Yunhong CTI Ltd.

Good day and welcome to the Yunheng CTI First Quarter 2023 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open to questions. This conference is being recorded today, April 27th, 2023. The earnings press release accompanying this conference call was issued last night. On the call today is Yunheng CTI's Chief Executive Officer, Frank Cesario, as well as Chief Operating Officer, Jonna Swan. 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 the current views about future performance and financial results. The company bases these statements and certain assumptions and expectations on future events that are subject to risks and uncertainties. The company's Form 10-K for the year ended December 31, 2022 lists some of the most important risk factors that could cause actual results to differ from its predictions. Please also note that the company's earnings press release makes reference 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 measure 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'd like to turn the call over to Frank Cesario, Chief Executive Officer of Young Hung CTI. Sir, please go ahead.

Thanks, Matthew. Good morning, everyone. We appreciate your joining us for our update call today. In considering our comments, I was struck by how much the world has changed since the third quarter of 2022, and that's not a lot of time. But helium pricing had become such a huge issue in our space, ultimately contributing to the largest player in the industry restructuring. And we saw our own revenue drop by more than half from the prior years we fought for bottom line. I'm pleased to share that helium prices have improved. They continue to fall and are approaching normalized levels. We can't wait for that to actually happen, but it's getting closer. This favorable trend, combined with the significant realignment of our operations and strengthening of our balance sheet achieved over the last couple of years, are all reflected in our overall improved financial results for the first quarter and growth in shareholder value. Revenue only trailed the prior year by $0.7 million, going from $5.8 million last year to $5.1 million this year. And despite that, profitability still increased in terms of both percentage and dollar terms. We are relentless in finding more efficient structures as we satisfy our customers, and that starts with our Chief Operating Officer, Jonna Schwan. She played a critical role in strengthening our operations and driving sales in a challenging environment. all of which supported the improved results we reported in Q1. As I believe that's the driving force of today's conversation, I welcome Jonna to share her thoughts on making Yunhong CTI even more profitable. Jonna?

Thanks, Frank, and hello, everyone. We have talked about some of these elements in our prior calls, but they're worth revisiting in terms of efficiencies we have gained from these initiatives. Our incremental approach to automation of certain manufacturing lines have been the correct strategy, and we continue to make gradual investments in this arena. We track and measure our activities every day with a continuous improvement mindset. The discipline has identified opportunities in staffing and workflows that have allowed us to increase throughput year over year. While elevated helium prices reduced balloon volumes, we took advantage of the situation to eliminate costly overtime and inefficient processes. Our vendor relationships are strong and longstanding, We have good insights into their operations and capabilities which allows us to source efficiently and helps manage our liabilities while keeping our working capital deployment manageable. Finally, I must call out our long-term employees for their leadership and dedication. It makes me proud to see 10, 20, 30, and even 40-year employees. These are individuals who understand everything about what needs to be done every day to achieve our goals and are a driving factor in the efforts to exceed our customers' expectations. Frank?

Thanks, John. We are accountable for our results. A couple months ago, we reviewed 2022 performance, and we owned an adjusted EBITDA number that just didn't cut it. We've talked about helium, and it was a huge issue. We have to find a way to fight through, and we fought, but It definitely wasn't the number that we can accept. I'm pleased to share that we improved adjusted EBITDA from 0.3 million in the first quarter last year to 0.7 million today. We had atypical costs and benefits go in both ways as will frequently occur, but we are staking out an improved measure of performance that despite any market conditions, good or bad, we have to fight for that bottom line answer. Nobody knows what the future holds. If we are in a recessionary period, It's been our experience that balloons and party supplies tend to be counter-cyclical, as they are low-cost solutions for individuals and families, as well as a mechanism for businesses calling attention to promotional items. Inflation supply chain issues haven't ended, but we've all become more comfortable with them and thus more effective in dealing with them. We ended the year with a reasonable debt level and a growing asset base. We continue to work on biodegradable and compostable solutions, and next month we'll be visiting partner companies in Asia, We continue to work on the prototyping of these material alternatives with the single goal in mind of transitioning them to viable and attractive commercial solutions. While that sounds easy, it would have already happened if it were. But the prize is so huge, we are engaged on this, particularly with our connection to the Unhome Group, which holds related patents and know-how. With that, Matthew, I understand that most folks catch this on replay, but if anyone's here with us live and wants to ask a question. Matthew, please invite them into the Q&A. Thank you.

Certainly. At this time, we'll be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone. Please hold while we poll for questions. Your first question is coming from Glenn Hamilton. Your line is live.

Hey, Glenn. Hey, Frank and John. Kind of good quarter, I guess. I don't know what I was expecting, so at least you're profitable. That's good. Quick question. When are you planning to go to the main? Is it next month?

Yes. So the trip has early Mac.

Is it just going to be you or John or any board of directors or just yourself at this point?

No, we have a small team going, but it's going to be a mixed crowd. And, yes, I will be there. We have a lot of things that we have to connect on. So John and I both do a lot in connecting with our counterparts over there. And every once in a while you just have to get there in person to move things.

Okay, I'd be happy to join you guys, and I would actually pay for my own airfare, but I'm kind of half joking, half not. How's your Mandarin? Not too good. My daughter does speak Mandarin pretty well, though, but that's neither here nor there. What do you and John or the team hope to accomplish by going over to China and meeting with leadership there?

Oh, it's... On a number of different levels, but the most important thing is this push for compostable solutions. So, you know, we're trying to launch new materials. And in doing that, you know, there's always the disconnect between what we see as, you know, balloon party goods manufacturer and what folks who make materials see and other things they do. So it's important to have things that we can look at together and talk about together and kind of push to try to get to commercial solutions. you're trading material back and forth and specs back and forth, and we find that that's slow going. So, you know, we're impatient by nature, and it seems like the right time to kind of align everybody on trying to move this forward into a commercial success.

Okay. I know you can't say anything at this point, but do you expect any revenue to be generated in the year 2023, even if it's in the fourth quarter, or hard to say at this point?

It's impossible to say at this point. I would love for that to be true. I just don't know. You know, we've been working on prototyping for a while. Some things are closer than others. You know, if you said, do you have something in your pocket, I'll say I don't. If you said, do you have something that could happen, I'll say we do. I just don't know how it's going to play out.

Okay. I guess no other questions. Keep it up. And I would like to see ownership for, you know... Again, start buying shares. You know how I feel about that. But I'm barking down the wrong tree, I think, on this one. But just keep up what you're doing, I guess.

All right. I appreciate the call. Thanks, Glenn.

Okay. Thank you. Bye.

Thank you. That concludes our Q&A session. I will now hand the conference back to Frank Cesario. Please go ahead.

All right. Thank you very much. And, look, this is a nice touch point. share with you where we've been going, what we've been doing. I look forward to our next call when we talk about Q2 and what the second half looks like. In the meantime, we're pushing, and that's what we do. We're going to keep pushing, and it's our commitment to give you answers that you're happy with as well. So thank you for listening to our call, and have a good day.

Thank you, everyone. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.