Yunhong CTI Ltd.
Q4 2014 Earnings Call Transcript

Published: 26 Mar 2015

[Operator:]

Good morning, ladies and gentlemen, and welcome to the CTI Industries Corporation announces Year-End and Fourth Quarter 2014 Financial Results Conference. This call is being recorded. This conference may contain forward-looking statements 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 prove to be accurate. At this time, I will now turn the conference over to Mr. Stephen Merrick, President. Please go ahead, sir.

[Stephen Merrick:]

Good morning, everyone, and welcome to our CTI Industries earnings conference call in which we will report on our results for the fourth quarter of 2014 and for the full year. I'm joined on the call today by Tim Patterson, our Chief Financial Officer. At the conclusion of our report, we will open the call for questions. Our earnings report was released first thing this morning, so that is available now. In 2014, we achieved record net sales of just under $58 million, the highest in our 39-year history. This came about because we continued to have growing sales in our consumer vacuum pouch and machine product line and in our novelty product lines of foil and latex balloons. And we also had some new sources of revenue in our new Candy Blossom and Candy Loon product lines and in direct to consumer sales of container products. Overall, sales increased by 3.2% from $56 million in 2013 to $57.8 million in 2014. In the consumer vacuum pouch and machine product line, sales increased by 4.5% over 2013 to $13.1 million. And in our novelty lines of foil and latex balloons, sales increased by 3.5% from $35.3 million in 2013 to $36.5 million in 2014. We also had some nice revenue increases in our international operations. In the U.K., our sales principally of novelty products increased by 22.9% reaching $2.5 million. And in our Europe, our sales increased by 59% reaching $1.6 million. In our category of other products which consist of some newer and growing product lines including Candy Blossoms and Candy Loons and direct to consumer sales and container products and some other items, sales increased by 7.6% to $3.4 million for the year. Net sales for the fourth quarter were $15,180,000, which was our strongest quarter of the year. From a net income standpoint, we are moving strongly in the right direction as is reflected in our results for the second half of the year, net income for the full year was $514,000 up 37% over 2013 earnings of $382,000. Per share earnings were $0.16 basic and $0.15 fully diluted compared to $0.12 basic and $0.11 fully diluted last year or 2013. But what you may find particularly interesting is that in the third and fourth quarters together of 2014, we had earnings of $592,000, which was about $0.18 per share, following the first half of the year, we had a loss of $77,000. In the fourth quarter alone, we had net income of $382,000 or $0.12 per share, $0.11 diluted compared to net income of $67,000 in the fourth quarter of 2013. We believe we have addressed the performance issues which affected our results in the first half of last year particularly high operating expenses resulting from our investment in the development of our vacuum sealing system business. And we believe that bodes well for our results in 2015. A couple of factors, which helped us achieve these much improved results particularly during the second half of 2014 were higher margins and lower interest costs. For the year in 2014, our gross margin rate increased from 22.5% in 2013 to 24.6% in 2014. Gross profit for the year increased to $14.2 million over gross profit in 2013 of $12.6 million. This increase in gross margin came about as the result of a decline in our raw materials costs and an increase in the gross margin we achieved on the sale of some of our products. In 2013, our raw materials costs represented 45.3% of our revenues. In 2014, these costs were only 41.7% of our revenues. To some degree, the decline in raw materials costs related to our cost of film products derived from petroleum, but the biggest factor was the decline in the cost of raw latex we purchased to produce our latex balloons. We believe it is likely that at least for the medium-term, our raw materials costs will continue to represent a lower percentage of our sales than in the past. In addition to the decline in raw materials costs, we were able to achieve improved margins on sales of some products through our product lines, but including in particular our newer lines of Candy Loons and container products in our direct sales operation. Our net interest expense in 2013 was $1,109,000 about $330,000 less than our interest expense in 2013. Presently, our interest expense can vary widely as the result of changes in the value of the warrants we issued in connection with our mezzanine loan. However, it is our hope that we would be able to retire some or all of the mezzanine debt during 2015 in order to reduce both the amount and the uncertainty of our interest costs. Let me turn now to where we see our business in our various product lines. With respect to our vacuum sealing systems line, we are experiencing and expect steady growth. In December, we renewed our license agreement with SC Johnson on the Ziploc brand for an additional three-year term. During 2015, sales in that line grew by about 5%. And we expect growth in 2015 to exceed that level as we penetrate additional markets and chains in the United States, Canada and Mexico. In our novelty product lines, the foil and latex balloons, we continued to extend our reach to more chains and outlooks in the United States, Mexico, the United Kingdom and Europe. As I indicated, we experienced strong growth in the United Kingdom and Europe during 2014 and expect to have continued growth in those markets in 2015 as well as in the United States, Mexico and Latin America. During the past year, we have begun to generate revenues from new sources including our Candy Loon and Candy Blossom lines and from the direct sales of container products. We expect revenue from these lines to grow in 2015 and we expect to add some related consumer product items. Our financial position remain strong, our working capital balance remains at better than $11.5 million and our bank line provides the liquidity we need. Our stockholders equity has increased from $12.6 million at the end of 2013 to about $12.9 million by the end of 2014, representing a current book value per share of over $3.90. While we do not provide guidance on revenues or earnings, we are optimistic about our opportunities to grow both revenue and profit in 2015. That concludes our report at this point we will open the call for questions. Operator may we have your assistance please.

[Operator:]

Certainly. [Operator Instructions] And we will take our first question from [Vincent Gargano] [ph].

[Unidentified Analyst:]

Good morning, gentlemen.

[Stephen Merrick:]

Good morning.

[Unidentified Analyst:]

I just want to congratulate on a really good quarter, excellent turnaround from the first half of the year, just to appreciate your efforts. And hopefully you can continue into 2015 a strong year, things look really good, really good before.

[Stephen Merrick:]

Well, thanks very much Vince. We appreciate it. And I can tell you that we are working very hard to make that happen in 2015. We had a couple of quarters, the first two quarters of 2014 where we had some challenges both in terms of our operating costs and in terms of some other things in relation to returns from customers and some things like that. We feel that we have dealt with those things in the second half of 2014 and that we have resolved them. One of the things I was pleased to see if you look at our quarterly report, our total operating expenses in the fourth quarter were actually less than our operating expenses in the fourth quarter of 2013. And that is certainly one of the things that we have been working on to achieve so that we can achieve consistent profitability.

[Unidentified Analyst:]

Right. And it seems like just a little bit effort goes a long way to the bottom-line with some few shares outstanding and good – decent revenue growth, but it seems like it hit the bottom-line pretty hard which is a positive thing and higher gross margins, which is always great to see. So again, great job and hopefully this is going to be a big year.

[Stephen Merrick:]

Thank you, sir. Appreciate it.

[Unidentified Analyst:]

Thank you.

[Operator:]

[Operator Instructions] And we will take our next question from Glen Hamilton of Bank of America.

[Glen Hamilton:]

Hey, gentlemen, quick question. You mentioned that the mezzanine debt might be retired in 2015, how do you propose to do that?

[Stephen Merrick:]

We don't have anything finalized at this point Glen in terms of our – of how we will accomplish that, but we are looking at a couple of options as you may have seen. We do have an effective S3 registration, which could result in the sale of some shares for the purpose of funding that – a portion at least for that pay-off.

[Glen Hamilton:]

And that would be great, I think if you were stock were $10, $20, $30 a share, I just – I personally hate to see additional shares being issued that to be so dilutive at this level. That just me personally saying that, I don't know what other choices you have though.

[Stephen Merrick:]

Well, we have to pick among the choices that are available to us and so that certainly one of the considerations.

[Glen Hamilton:]

Okay. Thank you.

[Stephen Merrick:]

Thank you.

[Operator:]

[Operator Instructions] And that it appears, we have no further questions. I would like to turn it back over to our speakers for any additional or closing remarks.

[Stephen Merrick:]

Thank you very much everyone for participating in the call. We appreciate your interest and involvement. We are certainly pleased of the – to be able to report the results we had particularly for the second half of the year. And we are anxiously looking forward to a good 2015. Thanks very much and good day.

[Operator:]

And that does conclude this conference. Thank you so much for participating.