Q4 2021 Karat Packaging Inc Earnings Call
Good day and welcome to the carrot packaging 2021 fourth quarter and year end conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone phone.
To withdraw your question. Please press Star then two.
Please note. This event is being recorded I would now like to turn the conference over to Roger Upon Dale Ponder Wilkinson care packaging Investor Relations firm. Please go ahead Sir.
Good afternoon, everyone and welcome to curate packaging 2021 fourth quarter and year end conference call I'm, Roger PON, Dell with Pinedale Wilkinson, Curt packaging Investor Relations firm it will be my pleasure momentarily to introduce the company's Chief Executive Officer, Alan you.
And carrots, New Chief Financial Officer, Jan go before I turn the call over to Alan.
I want to remind our listeners that today's call may include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, such forward looking statements are subject to numerous conditions, many of which are beyond the company's control, including those set forth in the risk factors.
Section of the company's IPO registration statement and its most recent four recent Form 10-Q as filed with the Securities and Exchange Commission copies of which are available on the SEC's website at Www Dot FCC Dot Gov, along with other company filings made with E. S.
I see.
From time to time actual results could differ materially from these forward looking statements and carrot packaging undertakes no obligation to update any forward looking statements, except as required by law.
Please also note that during this call we will be discussing adjusted EBITA adjusted EBITA margin and adjusted diluted earnings per share, which are non-GAAP financial measures as defined by SEC regulation G. A reconciliation of the most directly comparable GAAP measures to the non.
GAAP financial measures is included in today's press release, which is now posted on the company's website and with that it is my pleasure to turn the call over to CEO Alan you Alan.
Thank you Roger Good afternoon, everyone. We're pleased to be here with all of you today, our business continued to grow at a robust pace as we gain wallet share with our existing customers and expand our customer base earlier today, we reported record fourth quarter net sales and continued margin expansion despite ongoing.
Global supply chain challenges and tight labor conditions fourth quarter 2021 results.
Exceptionally strong demand for our products and market trend remains favorable as we continue to provide new innovative offering ourselves we're somewhat constrained by the delay of certain shipments to customers from December to January due to inventory shortages, resulting from port congestion and labor challenges.
We continue to manage the labor environment through increasing recruiting efforts and shifting distribution to other facilities in our supply chain.
All lines sales again posted the highest percentage increase 56% year over year in the fourth quarters as we are placing greater emphasis on this category of our business, which command higher margins. In addition to sales from our online channels, we experienced excellent growth through ebay Walmart and Amazon.
Our distributor channel and national or regional chains also posted very strong results. During the year, we added more than 50, new regional restaurant chain account as well as national chain accounts as noted in the press release, we've achieved our gross margin go into 'twenty, 'twenty, one where fourth quarters, increasing 306.
Basis points at 31% over the same quarter last year.
Higher inventory and ocean freight expenses this demonstrated our ability to improve productivity and operational efficiency.
As well as successfully passing through inflation related cost increases gross margin also benefited somewhat from higher land costs capitalized in the fourth quarters compared to the third quarters, mainly freight duty.
In custom brokerage fees, our positive business momentum is progressing in 2020 to the foodservice sector is continuing to experience steady increase in consumer spending.
Moreover, demand for environmentally friendly products and do you need to grow.
Suppose whirlpool carrot as a leading industry providers.
As a result of our favorable outlook. We are currently targeting net sales for the 2022 first quarter to be in the range of 101 million to 103 million.
Up about 35% at the midpoint of the range over the same period last year for the full 2022 years, we expect sales to grow 17% to 19% over 2021.
Lastly.
As part of our plan to expand our third party logistics services. We have just leased 14 trucks and trailers. This is in addition to the previously announced orders of 10 Tesla semi truck that we expect to a REIT in 2023.
We want to leave adequate time for questions. So I will stop here and turn the call over to Jen go our new Chief financial officers, who joined carrot in February to discuss our financial results in greater detail again.
Thank you Alan.
I am very pleased to have joined to the Cara team.
Its exciting time in the company's growth and development.
Our 2021 and fourth quarter results reflect strong top line growth from existing and new customers and improve the margin as we continue to enhance our operating efficiencies.
We delivered $10 $9 million of adjusted EBITDA or a 11, 9% adjusted EBITDA margin.
Now, let me provide more color on our operating results starting with revenue.
Net sales for the 2021 fourth quarter increased 30% over the same quarter last year to $91.3 million.
Net sales for the full year 2021 increased 23% over 2022 $364.2 million.
Net sales in 2020 included $38 $1 million of PPE products, principally during the height of the pandemic in the second quarter of 2020 net.
Net sales of P. P E products decreased to $2.7 million in 'twenty, 'twenty, one or less than 1% of net sales.
Dallas to distributors for the 2021 fourth quarter, our largest channel grew 33% and south to national and regional chains expanded 27%.
Online sales rose, 56% for the quarter, reflecting strong demand and our continued investment in this critical channel.
Sales to the retail channel decreased 4% from the same quarter last year with some self having shifted to other channels and the fourth quarter typically being slower on the retail side.
We implemented minimum shipping requirements in the second half of 2021 to better manage tight labor conditions, which shifted a portion of our self and that's from retail to distributors and enabled us to better utilize staffing resources.
Gross profit increased 47% to $28.3 million for the 2021 fourth quarter do you import.
From the strong sales growth in our higher margin channels and products.
Along with improved operating efficiencies and better management of freight expenses.
Gross margin for the 2021 fourth quarter expanded to 31.0% from 27.4% for the same quarter last year and 29.0% in the 2021 third quarter.
Operating expenses for the 'twenty, 'twenty, one fourth quarter or $21.2 million or 23% of net sales compared with $17.2 million or 24% of net sellers in the prior year quarter and $24 4 million.
Or 24% of net south in the 2021 third quarter the reduction in operating expenses as a percentage of net sales from both the prior year and the sequential quarter demonstrate at the company's improvement in cost of beverage spin.
Specifically, we are gaining efficiencies in facilities shipping.
Labor costs.
Provision for income taxes was $1 $1 billion for the 2021 fourth quarter versus a benefit of 224000 for the same period last year.
Net income increased more than threefold to $6 million for the 2021 fourth quarter from $1.6 million.
For the same quarter last year.
Net income attributable to Carryout packaging, Inc.
With $5.6 million or 28 cents per diluted share for the 2021 fourth quarter compared with $922000 or six cents per diluted share for the same quarter last year.
Adjusted EBITDA on a consolidated basis advanced to $10 $9 million for the 2021 four quarters.
From $4.5 million a year ago.
Consolidated adjusted EBIT margin was 11, 9% in the fourth quarter compared with six 4% for the same quarter last year.
Adjusted diluted earnings per common share rose more than five fold.
232 cents from six cents per share in the prior year quarter.
Net cash provided by operating activities increased to $9.9 billion for the 2021 and fourth quarter.
From $2.2 million for the same quarter last year.
Reflecting the higher net income and favorable changes in working capital and noncash adjustment.
We finished the quarter.
With $72.1 billion in working capital compared to $36 $6 million at the end of 'twenty 'twenty.
In October 2021 we refinanced our line of credit with improved pricing and more flexibility in our financial covenants. We believe we are better positioned to execute on our future growth strategies.
Alan and I will now be happy to answer your questions and I'll turn the call back to the operator.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
If at any time your question that's been addressed and we would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question will come from Jake Bartlett with true its truest Securities. Please go ahead.
Thanks for taking my question.
My first is for.
For U L and or or or others.
The question is fourth quarter revenue came in a bit.
Below the guidance that you had provided in in November in early November and you've mentioned the supply chain kind of bottlenecks word since wells need to be in the script you mentioned staffing so and that was in December and January So I just wanted to.
Make sure I understand kind of how you what happened there.
And also most importantly.
How confident you are that those bottlenecks or are now easing or hobbies or or will ease.
Thank you Jake well, yes, the fourth quarter, we experienced a lot of shortages.
We had a D. Two container arriving late on the port and and due to a shortage in labor due to holiday we have a lot of our employees. Our six Oh, we're calling sick that didnt come and show up so weyerhaeuser shorts that we got even if we had product on the floor, we were not able to ship everything.
In timing matters.
The containers trying to get the containers from the port to the warehouse and also we had to shut down our data and how almost two days at.
At the 20 end of the year for inventory counting.
And that's one of the main cause of that will be the fulfillment rate our fulfillment rate in the especially in December where we're nearly a not like it was close to about 50%.
And we see that took them a rate improved significantly in the first quarter to.
To your question do I see the bottleneck is getting better yes. The port is getting a lot better at used back in December and November of last year.
It took a ship a container about three months or even four months from the factory to our warehouse right now I'm seeing two month 45 days, a little bit over two months to get the containers into California. So it is much faster and also we don't have this kind of.
A delay at the port as we had before in December right now that the delay could be only about no more than two weeks back in December and November did delay could've been overdue, even the container came in offloaded in a dense area.
It would take us about 45 days to get the computer into our warehouse. So we do see a lot of these issue that we had in the fourth quarter away and also in the first quarters, we improve our efficiency in terms of hiring more people, especially in the Oh After January we're able to hire more people.
Also work over the weekend to get our order fill all I think the biggest challenge back in last fourth quarters. We're just trying to get the order fulfill which have we have a we have no problem getting a purchase order from the customers. The demand was high it's just that we couldn't fulfill as much as we want to due to labor shortages and shortage of supply.
Great Great and it sounds like you're you mentioned sick time and that would coincide with the spike in the omicron that we've heard others talk about would that is that the right way to think about it that the omicron Spike impacted your your staffing and in in this kind of sick days and your productivity.
As well.
Yes, I would say that not only us we've spoken with a lot of customers I mean, the Covid started back in 2020 are we happy very well control of the employees that have called Covid, but doing despite an omen from I, we'd experienced the most amount of labor shortage of employee attaching to that.
All of it all at one point, 50% of one each one of our department were out sick. So it's really a challenge and time during that period to get people to come to work, especially when the when everyone's having a gathering and then after the gathering the cod date catches called it.
Great No that makes a lot of sense and no I was just the next question is about the outlook for sales in 2022, the 17% to 19% growth and I'm, hoping you can maybe break that down in a few different buckets.
You know when you're in the contribution to that to that growth. One is the price increases that you've taken out taken throughout 2021 and how much is just increased pricing of what you're selling contributing to that 17% to 19% growth on the other part is how much of that growth is going to be.
Do you think is going to be coming from existing customers and then how much is dependent on getting new customers, maybe maybe some of those new customers as I understand that you've signed on some but haven't really turned our bonds maybe have very good visibility on that but I'm just curious too.
To understand kind of what the what the really the main drivers of the 17% to 19% growth. This.
Sure I would say Oh, 5% to 7% will be coming from increasing prices are the reason being there are some prices up on certain product. We raised our prices and also there are certain product we decrease our prices. So it kind of offset each other's and I would think that a majority of our increases such as we say 5%.
It would be coming from our increase in new customers and also new product lines that we're bringing in we are seeing that we have been adding more product line last year. We added approximately 100 to 200 Skus. This year I would see that adding an additional 100 to 200 Skus are mainly for online sales are what do we see.
All lines will be a big driver that would give us additional $10 million to $50 million or possibly even more revenue because we do pursue or see that our online sales should could possibly increase by 50% to 75% year over year. This year.
Great and then and then last question for me.
The missing piece in terms of 'twenty two guidance, the missing piece to get to EBITDA.
Is the operating costs and I'm just wondering if you could give us some of the big moving pieces, there and you know whether we should expect leverage on operating costs.
You in 'twenty, two and perhaps maybe if you could kind of.
Just help us understand how much leverage if we if we expect leverage but just some of the moving pieces. There I know you are shipping there, there's there's labor costs potentially maybe lapping some of the onetime kind of costs you incurred in 'twenty, one, but just just any help on the operating costs and how we should think about in 'twenty, one 'twenty two would be helpful.
Sure I would say, where we are seeing the operation cost to be fairly increase.
Not insignificantly compared to our revenues rose mainly that we are starting the just this month starting next month, we actually stop all the I'll cite brokerage sells a sales force that we have so we terminate all of their sales outside sales agreement everything would be done in house corporate about our corporate salespeople.
And also that we've seen that on the AR on the inventory side, we've seen on <unk>.
Kris and dollars that says it's favorable to our cost of purchase the overseas as well as our we've seen that you know we'd be utilized utilizing more on these shipping sides are we've used to ship Dawn 20, $28 on a truckload now we can ship 30 to 32 towers on the truckload so where.
Maximizing the shipment and also we've seen the domestic local shipping truckload price reasonably just drop versus the increase in the L. T. L. So we're pushing our customers asking them to ship more in the food truckload with a more S. K U that we bring in that also increase our efficiency in the operational cost same with them.
Neighbours, we are hiring more people that are that were seeking more efficiency out of our staffing that.
That is another increase in our efficiency cutting our operating costs as well.
Got it so just the message is is that you do expect you know.
Leverage on your.
Murphy did the operating cost and to contribute to margin expansion overall in 2022.
Correct.
Great I'll pass it on thank you so much thank you.
Right.
Our next question will come from Ryan Merkel with William Blair. Please go ahead.
Hey, good afternoon, everyone and congrats on the quarter and a strong guide.
My first question is on gross margin for 'twenty two Alan is the primary driver of higher margins is it mix or what are the other puts and takes that we should be thinking about.
We see the primary driver of the gross margin is one a strong dollar too.
We're selling them more eco friendly product that we are offering Hawaii has a we are we actually are really better utilized our Hawaii operation and also we're expanding our Hawaiian operation, which has a high demand for eco friendly product composed towards ESG part of life and we do see that with the the economy opening up.
Up and more and more cities and restaurants are asking calling 40, environmentally oh packaging such as put Goss playbook at hinge containers, Oh PLE straws are composed of a straws and also more importantly, we're able to increase our online sales in Amazon ebay Walmart.
And not only our own e-commerce stores, we are looking to.
Increase our staffing in our e-commerce site by double and in terms of pushing that will definitely help our online sales are go for long like yourselves are for this year 2022 versus last year is 50 to 75 personal even more on the growth side for the online sales all myself generates at much higher gross margin.
Then our traditional sales to the distribution channels or retail channels.
This is where we see a strong driver for gross margin in 2022.
Yep, Okay makes sense and then the share gain in 'twenty. One was really impressive 50, new accounts can this continue in 'twenty two or you know was 21, a unique year because of the shortages and you were able to out service your peers or do you think you can continue to share gains at this sort of accelerate.
The pace.
We believe in 2021 our sales actually really didn't go out to local customers.
So we believe in 2022.
We will be able to increase even more than 50, new accounts in the especially in the Midwest market a market, where we see that like I said, we have been strong in the west coast, we had been weak very weak in the south east in the eastern part of the U S a and.
And even in the Midwest. So we've seen theres. So many mark often out there is that we havent tapping too. So we do see a very even bigger opportunity in 2022 versus 2021, new customer size on the regional.
Chain accounts.
Got it okay. That's great to hear and then just lastly for me you know Alan I think your domestic OEM competitors were out of capacity I think that was the case in 'twenty, one where do we stand now I assume theyre expanding capacity are they starting to ramp up a bit but that could that competition heat up a little bit.
I do I have been hearing that the domestic manufacturer they have expanded their operation.
In 2021 it's not the shortage was not caused by the lacking of the capacity. It was more of a lacking of the labor.
For everybody, including ourselves at certain point I mean, there are certain days and months that we can when we have less than 10% of our staff can come to work and doing the omicron a height of the omicron and and that's what I heard from the competitor as well everyone is having a hard time finding labor, even though today, it's not they don't have the equipment. They just.
Can't find enough people to come to work and consistently you know instead of working for 10 days and quit so that is the challenge and we still see that challenge as of today got challenge has not gone away.
Okay, well, thanks for the color I'll pass it on.
Thank you.
Again, if you have a question. Please press Star then one our next question will come from Brian Butler with Stifel. Please go ahead.
Hi, Thanks for taking my questions.
You guys hear me yes.
Yes, we can hear Brian Okay great.
<unk>.
So just at a high level.
How do you view kind of the risk of you know hyper or very high inflation in food costs with the current you know, Russia, Ukraine situation, what what kind of risk that the model is that for you guys.
Well, we've seen the raw material increase.
The plastics rigid side by nearly 50% the paper side increase even more by almost 70% and we seem to even the raw material to food ingredients that we we import I've also increased aluminum increase everything has spiked up what we've done there is we have to protect.
Our margin and protect our making sure that we're what are you in a profitable business. So we pass on most of these are increases onto our customers and our customer basically also pass on the increases tutor close customer as well. So we've seen basically the consumer seem to be taking these passes.
Patient caused us fairly well.
Well, even this this year I don't see much more of a he increases coming alone I mean, I think everything that stabilizes.
We are skeptical are holding in terms of.
Making sure that if there's any even more increases because theres a lot of uncertainties with the work going on on the shortage of raw materials, especially in aluminum and paper. So well we were more cautious on that part if it happens and now we'll just have to do what we can to protect the margin.
Okay, and then on the you mentioned the ESG products or are the environmental products can you can you give us some color on the mix that was in 2021 and what the expectation is for 2022.
Sure.
'twenty one.
For example, the state of Hawaii, a mandate at all restaurants, you use a proposal will take out packaging are not only in straws in lids and cups and also take out containers that has a kind of a guy's got delay and then moved into 2022.
So I just happens to be hearing a lot of these are national chain accounts looking for these couples of product because they're out there. They have three out of the deadlines and we see that's going to grow in that area and also we've seen even in the are they need neighboring countries like Mexico, and Canada are customers asking for couples where product Seattle.
Dan Francisco, California, and New York, Maryland, most of these areas.
State and local regulations are actually requiring our restaurants and businesses to use 100% compulsory where product now like just say recyclable product, but composed of a product. So we have been we started decomposable line in back in 2007, and well one of the leading manufacturer of <unk>.
The order of that product line. So we've seen a really large.
Large increases on the sale of this aspect on the product line and we do see 2022. It will continue to grow even faster pace in 2021 and that this is where we see the challenges finding more sources I would say that this is a challenge for every even our competitors is trying to find more sources for these can postal products.
Because it it's not that easy to make these cabos a product versus a regular plastic container or a paper containers is much harder to make one so and also there is they're not produce most of them are producible overseas none from domestic.
Factoring. So this is our challenge and we're looking to do everything we can to find more sources to ensure that our customers are able to get these product from us.
On those yes, how much more profitable as the environmental you know compostable products versus your standard you know plastic products are or just regular paper.
I would say.
15% to 25% more profitable than our standard product.
Oh, Okay. That's helpful.
On the on the freight cost and those coming down in kind of 2022 versus 2021 any color on how that trends through the quarter. I mean are we going to see a big Big Big I would say you know a big dip lengths in the first quarter and then it kind of evens out the rest of the year or or is there some other volatility in there.
Sure.
The information that we receive and the contract we just recently sign indicating the freight ocean freight as Patrick has gone up 35% from last year starting in May 1st.
She is coming down the freight coming down their domestic shipping so far that is the over the road from Tourism for example, California to Dallas, Texas.
Texas, Oh, two Las Vegas, Arizona that domestic shipping has come down a little bit with the truckload waters, but for the L. T O. It has actually come up so they kind of offset each other.
Okay, and what when you think about kind of the demand that youre seeing for 2022 is there.
You know a rebuild of inventory or for your customers and is that a what does that do for your working capital needs to meet that 17% to 19% revenue growth.
Four four for our company basically we've not only invested in more inventory and this is one of the reason that we see are a stronger first quarter versus fourth quarter last year as we build up a lot more inventory this quarter to last quarter. So our fulfillment rate is much better, which which we see.
Actually will give us a better result in terms of revenue wise in terms of equipment wise. We've also order I'm a lot more equipment this year versus last year, which doll coming in so that will also increase our capacity wise.
On our financial and financial needs.
Currently were actually were pretty good in terms of their financial needs right now.
Our net margins are proceeds from our profit margins.
So she's worked it's working capital is going to be a use of cash again in 2022 is that the right way to think about it you're going to be up or spending.
Yes.
And what about Capex do you have any outlook on what the Capex number should be.
We're still looking at 5% as we previously announced before but on the Capex.
Okay, and Robyn Okay and.
A couple more on the modeling side.
What's the right tax rate to think about for 2022 as well as what the what's gonna be the interest expense.
I'm going to leave that to Jim This question.
Yeah sure Hi, this is John so in terms of the income tax rate I think high level 2022 income tax will be tax rate effective tax rate will be fairly comparable.
What we have seen in 2020 one.
And then the other question I'm sorry, the other question is about the.
What's the interest what's the right interest expense to be looking at.
I mean rates don't change materially from where we are right now.
Yeah sure in terms of the interest expense, it's if youre looking at the call Kara business without the interest rate swap, it's probably going to be fairly comparable to to the second half of 2021 .
Hum they overall consolidated Carryout packaging as a consolidated group we are looking to have some fairly significant gain from the change in fair value of the interest rate swap that we have.
High level, we haven't had.
We pay it down because of the pay down from the proceeds in 2020, while we've significantly reduced the amount we deleveraged significantly reduce the amount of outstanding debt, but that that should be the overall outlook from for 2022.
Okay.
That's helpful. And then one last one just what's the outlook for for M&A and in 'twenty, two what thoughts of growth there.
Well, we believe IMAX.
I've actually we've actually a beta several requested and also seeking for M&A in 2021, and it has been very challenging because the market has been very very hot in terms of there's a lot of acquisition and in the play is basically a we've seen a 13 to 17 times EBITDA. It's.
Definitely not something that we're looking to do so we also are waiting to see what is there any manufacturing out there that could complement with our knees in terms of what we can acquire or we can work with them jointly I would say that something will be definitely in the pipe. We have oh, we have a couple of being in the pipeline.
And definitely it within the next 30 to 60 days there should be something that we are actually are finalized on that part.
Okay, great. Thank you very much for taking my questions.
Our next question is a follow up from Jake Bartlett with true Securities. Please go ahead.
Great. Thanks for taking the follow up so there's just a couple quick ones.
My first one is just on the gross margin outlook for 'twenty two.
The drivers you know when you mentioned the reasons why that's so it seem to be kind of somewhat long term you could could be considered long term. So the question is.
Poor I think we're thinking about 29% to 31% long term gross margins for the model is or how should we be moving that up long long term or is 22.
Just somewhat abnormal.
We if as well with the current situation that we're progressing with the increase in online sales and also the eco friendly ESG product line I do see that the overall average of the 2022 is it still going to be around 31% I'll definitely be higher than the 2020.
One in the previous years, we found different ways of increasing our gross margins, especially with we've seen that online sales channel selling channel has been very lucrative and also the ESG product line and also with the new product that we were currently bring in they have offered us giving us the higher.
Margin and also for the year 2022, we see a strong dollar well just get what the what the key thing about strong dollars is the problem that we import will have a higher margin even with the increase from overseas because we'd happens we have seen our cost of product overseas have risen significantly in the past.
Three months.
Every country has raised their price due to inflation, but the past two weeks of the the gain in dollars really offset it though some of those increases. So we do expect the dollars to continue to grow you have to be strong or even stronger for the next six months six to nine months. So as of 'twenty 'twenty. Two we think this is a good model.
For the 31% to 32% gross margin in terms of the long term, we're still thinking that if we can continue and that's our goal all along has increased their online sales and we would say we I would say that this will be a long term gross margin guidance in terms of going forward.
Got it so it would move up the model could be you know higher margin given the mix shifts that you're that you're targeting is that the right way to think about it.
Yes. It is.
Okay, Okay, and then and then I guess that.
Also a question on the environmentally friendly products and it was asked me that one I'm not sure. If you answered but the percent of sales in 2021 that you consider environmentally friendly that that'd be helpful. Just because it's such a big part of the story is to be able to track that.
I'll leave this as a chance to answer the question I wish I had some numbers.
Great.
Yeah sure. So overall it is stays about hum about this close to 20% so in the high teens of the overall total sales for 2021.
Great and then and then the last question is your exposure to or you know how much you're importing from from China.
So that that you've been diversifying your kind of import your so your supply sources in geographies, where you're supplying from you guys. When you think about production shutdowns and disruption from Covid case spikes.
How should we think about the risk there and just you know it would be helpful to understand what percentage of all of your imports are coming from China. These days.
Sure I believe in our previous conversation or previous conference calls that we mentioned that we have been moving from import from China into other part of the country like Vietnam, Malaysia, and Taiwan, and art dependent or actually most of our products are now shipping out of Taiwan.
Even with the eco friendly product line of product that was mainly produced out of China now Theres more companies are moving those into Vietnam, and Indonesia, as well as Taiwan, I would say that in the past we mentioned that it was about over 30%, 40% dependency in China and then we went down to <unk>.
All the way to a 25 person our goal is still to to import only 20% or less out of China versus other countries.
Okay and then just is the you know kind of the the production halt or what kind of disruption that's going on right now will that affect you in your ability that for that 20% to 25% that you get from them now or is that a material risk to your outlook.
No. This is a good thing most somebody then vendor that we order from China, They set up manufacturing out of Vietnam as well on this just in case that there's a disruption in China like a few months ago. There were some shut down in an equal part we have to rely 100 per cent out of Vietnam, and Taiwan and current.
Lee I mean, almost everything that we purchase from China, we have a backup plant in Taiwan, or Vietnam, and Malaysia, and even now we're looking at Indonesia as well.
Great and then and really the last question gas prices diesel prices.
So remind us where they where they are how much is your exposure.
If as diesel prices have gone up is that material for the model.
I wanted to make sure we understand that I don't believe we have much exposure to the gas prices.
I know that our truck our fleet have locked into a really pretty nice pretty good price for the past three months versus the diesel gas that would be in the marketplace I'm. So.
At Vermont and from our perspective, we do not see there's a really high risk in terms of gas prices. That's what I mentioned earlier the increase in gas prices increase L. T O. Our shipping costs are the U P. S. At Fedex they have implemented surcharges fuel surcharges same with the L. T O carrier, but the truckloads. This is where we actually gave you.
Our margin in terms of a.
Pushing peak customer to order by the truckload those costs have come down the Egypt had a trucking company or the trucker help absorb the the increase in gas prices due to a reduction in demand in the truckload request on the marketplace reasonably right great. Thank you so much.
Thank you Jake.
This concludes our question and answer session I would like to turn the conference back over to Alan <unk> CEO for any closing remarks.
Well, thank you everyone for joining us today and.
Hope that everyone. We were able to answer everyones questions and and I look forward to your next conference call next quarters and have a nice day everyone. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.