Yunhong Green CTI Ltd.

Good day and welcome to the Yunhong CTI fourth quarter and year-end 2021 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, April 13th, 2022. The earnings press release accompanying this conference call was issued this morning. On the call today is Yunhong 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 its current views about future performance and financial results. The company bases these statements in certain assumptions and expectations on future events that are subject to risks and uncertainties. The company's Form 10-K 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 make 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 are its 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 Yonghong CTI. Sir, please go ahead.

Thank you, Holly. Good morning, and thank you, everyone, for joining us on our call today. Normally, we would start with a review of our financial performance and talk about expectations. We will discuss our financial performance later in the call, but first I would like to provide an overview of some of the challenges overcome and the direction going forward for our business. As 2021 was the end of a run of financial statements complicated with losses on the disposition of subsidiaries, I'd like to start with the business itself. It's been quite a ride these past few years. You know what folks say about doing the same thing over and over and expecting a different result? During 2019, we hit a level of clarity on what we should and should not be. We then went out and made it happen. Transforming a business that has far too much leverage proved every bit as challenging as one would expect. But I'm pleased to say that we achieved our goals. We had sales and distribution entities in the U.K. and Germany. We owned our own latex balloon manufacturer in Guadalajara, Mexico. We owned a piece of an unrelated business that was once thought to be a future avenue for selling the company's products. And we continued to supply a vacuum sealing business line that offered significant revenue but could not hit required cash flow performance. Make no mistake, each of these businesses had successes and good reasons to exist. but over time, each was unable to offer the profitability required to continue. Supporting these areas was a significant financial burden, and our leverage was simply too high. The strain of trying to support the $20 million debt burden and the periodic cash needs of these businesses forced us into tough positions. We were in violation of our credit facility terms for much of this period, and we knew that dramatic change was required. Thanks to the support from Mr. Lee and the Yunhong China Group, we were able to pay down our lender debt to only $6 million and cushion the roughly $15 million of write-downs associated with disposing these subsidiaries. The obvious question is why. Why was CTI worth saving? That's what we'd like to talk about today. For almost 50 years, CTI has produced film-based products and related items. We weren't shy about reaching out to grow. We sold all varieties of packaging film, developed an excellent foil balloon program, and look to take advantage of different paths to market. When we couldn't do latex balloons well in the Chicago area, we developed a latex producer in Mexico. But business is about more than the top line. It requires the bottom line to keep up. Ours didn't. While all those distractions were happening, our foundation and strong base kept us going and provides the solid ground we need to expand our company in a profitable way today. We supply the most demanding retailers in the world. That's saying something. Every indication is that we offer very strong product quality, and our in-house creative department never fails to generate new eye-catching designs. We know how to satisfy retail customers and how to effectively engage in those sometimes challenging relationships. We knew that we had a strong base in foil balloons, certain packaging film, candy blossoms, and other gift items. Our products make people smile. You've got to save that. Along comes the Yunhong China Group that is looking to engage the North American market. with a product offering largely designed around retail. We believe our experience and know-how will help them provide new products to our local marketplace. At the same time, I believe having an expert in sourcing and manufacturing in Asia will provide direct value to what our company does as well. It can only help to have more qualified people to lean on. We are that U.S.-based manufacturer that our nearly 300 customers have come to rely on, but now we are more. We are a member of the broader Yunhong family, That investment was essential, as we need every bit of it to bring down our debt load to a reasonable level, avoid millions of dollars in related fees and charges, and write off those subsidiaries while maintaining a healthy stockholders' equity. The Yunhong team bought into this transformation, and we were all committed to proving it was the right thing to do. From our own cash-related challenges to the 2019 helium shortage to COVID, inflation, supply chain issues, challenges obtaining qualified employees, we've been forced to adapt. I'm pleased to have Jonna Schwan, our Chief Operating Officer here to share recent success in this area. Jonna?

Thanks, Frank, and hello, everyone. One of the issues we have regularly had to work through was the tightness in the local labor market. After three years of hard work, I'm pleased to share that we have made a breakthrough in this area. After a modest investment and a significant amount of teamwork from our operating folks and our engineering partner, we now have robotic arms working reliably on a converting line. This takes a manual process and automates it while maintaining our quality control features on the line. Think of the flexibility in managing our critical human resources as we can better cover our manufacturing needs. We calculate payback from this strategic investment occurring in about nine months by lowering the headcount per line. Now that the first line is working up to our expectations, we are working on the second line. Before long, we should be able to apply advancement to six converting lines. One other change that has been made in order to maximize our production personnel is an investment on our seasonal production flow, an adjustment to our seasonal production flow. We have two large spikes during the year, Valentine's Day and Mother's Day, Father's Day grad season combined. About half of our business is everyday type events and celebrations, and the other half is driven by these three specific events. In the past, we would staff up our temporary workforce in the fall for Valentine's Day, then reduce it for a month, then staff up again for Mother's Day, Father's Day graduation, and then reduce staffing as we approach the end of our seasonal spike. With it being so difficult to find and train good people in manufacturing, we have adapted by starting to ramp up earlier in the fall and continuing production efforts through April. This change in shape has allowed us to meet customer demands without doing anything extraordinary in terms of labor costs. It's working. We make better products because we can retain good, trained staff for a longer period of time. After so many years of managing some of these challenges, I'm very happy to be a part of leading Yunhong CTI today. Frank?