Yunhong CTI Ltd.

Good day and welcome to the Yunheng CTI second quarter and year-to-date 2023 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will open up to questions. This conference is being recorded today, August 3rd, 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, John O'Shaughan. Before we begin, we want to note that we 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 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 forum 10-K for the year ended December 31st, 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 is most directly comparable to it as 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

Thank you, Matthew. Good morning, and thank you for everyone joining us on our call today. We'll review the numbers in a bit, but first I'd like to address the rebranding that many of you have seen in our public filings and annual shareholders' meeting materials. As we've been discussing for some time, our company has been working increasingly on compostable and biodegradable solutions, both involved in our existing product families and separate from them. Our name for decades, CTI, stood for Container Technologies Incorporated, In 2020, we added Yunhong as a way to connect to the Yunhong China group. For the first time, we weren't alone, now supported by a diverse enterprise. This year, we decided to add the term green to share that we do more than containers. The term container includes our balloons and packaging films, with our gift items being a natural extension of the balloon products. Now we are presenting other solutions unrelated to containers, which offer better stewardship for our planet. That's why we are asking our shareholders to approve the name of Yunhong Green CTI Limited as our company name. As a related matter, our trading symbol of CTIB was easy to remember, CTI balloons. That was a fine symbol in the past, but today isn't as descriptive as it used to be. That's why we have reserved YHGJ, the YH for Yunhong and G for Green. We plan to do many things unrelated to our past, and I should mention that trading symbol is not in use as of now, but if our shareholders approve the name change, then we can deploy it, and we intend to. We plan to do many things in the future that are through our well-established retail channel. That process was part of the initial investment calculus and continues to build. The Unown Group sells quite a variety of items, from health supplements to solar panels to software apps with tens of millions of subscribers, to advance material solutions. They have an industrial park in China with companies spread across China and interests around the world. Our company serves as a valuable point of connectivity for the North American market, one which hasn't been served in the past. At the same time, we benefit from the financial support that helped us pay down debt and weather storms when they occur, and material solutions that we could never develop on our own. With that as our backdrop, let's talk about numbers. Year-to-date sales were 9.1 million this year compared to 10.2 million last year. Helium was the story of 2022, as a good start to that year became particularly challenging with the skyrocketing cost of helium following the loss of Russian supply after the invasion of Ukraine and a short-term supply issue in the United States that has since been resolved. It's no surprise that Q1 2022 was a strong balloon quarter and Q2 of 22 was weak. While 2023 has been more consistent, building as the year went along. Film products bounced back from a nonexistent first quarter this year to narrowly beat last year's second quarter. Film product orders ebb and flow in a market where consolidation is common and competitors are plentiful, so each quarter has a wide range of potential outcomes. Our other category is led by balloon-inspired gift items, which has reported an increase of $1.7 million from full year 21 to 22. Because we record all of our Valentine's Day shipments by the end of December 22, something we did not do during 21, the first six months of this year shows a drop in that category despite an increase in overall order flow. It's hard to complain about shipping a bit earlier, so I won't, but it does make comparability more difficult, and thought it important for our shareholders to be aware of this as you review our results. The gross margin was identical during the first six months of each year, despite a 10% drop in reported revenue during 23. We believe that bodes well for future profitability as we find ways to deal with the cost challenges that have exploded broadly in the last couple of years. As is often the case, we have unusual items flowing in either direction. We've spoken in the past about an employee retention tax credit claims that were factored for $0.9 million in proceeds in 2022, but for which related income or expense offsets weren't recognized until those returns were ultimately processed. That has now happened, resulting in non-cash income recognition of that deferred income. Audit fees were very high as we onboard a new audit firm during the first quarter for immediate service on our year-end audit and annual report in the Form 10-K filing. Those are coming down for the rest of the year, but I note auditing expenses are expected to remain stubbornly high going forward as the profession has been impacted by personnel shortages. We also have to deal with interest rates like everybody else. We've discussed using automation in our manufacturing process to create efficiencies and in the long term lower our operating costs. The leader of that charge is our Chief Operating Officer, Jonna Schwan. Jonna, may I ask for an update on our automation campaign?

Thank you, Frank, and hello, everyone. We have talked in the past about gradual investments in our automation on our manufacturing floor. The first robotic cell we installed is consistently our most profitable line in terms of cost reduction coupled with throughput. I'm pleased to share that we are currently installing automation on our second manufacturing line and expect it to be operational in the coming days. We are also planning for the installation of a third line, which we currently expect to be completed by early next year. Each requires fewer people, which allows us to allocate scarce human resources to more optimal activities. Gradual investment has been effective for us. as we are ready for each new installation. I would also like to go faster, but appreciate the measured approach in which we are integrating. I would be remiss if I didn't mention that customer indication of upcoming Valentine's Day orders looks like a solid increase over the past year. Frank?