Yunhong Green CTI Ltd.

Good day and welcome to the Yunhong Green CTI Third Quarter and Nine Months Ended September 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, November 2, 2023. The earnings press release accompanying this conference call was issued last night. On the call today is Yunheng Green, CTI's Chief Executive Officer, Frank Cesario, as well as Chief Operating Officer, Jana Schwan. Before we begin, we want to make 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 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 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 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 Yung Hong Green CTI. Sir, please go ahead.

Thank you, Holly. Good morning, everyone. I would like to thank you for joining us on our call today. This is the time of year where we take a breath and appreciate the transition from what has historically been our weakest quarter, Q3, to our strongest quarter, Q4, thanks to Valentine's Day shipments. However, it isn't every day that a company is rebranded, so let's start there. During August, our stockholders approved renaming our company from Yunhong CTI Limited to Yunhong Green CTI Limited as a way of communicating the new biodegradable and compostable products designed to reduce our reliance on single-use plastics. Along these lines, we've also changed our ticker symbol to reflect our name. CTIB has given way to YHGJ. Our new ticker may be more awkward to speak out loud, and I know that, but it is more reflective of our company name, Yunhong Green CTI Limited. We have added significant new assets to our website and have been sharing product samples while undergoing performance testing in the U.S. as we begin the process of entering the U.S. marketplace. I encourage anyone interested in this product area to look at our website and see what these solutions are about. With that as our backdrop, let's start with the numbers. Year-to-date sales were $11 million in 2023 compared to $12.4 million during 2022. Helium became the story in the second quarter of 2022 as a good start to the year became particularly challenging with a skyrocketing cost of helium following the loss of Russian supply after the invasion of Ukraine. We also had a short-term supply issue in the United States that has since been resolved. It's no surprise the Q1-22 was a strong balloon quarter and Q2 was weak. 2023 was more consistent, building as the year went along. I'm pleased to share that we have finally caught up on a year-to-date basis. It's been a tough road, one that has seen our two largest competitors in the U.S. file Chapter 11 in 2023. Film products dropped off in the third quarter and lagged 2022 substantially. Film product orders ebb and flow in a market where consolidation is common, competitors are plentiful, and each quarter has a wide range of potential outcomes. I believe the fourth quarter will be better, but the gap is significant. Our other category is led by balloon-inspired gift items, which continues to show strong order growth. We note that because we recorded all of our Valentine's Day shipments by the end of December of 22, something we did not do during 2021, the first nine months of this year shows a drop in the category despite an increase in overall order flow. The timing of our shipments may cause challenges in comparing finite periods. But overall, this area has been working well for us, and I believe it will continue to do so. The gross margin was off 1.6 percent from 16.7 last year to 15.1 this year on a reduction in overall revenue volume during 23, driven by our commercial films area. However, the rest of the income statement shows a much better outcome, such that a 28-cent-per-share loss last year is now 4 cents per share this year. We had one-time costs and benefits, particularly from the income recognition of the employee retention tax credit. But overall, our spending discipline helped us weather the helium storm. We believe that bodes well for our future profitability as we find ways to deal with cost challenges that have exploded broadly these past couple years. In the prior quarter, we discussed the deployment of automation in our manufacturing process to create efficiencies and in the long-term lower our operating costs. Perhaps this quarter I can ask our Chief Operating Officer, Jonna Schwan, to share the seasonality of our traditional business such that listeners can better manage their expectations. Jonna?

Thank you, Frank, and good morning, everyone. As foil balloons drive the bus, let's focus on the seasonality for balloons and related gift items. Roughly half our business is every day. Think birthdays, get well, anniversary, and other sentiments. while the rest is driven by such events as Valentine's Day, Mother's Day, and the graduation season. We ship approximately two months prior to the holiday, while production is underway months before that. We naturally gear up starting in August, operate feverishly through October through November, and then take a moment to reorganize after shipping Valentine's Day. We then ramp up from February to April as we focus on Mother's Day and graduation. Our third quarter is about spending controls and longer-term planning as we prepare to do this all again. And the payoff is millions of happy customers, which makes it all worthwhile. Frank?