Yunhong CTI Ltd.
Q1 2022 Earnings Call Transcript

Published: 19 May 2022

[Operator:]

Good day. And welcome to the Yunhong CTI First Quarter 2022 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, May 19, 2022. The earnings press release accompanying this conference call was issued after the close of market on May 18. 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 statement 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 for the year ended December 31, 2021 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 the 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 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 now turn the call over to Frank Cesario, Chief Executive Officer of Yunhong CTI. Sir, please go ahead.

[Frank Cesario:]

Thank you Jenny. Good morning and thank you everyone for joining us on the call today. first quarter momentum as it does to us today. This is the first quarter that our reconfigured company has reported its results. We still have to talk about last year’s results where through a data form reflex a subsidiary. The 2022 is clean. This should make us easier to understand as we move forward. Fresh out of the gate we are one small but typical curve ball that we are used to dealing with. With a sizeable portion of our revenue driven by events such as Valentine’s Day, Mother’s Day and Graduation, the timing of our shipments is highly impactful to our quarterly results. For Valentine’s Day most of our business ships by December 31 of the previous year about a month and half before the holiday. But there is always some spill over into January that we have to estimate even more pronounced as the question of what will ship in late March versus early April for Mother's Day and Graduation season. Last year more went in March while this year, some of that shipped in April and you can see that in our inventory number. To get ahead of it, I don't know how that's going to shake out in 2023. Every year, we're making some kind of guess because it's just a matter of days from Q1 to Q2. That timing is always somewhat dependent on our forecasting and the ability to make deliveries. You seen from our results that our revenue is down from $6.6 million to $5.8 million, but I know that our margin rate was similar despite the volume change and of course, our bottom line was much improved. More on that in a moment. Remember, Flexo lost their contributed last year. Yes, I don't either. I look at we look at adjusted EBITDA as the most useful metric. While we're on the topic, we've decided to put a toe in the pool of forecasting and share that we expect to post more than $1.2 million in adjusted EBITDA in 2022. As our business continues to mature, we'll decide how to best share expectations at the right level. For now we want to focus on the single most important number that we look at internally. We could end up reporting adjusted EBITDA number for 2022 in excess of $1.2 million so that's a figurative line in the sand that we're drawing today. With all the caveats that you know and we heard about the beginning of the call, that's where we're going to start. We're all concerned about supply chain disruption the flow of helium into the marketplace. To provide some perspective on these topics, I've asked Jana Schwan, our Chief Operating Officer to share what the market is looking like and how we're addressing these issues. Jana?

[Jana Schwan:]

Thanks, Frank. And hello, everyone. Let me start with helium. In 2019, we had an immense commercial helium shortage in the marketplace that hurt everyone in our industry. Today, we are seeing a tightening in helium supply once again, with some customers struggling to get 100% of what they require. But so far, it seems less impactful than 2019. We will of course, keep an eye on the helium supply as we progress through the year. On the topic of supply chain, we have ordered more material earlier than we would have otherwise in order to try to mitigate these issues. Fortunately, the vast majority of our materials are from domestic suppliers partners that we have known for a very long time. So an open communication flow has been keeping us out of trouble. Free availability and timing is touch and go at best. But our team continues to work the issue. Nobody has a perfect answer or even a good answer here. But we believe our relationships will continue to pay dividends. Thus far, we have largely executed what we planned for. And I expect that that will continue. Frank?

[Frank Cesario:]

Thank you, Jana. We've been presenting fabulous designs for 2023 Valentine's Day, Mother's Day, Graduation. And yes, even Father's Day. Our customers like to look at that about a year in advance and then give us indications of what they're going to order which gives us a lot of lead time to be ready. We're looking at talent in our sales and marketing area later this year to support sales growth with our existing customers and also target some specific retailers that we'd like to add to our customer list. Our production is tight and becoming more efficient with the automation gains I can say that we discussed last time. We are actively engaged with our customers getting the right products to them at the right time in the right way. That's the only way to win where we are and we do well at it. There's ample headroom in the marketplace for our existing products. So we believe some natural extension areas to pursue, but in a measured way. We will not get ahead of ourselves again. In closing, we entered the first quarter of 2022 with a more sound financial and operational position and are confident in our ability to continue to execute against our transformational strategy. We look forward to building our progress throughout 2022 and beyond. And with that, Jenny, I've asked you to check the Q&A queue.

[Operator:]

Thank you, Frank. Ladies and gentlemen, the floor is now open for questions. .Thank you. Our first question is coming from Mr. Glenn Hamilton . He’s a Private Investor. Glenn, can you ask you a question please?

[Unidentified Analyst:]

Hey Frank and Jana, thank you for the update. I just have two balance sheet questions. One has to do with the receivables of $3.3 million it seems pretty much the same as last quarters. Who was not paying money that you guys have to get? Yes, that's my question that seems like a high receivable number.

[Frank Cesario:]

It’s not for us actually. If you look at how that is run rate against total revenue, it's very much in line. Remember, in retail on average, terms are about 60 days on average, they're 30. They're 60. There's longer depending on what you're selling to whom, but $3.3 million, if anything is, is a pretty good receivable position. Our collections are good. We've had negligible bad debt write-offs. So we've been we've been fortunate in that area.

[Unidentified Analyst:]

Okay, my last question is, how do you define no payable officers subordination, 1.2 million this quarter, zero last quarter?

[Frank Cesario:]

It was there last quarter, but you have to look at long term versus short term liabilities. So there have been issues and how you classify liabilities. I could get an accounting speak, but I'm going to try not to. But the answer is that same note was there last quarter, but you have to go into current liabilities to see it.

[Unidentified Analyst:]

Oh, okay.

[Frank Cesario:]

Yes. It's been there forever. And that predates me in 2017.

[Unidentified Analyst:]

No more questions. Great job so far, and look to meeting guys sometime in the future. Thank you.

[Frank Cesario:]

Very good. Thank you, Glenn.

[Operator:]

Thank you. .Okay, there appears to be no more questions in the queue. And I'll now hand back over to Frank, for any closing comments.

[Frank Cesario:]

Thank you. It's not a surprise with the market as what it is that folks are a bit distracted. I hope that people enjoy this on the replay. What's most important is this is day one. This is our first report. You can see how the U.S. business does without being distorted by other elements that no longer exist. And from there, we can launch into where we want to get to. So I thank everyone for being part of the story. And we're looking forward to the next chapter. Thank you so much.

[Operator:]

Thank you ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.