Yunhong CTI Ltd. (CTIB) Q1 2023 Earnings Call Transcript

Yunhong CTI Ltd. (NASDAQ:CTIB) Q1 2023 Earnings Conference Call April 27, 2023 10:00 AM ET

Company Participants

Frank Cesario - CEO, CFO & Independent Director

Jana Schwan - COO

Conference Call Participants

Glenn Hamilton -

Operator

Good day, and welcome to the Yunhong 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 opened to questions. This conference is being recorded today, April 27, 2023. The earnings press release accompanying this conference call was issued last night.

On the call today is Yunhong 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 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 AX 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 Yunhong CTI. Sir, please go ahead.

Frank Cesario

Thanks, Matthew. Good morning, everyone, and we appreciate you 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. The 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 year as we thought 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, Jana 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 Jana to share her thoughts on making Yunhong CTI even more profitable. Jana?

Jana Schwan

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 long-standing.

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 driving factor in the efforts to exceed our customers' expectations.

Frank?

Frank Cesario

Thanks, Jana.

We are accountable for our results. A couple of 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 thought, but there 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 going 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 countercyclical 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, 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 a 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 UnihomGroup, which holds related patents and know-how.

With that, Matthew, I understand that most folks catch this on replay, but if anyone is here with us live and wants to ask a question, Matthew, please invite them into the Q&A. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question is coming from Glenn Hamilton. Your line is live.

Frank Cesario

Hi Glenn.

Glenn Hamilton

Hi, Frank and Jana. Kind of a 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 mainland, is it next month?

Frank Cesario

Yes. So Trip chais early May.

Glenn Hamilton

Is it just going to be you, or Jana, or any Board of Directors, or just yourself at this point?

Frank Cesario

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 Jana 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.

Glenn Hamilton

Okay. I'd be happy to join you guys and I would actually pay for my own airfare, but I'm just kind of half joking half not. Not too good. My daughter does speak Mandarin pretty well, though, so -- but that's neither here or there. What do you and Jana or the team hope to accomplish by going out to China and meeting with leadership there?

Frank Cesario

A number of different levels, but the most important thing is this push for compostable solutions. So we're trying to launch new materials. And in doing that, there's always a disconnect between what we see as a balloon party goods manufacturer and when 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.

Otherwise, you're trading material back and forth and specs back and forth. And we find that that's slow going. So 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.

Glenn Hamilton

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?

Frank Cesario

It's impossible to say at this point. I would love for that to be true. I just don't know. We've been working on prototyping for a while. Some things are closer than others. 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 that's going to play out.

Glenn Hamilton

Okay. I guess no other questions. Keep it up. And I would like to see ownership of, again, set buying shares. You know how you 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.

Frank Cesario

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

Glenn Hamilton

Okay, thank you, bye.

Operator

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

Frank Cesario

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.

Operator

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