Yunhong Green CTI Ltd (YHGJ) 2022 Q1 法說會逐字稿

Good day, and welcome to the Yunhong CTI first quarter 2022 earnings conference call. (Operator Instructions) 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 our 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, 2021, lists some of the most important risk factors that could cause actual results to differ from its predictions. Please also note, the company's earnings press release make reference to the adjusted EBITDA, and non-GAAP financial measure.

The company's 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 talk turn the call over to Frank Cesario, Chief Executive Officer of Yunhong CTI. Sir, please go ahead.

Thank you, Jenny. Good morning and thank you everyone, for joining us on our call today. Rarely has the term first quarter meant as much 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 with and without our former Flexo 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're used to dealing with. With a sizable 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 shifts by December 31 of the previous year, about a month and a half before the holiday, but there's always some spillover into January, that we have to estimate. Even more pronounced is the question of what will ship, in late March versus early April for Mother's Day and graduation season. Last year, more what in March while this year some of that shipped in April, 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've seen from our results that our revenue was 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 and the loss they contributed last year, yet on either I look at, we look at adjusted EBITDA as the most useful metric. While around 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 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 an adjusted EBITDA number for 2022 in excess of $1.2 million. So that's a figurative line, the SAM that we're drawing today.

With all the caveats that you know and 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 with the market is looking like and how we're addressing these issues. Jana?

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 trade and mitigate these issues. Fortunately, the vast majority of our materials are from domestic supplier partners that we have known for a very long time.

So, an open communication flow has been keeping us out of trouble. Freight availability and timing is touch and go as fast, 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?

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 to add 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 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. It'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, and 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. And we look forward to building our progress throughout 2022 and beyond. And with that, Jenny, I would ask you to check the Q&A queue.

(Operator Instructions)

Glen Hamilton, Private Investor.

Frank and Jana. 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 is not paying money that you know, that you guys have a gap.

Yes, that's my question. That seems like a high receivable number.

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

Okay. My last question is, how do you define notes payable officers' subordination, $1.2 million this quarter, zero last quarter?

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 trying not to, but the answer is that same note was there last quarter. We have to go into current liabilities to see it.

Okay.

Yeah.

Okay.

It's been there forever, and that predates me in 2017.

No more questions. Great job so far, and I look to meeting at some time in the future. Thank you.

Thank you, Glen.

(Operator Instructions) Okay, there appears to be no more questions in the queue and I'll now hand back over to Frank, for any closing comments.

Thank you. It's not a surprise with the market as what it is that folks are a bit distracted. I hope that people will join us on the replay. What's most important is, this is day one. This is our first report. You can see how the US business does, without being distorted by other elements that no longer exists. 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.

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.