Q2 2023 Yunhong CTI Ltd Earnings Call

It only mode.

Following the presentation the conference will open up to questions.

This conference is being recorded today August three 2023.

The earnings press release accompanying this conference call was issued last night.

On the call today is <unk>, Chief Executive Officer, Frank says Oreo as well as Chief operating Officer Janice one.

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 basis, 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 that.

The company views adjusted EBITDA as an operating performance measure and as such the company believes that the the GAAP financial measures 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 says Oreo Chief Executive Officer of Young Hunk DTI. Sir. Please go ahead.

Thank you Matthew good morning, and thank you forever and joining us on our call today, We will 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 with annual shareholders' meeting materials.

As we've been discussing for some time our company has been working increasingly uncompressed to bowl and biodegradable solutions, both involved in our existing product families and separate from them.

Our name for decades C T I stood for container technologies incorporated.

In 2020, we added <unk> as a way to connect to the young China group for the first time, we Werent alone now supported by a diverse enterprise. This.

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 Yoon hung Green <unk> limited as our company name.

As it related matter, our trading symbol of <unk> was easy to remember CCI 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 Y H G. J. The yh for you at home 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 approved 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 unit group sells quite a variety of items from health supplement to solar panels to software apps with tens of millions of subscribers to advanced materials.

<unk>.

They have an industrial park in China with companies spread across China and interest around the world.

Our company serves as a valuable point of connectivity for the North American market, one, which hasnt been served in the past.

But 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 is a good start to that year became particularly challenging with 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. In Q2 2002 was weak while 2023 has been more consistent building as the year went along.

Film products bounce back from a non existent first quarter. This year to narrowly beat last year's second quarter.

So home 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 are.

Our other categories led by ballooned inspired gift items, which has reported an increase of $1 $7 million from full year 'twenty one to 'twenty two.

Because we recorded all of our Valentines day shipments by the end of December 22, something we did not do during 'twenty. One 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 that's important for our shareholder.

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 our reported revenue during 2003.

We believe that bodes well for future profitability as we find ways to deal with the cost challenges that have exploded broadly the last couple of years.

As is often the case, we had an 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 werent recognized until those returns were ultimately processed that has now happened resulting in <unk>.

Noncash 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 on 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 in the long term lower our operating costs the leader of that charge as our chief operating officer, John Schwan Jana They 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 for the <unk>.

First robotic salary installed.

Recently, our most profitable line in terms of cost reduction coupled with throughput.

I am 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.

More optimal activity.

Gradual investment has been effective for us.

We are ready for each new installation I would also like to go faster, but I 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 it looks like a solid increase over the past year Frank.

Thanks for the heads up Jonathan.

In addition to the company branding and new products, we're trying to launch domestically. We also have the conclusion of our credit facility in September we'll advise you just as soon as we have an agreement to replace this facility something we expect to be successful in doing but nobody around here and declare victory until it's done.

I'm, hoping to have quite a bit to talk to you on our next call for now I am pleased that our shareholders' equity has increased.

As we continue to find our footing Healy.

Helium pricing continues to moderate but remain stubbornly elevated and must be managed particularly while the Russian supplies are available.

People desire to celebrate and we can play an important role in making those experiences special and memorable balloon inspired gift category continues to grow and we offer our customers outstanding designs and quality products, adding more automation will help us as well the development of new product areas and customer indications are strong.

Grab coming holiday orders certainly indicates their optimism in future sales.

We know that most people catch this call and the replay but for anyone who's on live we invite you to ask a question Matthew will you. Please start the Q&A session.

Certainly everyone. At this time, we'll be conducting a question and answer session. If you have any questions or comments. Please press star one on your phone at this time.

We do ask that we're posing your question. Please pickup your handset if you're listening on speaker phone to provide optimum sound quality.

Once again, if you have any questions or comments. Please press star one on your phone.

Please hold while we poll for questions.

Your first question is coming from Glen Hamilton Your line is live.

Hi, Glenn.

Frank I'm, probably the only one on the line here right.

I don't know I don't know, but youre the only one for me so lets going on.

This question is going to actually I have two questions. One is gonna be for John .

Donna.

Does your dad, John Schwan aware the name change number of share is increasing.

The simple change I cannot read your dad will be onboard for this.

So you may not you may not answer that question, let me chime in for a moment for anyone who listens to us and doesn't know.

We're talking about our former chairman John Schwan, who has been retired for years.

So.

Glenn you're welcome to talk to I know you know him on the side, but I can tell you theres a lot of support for what we're doing with everybody associated with our company.

Here's my fear just yesterday, China has been announcing that its increasing its petroleum reserve beyond belief and you say well who cares.

The rumor on the street as China is preparing for a possible invasion of Taiwan next year, that's why Bakken oil beyond belief I guess, what our country's doing our country's depleting reserves genius is that we are so my question is not question observation. If there is any form of invasion and.

By China here, we are basically DTI is primarily owned by a Chinese investor who we all I think know very little about.

For the past year I've been hearing all of this green stuff Greenstuff Greenstuff I haven't seen one dollar revenue coming in just a lot of talk I have a lot of Chinese brands over there who have their doubts ourselves so.

I know youre not going to say anything Frank.

<unk>.

I, just don't see them doing anything that benefits shareholders, increasing the shares to the billions. It's unbelievable it doesn't work at Nokia.

And also I don't know what you can say here, but I, just don't see shareholder interests being aligned.

With management I, just don't see it.

And if you could convince me please do okay I'm done.

Okay. So let me tackle that as best I can obviously that's.

That's a very large broad question seriously.

But let me do what I can so first whenever there is instability anywhere in the world and we saw this with the Ukraine right, that's damaging consumes resources it causes inefficiencies.

Causes problems and that is true anything so I'm not singling out anybody and anybody I'm, just saying to the extent there's disruption that's mostly bad.

So if there is we'll deal with that as best we can like everyone else because that's the only choice that you've got.

When we get to.

The U S and China, I mean, with the two largest economies where natural trading partners, there's a lot of stuff and Oh by the way we've gotten a lot of support from this investor group has allowed us to pay down our debt. If we hadn't the increase in interest rates would have heard us tremendously quite a bit more than they did in already wasn't trivial, but look I understand.

And you are concerned at the same time I will tell you.

This investor group as it has been helpful and continues to be helpful and is giving us things that we're both working on that hopefully can be commercialized successfully.

We're all trying to do are there any guarantees of this green stuff as you put on there being tremendous.

We never said we have revenue. This year. We said we were working on it we're prototyping and we're doing a lot of work around it because the payoff could be huge so yes. That's why we're committed to this path and that's why we're doing what we're doing but I do want to specifically call out you mentioned billions of share so that everyone understands what this is and isn't.

Our materials for the upcoming annual meeting of shareholders.

Our board has asked the shareholders to approve authorizing additional shares specifically to the tune of 2 billion additional total outstanding shares.

And it's a huge number for us right. The old number the current numbers $50 million. So why $2 billion in authorizing these shares not a single share.

Gets issued automatically or by any process other than the normal one which is the board agrees to terms of some sort of share issuance.

They are bound by the rules of the NASDAQ stock exchange the SEC. The U S laws I can go down all day long at the end of the day if any of those shares are ultimately issued.

Then they would be subject to all the rules around issuance today, we have 50 million authorized shares today of which 21 are accounted for <unk> 29 million shares that could be issued subject to all the rules that we talk about whether.

Whether that $29 million or larger number. It's the same thing the reason I asked the shareholders for this change is to be ready, we're going into a whole another line of business truly.

And that might include new facilities will include merger partners M&A joint ventures, and so we wanted to already be ready to then come to those agreements go through shareholder approval if appropriate for whatever that is.

And move forward, but none of that is committed as of today, we are not issuing additional shares because of that request of shareholders. So everyone should just understand.

Don't have an immediate plan for deploying those share assets, we just want to be able to if circumstances warrant.

I know that was long and I apologize for that but Glenn you raised a lot of important issues and we wanted to be responsive to.

Yes, and I understand that unite we've talked separately about it and I would have no problem issuing 1 billion 2 billion shares if you want a $2 stock. If you were at $10 stock $20 stock that makes sense.

Maybe to do that for acquisition purposes. This doesn't make sense at $2 and I, just don't know what's going to get the stock up from $2 to $4. There's very little trading values. These days as you can see and.

The market doesn't seem to perceive these future development as well.

Bringing in revenues, because I think we see more institutional activity.

<unk> volume you know just the stock has just like little hamster on a wheel just going nowhere Sydney.

And I appreciate that it's it wasn't long ago, it was quite a bit under $2 and we should not lose sight of the fact that the largest entity in our space is currently in chapter 11.

This has been a hard year since.

The price of helium went bananas year and a half ago.

And so we fought through it and I'm frankly, I'd take a measure of pride in how this team has fought through it.

Do more with less I think that antibody and that shows and we think it's going to show through as we get out of this as we sailed see the sales volume perking up things.

Things like helium get resolved if we ever got the Russian supply in the market I can't wait to see what those prices go too but in the meantime, we're not counting on that so we're going to fight through and do the very best that we can and hopefully we will impress people will see.

Okay, no more questions I am good.

Thanks.

Alright, Thanks Glenn.

Thank you once again, everyone. If you have any questions or comments. Please press star then one on your phone.

Please hold while we poll for questions.

Thank you that concludes our Q&A session I will now hand, the conference back to <unk>, Chief Executive Officer of <unk> for closing remarks. Please go ahead.

Thank you Matthew I hope people weren't intimidated by all that but we did get a lot of topics out and that's good. So we look forward to the next quarter. When we will have new things to talk about we appreciate everyone who's voted their shares already for the upcoming annual meeting.

For anyone who hasn't this is a great time to do it and we look forward to talking to you soon take care.

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