,850


Trade payables (VIE $159,000 and $144,000, respectively)

6,270,221

5,414,497


Line of credit (VIE $309,000 and $338,000, respectively)

15,477,581

13,783,930


Notes payable - current portion 

899,900

942,533


Notes payable affiliates - current portion

10,162

9,615


Capital Lease - current portion

-

7,562


Accrued liabilities (VIE $93,000 and $92,000, respectively)

2,020,762

2,047,893









Total current liabilities

24,687,622

22,660,880







Long-term liabilities:




Notes payable - affiliates

198,693

212,545


Notes payable, net of current portion




   (VIE $52,000 and $83,000, respectively)

4,210,950

4,951,581


Notes payable - officers, subordinated

1,549,937

1,507,362


Deferred gain (non current)

153,331

207,410









Total long-term debt, net of current portion 

6,112,911

6,878,898















Total long-term liabilities

6,112,911

6,878,898







Equity:






CTI Industries Corporation stockholders' equity:





Preferred Stock -- no par value, 3,000,000 shares authorized,






0 shares issued and outstanding

-

-



Common stock  - no par value, 15,000,000 shares authorized,






3,573,885 shares issued and 3,530,227 shares outstanding

13,898,494

13,898,494



Paid-in-capital

2,377,006

2,271,261



Accumulated earnings

507,419

720,223



Accumulated other comprehensive loss

(5,707,796)

(5,365,364)




Less:  Treasury stock, 43,658 shares

(160,784)

(160,784)










Total CTI Industries Corporation stockholders' equity

10,914,339

11,363,830








Noncontrolling interest

(971,610)

(919,570)









Total Equity

9,942,729

10,444,260










TOTAL LIABILITIES AND EQUITY

$                       40,743,262

$                    39,984,038







 

CTI Industries Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Unaudited)























For the Three Months Ended June 30,


For the Six Months Ended June 30,





2018

2017


2018

2017










Net Sales


$          15,984,726

$          12,811,697


$          29,963,903

$          28,171,335










Cost of Sales


12,189,204

9,694,288


23,299,990

21,436,477










Gross profit


3,795,522

3,117,409


6,663,913

6,734,858










Operating expenses:








General and administrative


1,680,490

1,866,615


3,564,536

3,767,871


Selling


958,796

1,187,904


1,817,333

1,909,294


Advertising and marketing


331,609

537,372


628,489

1,093,781


Gain on sale of assets


(22,998)

(23,817)


(47,413)

(93,117)












Total operating expenses


2,947,897

3,568,074


5,962,945

6,677,829










Income from operations


847,625

(450,665)


700,968

57,029










Other (expense) income:







Interest expense


(550,780)

(359,782)


(1,114,840)

(732,646)

Interest income


11,389



11,043


Change in fair value of warrants


-

4,202


-

23,808

Foreign currency (loss) gain


(13,246)

(50,428)


17,783

(80,954)












Total other expense, net


(552,637)

(406,008)


(1,086,014)

(789,792)










Net income before taxes


294,988

(856,673)


(385,046)

(732,763)










Income tax expense


89,281

(263,110)


(120,202)

(187,473)










Net income 


205,707

(593,563)


(264,844)

(545,290)










Less: Net (loss) income attributable to noncontrolling interest

(44,497)

(67,435)


(52,040)

(77,632)












Net income attributable to CTI Industries Corporation


$               250,204

$              (526,128)


$              (212,804)

$              (467,658)










Other Comprehensive Income (Loss)








Foreign currency adjustment


(775,497)

442,057


(342,432)

753,369



Comprehensive Income (Loss)


$              (525,293)

$                (84,071)


$              (555,236)

$               285,711










Basic income per common share


$                      0.07

$                     (0.15)


$                     (0.06)

$                     (0.13)










Diluted income per common share


$                      0.07

$                     (0.14)


$                     (0.06)

$                     (0.12)










Weighted average number of shares and equivalent shares








of common stock outstanding:







Basic


3,530,227

3,616,693


3,530,227

3,616,693










Diluted


3,567,315

3,771,581


3,530,227

3,772,236










CTI Industries Corporation and Subsidiaries




Condensed Consolidated Statements of Cash Flows (Unaudited)













For the Six Months ended June 30,






2018

2017








Cash flows from operating activities:





Net income 


$               (264,844)

$           (545,290)


Depreciation and amortization


701,839

781,042


Amortization of debt discount


-

95,906


Change in fair value of warrants


-

(23,808)


Stock based compensation


105,745



Amortization of deferred gain on sale/leaseback


(55,320)

(53,258)


Provision for losses on accounts receivable


(10,471)

4,117


Provision for losses on inventories


(29,386)

42,366


Deferred income taxes


(90,206)

(254,401)


Change in assets and liabilities:






Accounts receivable


(671,380)

5,311,938



Inventories


(483,573)

137,620



Prepaid expenses and other assets


115,988

(268,403)



Trade payables


800,813

(1,236,877)



Accrued liabilities


(285,976)

(788,625)











Net cash (used in) provided by operating activities


(166,771)

3,202,327















Cash flows from investing activities:





Purchases of property, plant and equipment


(18,193)

(526,565)










Net cash used in investing activities


(18,193)

(526,565)








Cash flows from financing activities:





Change in checks written in excess of bank balance


(445,854)

(613,774)


Net change in revolving line of credit


1,699,201

(1,780,835)


Repayment of long-term debt


(768,003)

(423,627)


Cash paid for deferred financing fees


(59,530)











Net cash provided by (used in) financing activities


425,814

(2,818,236)








Effect of exchange rate changes on cash


30,950

35,857








Net increase (decrease) in cash and cash equivalents


271,800

(106,617)








Cash and cash equivalents at beginning of period


181,026

563,043








Cash and cash equivalents at end of period


$                 452,826

$             456,426















Supplemental disclosure of cash flow information:





    Cash payments for interest


$                 934,231

$             627,586



Cash Payment for Taxes



300,000















Supplemental Disclosure of non-cash investing and financing activity




Property, Plant & Equipment acquisitions funded by liabilities

$                   82,231

$                  8,704








 

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SOURCE CTI Industries Corporation

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