Yunhong CTI Ltd. (NASDAQ:CTIB) Q2 2022 Earnings Conference Call August 16, 2022 10:00 AM ET
Company Participants
Frank Cesario – CEO
Jana Schwan – COO
Conference Call Participants
Michael Khorassani – Orion Capital
Operator
Good day and welcome to the Yunhong CTI’s Second Quarter 2022 Earnings Conference Call. During today’s presentation all parties will be in listen-only mode. Following the presentation, the conference will be open for questions. This conference is being recorded today, August 16, 2022.
The earnings press release accompanying this conference call was issued this morning. 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 are reflective of its current views about future performance and its 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 that the Company’s earnings press release makes references 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 of 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 Yunhong CTI. Sir, please go ahead.
Frank Cesario
Thank you, Matthew. Good morning, everyone. Thank you for joining us today. Hopefully you’ve had a chance to look at our press release that we issued at close yesterday, which summarizes financial information. As well as the press release we issued last week, regarding the arrival of Yunhong Biotechnology Inc. Let’s start with a summary of financial performance.
The second quarter started out pretty well, with April coming in ahead of last year. Then we experienced more challenging May and June, with sales to our customers negatively impacted by the significant rise in the price of helium. As many know our top selling product line is foil balloons, of these most are filled with helium while the rest are filled with air. Like so many materials this year, the price of helium increased drastically to close to double what it was last year.
Russia provided about 5% of the supply and could scale up for more. We all know what’s going on with that. There is a fire in the largest U.S. plant that shut down for an extended period. All in it was a tough year for helium supply which hurt those customers who purchase foil balloons from us and fill them with helium.
Many of those customers have shared the expectation that the price will improve over the next few months. While this is good news, the high price of helium had a negative impact on our revenue for the second quarter. For able to be higher revenue than last year and close to $1.3 million down was certainly disappointing and yet our reconfigured, more focused efficient business showed its newfound resiliency.
If we look at our net loss for the quarter $400,000 compared to a gain from last year, it’s important to note that we have a $3.4 million one-time gain from selling our Lake Barrington building last year to help with that reduction. Without this one-time event, we posted a better bottom line this year than last year on $1.3 million less revenue.
And that’s before we consider the $300,000 loss contributed by the subsidiary we sold in October of 2021. With those pieces defined, we beat last year’s bottom line soundly, again despite $1.3 million less revenue.
Looking at our adjusted EBITDA which is detailed in our non-GAAP measure in the press release, we posted a $0.5 million improvement during the second quarter, and a $1.25 million improvement during the six-month period over last year. And that’s on $1.3 million and $2.1 million less revenue respectively.
Nobody likes a storm, but our ability to weather that storm has improved exponentially. After the second quarter, one might ask if we’re less confident about our expectation for $1.2 million of adjusted EBITDA for the full year 2022. With all the usual caveats involved in predicting results, our answer is no. We are not going to change that expectation. We believe we should get there.
One top variables how quickly helium settles down, if that happens during the third quarter, but I think we’ll be able to hit our number. If it takes longer, we may have to reevaluate that forecast. But for now, we are sticking with our expectation.
The fourth quarter has typically been our strongest and we are building inventory to be better able to handle a potentially higher order flow later this year.
We continue to attack our cost structure, looking for savings opportunities. We believe there are more opportunities to streamline operations and make us more efficient. Our robotic initiative is a good example of that effort, which Jana Schwan, our chief operating officer talked about previously. Jana will provide more insights in a moment.
We’re also planning to leverage these shares in the equity plan that our shareholders approved during June. As we look to add more talent and support as we pursue new customers in the sales area.
Many are looking forward and see a potential recession for now than one already. Our experience has been that balloon sales tend to be fairly strong during challenging times, as we have retail partners who are preferred destinations by families looking for value, and our products are a low cost way to bring smiles to face.
Add to that the likelihood of more at home parties and we see a potential economic challenge as an opportunity. Jana, as we celebrate your 20 years with our company, you have seen it all, I think there’s helium number four for you. I asked you to share what you see in our space these days.
Jana Schwan
Thanks, Frank, and hello, everyone. We have discussed the efficiency of manufacturing recently. Our robotic arms are being integrated into the process and are proving to be quite effective. Today, I would like to highlight our planning process. During recent years, we have become much more effective in incorporating material cost, supply interruptions and production throughput into our designs that we offer.
We have a unique ability to expand and contract all areas of our production activities quickly to adjust to our customer’s needs. This has given us an advantage to be able to control our material flow and production capacity, while we await stability in the helium market.
Frank?
Frank Cesario
Thank you, Jana. We see meaningful benefits with the expansion of our robotic arms in the manufacturing area. And we’re working on getting more of those assets in place when more aligns as quickly as practicable. There’s ample headroom in the marketplace for our existing products and we believe some natural extension areas to pursue in a measured way. We expect to weather the helium storm and come out in a good position.
And now let’s turn to another piece of the future. The beginning of Yunhong Biotechnology Inc. in the United States. For those who did not see the press release on August 11, Yunhong Biotech will bring advanced material solution in North America. Specifically, it offers a starch based compostable alternative to many of the styrofoam and plastic products we use today.
It’s our thought that Yunhong CTI can leverage its experience in supplying retail customers to help Yunhong Biotech gain traction here. Every displacement is intended to enhance our environmental stewardship. We look forward to getting much deeper into this exciting and very timely material solution.
In closing, we enter 2022 with a sounder financial and operational position and are confident in our ability to continue to execute against our transformation strategy. We are much more resilient financially and operationally than we were last year, we are better able to take advantage of positive movements in the marketplace. We have plenty of challenges to tackle like the current helium pricing issue, and look forward to building on our progress in 2022 and beyond.
With that, let’s take some questions. Matthew, you mind hitting up the Q&A? Matthew, can I ask you start with the Q&A session.
Question-and-Answer Session
Operator
[Operator Instructions] Please hold while we poll for questions.
Your first question is coming from Michael Khorassani, from Orion Capital. Your line is live.
Frank Cesario
Hi, Michael.
Michael Khorassani
Good morning, Frank. How are you?
Frank Cesario
Doing well. How are you?
Michael Khorassani
Good. Thank you. I have two sort of categories of questions. I guess I’ll leave it open for you to expand as you can. I’m just curious on the helium side, how much helium do we — do you guys actually buy? And what the quarter may have looked like if we didn’t have the helium issue? How do I think about that?
Frank Cesario
And your other?
Michael Khorassani
The other one is on the biotech side. I don’t know again, if you guys are able to talk about it now. My question is what sort of the business model there? When do you expect to maybe see some revenues hit the top line? Anything you can expand on that would be great to?
Frank Cesario
Very good. So I’ll do it in order. Starting with helium. We don’t buy the helium, we do it for internal testing, but we don’t buy helium for the product. Our customers do. And that’s the issue. So, when the price of helium doubled them to our customers the price of a filled balloon has gone up, and that has caused some of them a lot of pain, it depends on how flexible you are in your pricing model. There are a whole lot of factors here.
But certainly, when any material goes up, right, the item that’s attached to it is going to be negatively impacted. I mean, think of car sales, new gasoline, getting up, et cetera. So, that’s the issue we have with helium, it’s not affecting us directly, it affects our customers. Who when you look and say 70% of our revenue is foil balloons, that’s most of those are helium filled. That’s a lot of our product line is negatively impacted by that, and it was huge. You’re talking about helium, a couple million dollars in swing. And so it’s a big deal to us.
The nice thing is, when those prices settle out, we see a surge in order flow for helium filled products, because the market wants it. And so as people let their inventories dribble down, that tends to be good for us, which is why we are slowly but surely building our inventory position to be able to fulfill those orders, when that turns. And we’ve seen this before and we expect to see it again.
On the biotech side, it’s new, right for here. So the entity has been created, the technology coming over from China, which is where it’s got its legs and a lot of testing. In the press release, we talked about some of that. The business model is really as a material solution. So think of plastic where, think of styrofoam containers, all sorts of non-compostable alternatives that we use today that we don’t want to, we don’t want to keep loading up landfills. And so the idea is this would be a material replacement for those materials currently in use.
And, that it’s a massive market. But it’s one that we sell to retail all the time. And that experience should be helpful in kick starting biotech, selling its material solutions to retail customers at first, and then you get into all sorts of levels of people who use this stuff. If you if you haven’t seen this a foam or paper cup today, I’d be surprised.
Does that make any sense?
Michael Khorassani
Yes, yes. That was — thank you for clarifying the helium issue as well.
Frank Cesario
Thank you.
Operator
Thank you. Your next question is coming from Mike Zuniga [ph]. Your line is live.
Frank Cesario
Hi, Mike.
Unidentified Analyst
How’re you guys doing? Just one quick question. Are you — do you have the equipment to produce this bio friendly material?
Frank Cesario
You know the Biotech does. So the equipment is all ported from China, which is where the legs of this entire line come from. And so the idea is, that’s contributed by the Yunhong China group into Yunhong Biotech Inc. the American Company. And then Yunhong Biotech will then use that equipment to make product.
Unidentified Analyst
And they would ship that product to us. And we would we would market it as here.
Frank Cesario
We would help Yunhong Biotech sell to North American customer. And so we would help with the selling activity of that entity.
Unidentified Analyst
And that would find its way to our bottom line.
Frank Cesario
Yes.
Unidentified Analyst
Thank you.
Operator
[Operator Instructions] Thank you. That concludes our Q&A session. I will now hand the conference back to Frank Cesario, for closing remarks. Please go ahead.
Frank Cesario
Thank you, Matthew. And we know that a lot of people access this by the replay and we thank everybody who’s on live and joining us and frankly, anyone who accesses by replay, we are excited to share our story.
It’s no surprise that Yunhong Biotech has captured some interest, frankly, this was part of the calculus two years ago, we had when we and Yunhong China group connected. This is an entity that has large region Asia, did not have the region North America, we have experience of North American retail and it was a natural combination. So we’re all looking forward to growing that and demonstrating to you the value that that can create we’re proud member of the group.
The same time we’re, we think a fabulous balloon company, world’s finest balloons, if you look at the box. And we think we do a good job of that. We have a great creative team and if you think about how much disruption has impacted this company in the past, and now you look at this year and say, yes, it’s a better company now. And I’m looking forward to showing you what that can become. So thank you for being on the ride with us. We look forward to speaking to you in the next quarter.
Operator
Thank you, ladies and gentlemen, this concludes today’s event. You may disconnect at this time and have a wonderful day. Thank you for your participation.
Be the first to comment