Yunhong CTI Ltd.

Good day, and welcome to the Yuen Hong CTI Third Quarter 2022 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. This conference is being recorded today, November 16, 2022. The earnings press release accompanying this conference call was issued Tuesday, November 15, after the close of market. On the call today is Yung Hong CTI's Chief Executive Officer, Frank Cesario, as well as Chief Operating Officer, Jana Schwan. Before we begin, we want to note that you should read the forward-looking statements in the company's earnings press release. During today's call, management will make certain predictive statements that reflect its current views about the future performance and financial results. The company bases these statements and certain assumptions and expectations on future events that are subject to risk and uncertainties. The company's form 10K for the year ended December 31st, 2021, lists some of the most important risk factors that could cause actual results to differ from its predictions. Please note that the company's earnings press release referred to adjusted EBITDA, a non-GAAP financial measure. The company views adjusted EBITDA as an operating performance measure, and as such, the company believes that the GAAP financial measures most directly comparable to it is net income or loss. For further information, please refer to the earnings press release and the company's periodic filings with the Securities and Exchange Commission. At this time, I would like to turn the call over to Frank Cesario, Chief Executive Officer of Yunhong CTI. Sir, please go ahead.

Thank you, Ali. Good morning. Thank you, everyone, for joining us on the call today. Hopefully, you've had a chance to look at our press release. We issued the close yesterday with summarized financial information. Let's start with a summary of financial performance. Three months ago, we highlighted the elevated price of helium being the primary determinant of our third quarter, as our top-selling product line is foil balloons, usually filled with helium by our customers. While the price of helium gradually improved during the past three months, it remains elevated and a challenge for our customers to manage, particularly those constrained from passing some of those costs through pricing changes. The story of 2022 has been helium-related revenue challenges, but we've hung in there on the bottom line demonstrated our resilience. Looking at adjusted EBITDA, which is detailed as a non-GAAP measure in our press release, we posted a $400,000 improvement on $5 million less income, less revenue, pardon me. That really speaks to the improvement in our business, something we look to take advantage of as the market continues to settle. We held on to a $1.2 million adjusted EBITDA expectation for the full year 2022, depending largely on how quickly helium prices would return to Earth. If those prices remain elevated, we need to eliminate this as our expectation. The fourth quarter is traditionally our best quarter, and we have significant candy blossom orders which are immune from helium pricing. on top of our Valentine's Day orders expected to ship during the fourth quarter. But we're too far away to believe we can hit the $1.2 million. During normal year, roughly half of our business comes from everyday sales, think birthdays, while the other half is event-driven, such as Valentine's Day. We are already processing commitments for 2023 Mother's Day, Father's Day, and graduation. John Eshwan, our Chief Operating Officer, will walk us through the process of working with customers to prepare for and fulfill their needs for these significant events. Welcome, John.

Thanks, Frank, and hello, everyone. We are very proud of our in-house creative team. We begin presenting design concepts tailored to our specific customers' needs and preferences almost a year ahead of the holiday. Commitments are issued about six months ahead of the event, so we have time to prepare, followed by actual purchase orders that are provided a few weeks before the expected ship date. The process is fully collaborative as we work together with our customers to control the process flow and avoid surprises to ensure quality product is shipped on time and in full. This significant lead time allows us to efficiently staff work areas, shifting employees from one area to another to optimize our output. Frank?

Thank you, John. Our creative team really is amazing, and I thank you for calling that group out. Anyone on the call familiar with manufacturing will appreciate the value of significant lead times in navigating not only recent supply chain and freight-related challenges, but also the ongoing challenge of effectively deploying resources. I can't believe we're in November already, but if you look at our warehouse, you'd understand that our largest shipping days are in the near term. I'm proud of what we're doing to be shipping and look forward to customer feedback as we tee it up and do it again. Many on the call might remember that balloons tend to have a counter-cyclical element. They often sell better in challenging economic conditions, as they are an inexpensive way to find a smile. Now that we have dramatically reduced our debt load over the past three years, this should overwhelm the increase in financial costs as related to the interest rate increases. Most people play this on the replay, but for anyone on the call live who wants to ask a question, we invite you to do so. Ali, may I turn this over to the Q&A session?

Thank you. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset, if listening on speakerphone, to provide optimum sound quality. Please hold while we poll for questions. Once again, if you have any questions or comments, please press star 1 on your phone at this time. Okay, there appear to be no questions in queue, so I'll hand it back to Mr. Cesario.

All right, thank you, Ali. It's all good. This is exciting. This is where we prep and ship for Valentine's Day as we ship about two months before the major events. So that's what we're doing. I very much look forward to speaking with you after the year is concluded and we can talk about all the highlights, lowlights and everything else associated with 2022 as we drive into 2023. I thank you for participating on our call. I thank everyone who listens to the replay and I look forward to speaking again. Thank you all.

Thank you, ladies and gentlemen, and this does conclude today's call. You may disconnect your lines at this time and have a wonderful day. And we thank you for your participation.