Karat Packaging Inc. Q1 2023 Earnings Call
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Speaker 2: Good day and welcome to the Carrot Packaging Inc. first quarter 2023 earnings conference call. Today all participants will be in a listen only mode. Should you need assistance during today's call please signal for a conference specialist by pressing the star key followed by zero.
Speaker 2: After today's presentation, there will be an opportunity to ask questions. If you would like to ask a question, you may press star then one on your telephone keypad. If you would like to withdraw your question, please press star then two.
Speaker 2: Please note that today's event is being recorded. I would now like to turn the conference over to Roger Pundell, Investor Relations. Please go ahead, sir.
Speaker 3: Thank you, operator, and good afternoon, everyone. Welcome to Caret Packaging's 2023 first quarter earnings call.
Speaker 3: I'm Roger Ponder with Ponder & Wilkinson, Carrot Packaging's investor relations firm.
Speaker 3: It will be my pleasure momentarily to introduce the company's chief executive officer, Alan Yu, and his chief financial officer, Jen Goh. Before I turn the call over to Alan, I want to remind all listeners that today's call may include forward-looking statements within the meeting.
Speaker 3: of the Private Securities Litigation Reform Act of 1995.
Speaker 3: 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 most recently formed 10-K, as filed with the Securities and Exchange Commission, copies of which are available on the SEC's website.
Speaker 3: at www.SEC.gov, along with other company filings made with the SEC from time to time. Actual results could differ materially from these forward-looking statements, and CARiT packaging undertakes no obligation.
Speaker 3: to update any forward-looking statements except as required by law. Please also note that during today's call we will be discussing adjusted EBITDA, adjusted EBITDA margin, and adjusted diluted earnings per share, which are non- GAAP financial measures as defined by SEC regulation G.
Speaker 3: 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 Yu. Alan?
Speaker 4: Thank you Roger. Good afternoon everyone. Our first quarter performance reflected strong execution of our 2023 business strategy. We were able to achieve a record gross margin of 39.8% and record adjusted EBITDA result since the company's IPO in 2021. Despite the industry wide deflationary environment,
Speaker 4: and multiple price reduction that we implemented. Moving ahead with our growth strategy on improving inventory management and fill rates, we recently signed a lease for an 83,000 square feet distribution center in Houston, following the addition of a Chicago warehouse earlier this year.
Speaker 4: Our plans for geographic expansion on the east coast and the mid-west region are progressing well. With the recent expansion of the sales team and additional marketing activity, together with the new contract that were signed during the fourth quarter last year.
Speaker 4: we are expecting revenues to pick up again during the second half of this year.
Speaker 4: high due to supply shortages.
Speaker 4: We continue to execute our asset-like business plan and are now scaling back manufacturing production in California while increasing import items focusing on higher margin product during the past few months we have significantly enlarged our sourcing network in Asia.
Speaker 4: giving us greater flexibility without additional overhead.
Speaker 4: To meet our growing demand for eco-friendly and composable products, this category grew 17% in the first quarter over the prior year quarter.
Speaker 4: and demand remains strong. Our 2023 growth goals for the Eco-friendly product category is to be around 35% of total sales. Due to multiple construction and regulatory approval delays in Taiwan and our recent strategy to shift toward imports and diversifying Eco-friendly product sourcing, we decided to sell a portion of the joint venture at Baghas factory to Curie Global Group.
Speaker 4: We are expecting the transaction to close within three month period or soon after thereafter. What the selling price equal to our initial investment of about 6 million plus 5% interest.
Speaker 4: Lastly, we made a significant upgrade to our e-commerce platform and expanded our online support team. Sales to Canada and Hawaii are underway and proceeding well. We are now seeing some of the benefits of our online efforts with the business going in a positive direction.
Speaker 4: We again generated strong operating cash flows during the first quarter and continue to project positive cash flow throughout 2023.
Speaker 4: which is allowing carry to generate excess capital and seek new opportunity. Accordantly, as announced on Tuesday, our board of directors declare another special dividend of 35 cents per common share.
Speaker 4: I will now turn the call over to Jan Gao, our Chief Financial Officer, to discuss the company's financial results in greater detail. Jan.
Speaker 5: Thank you, Ellen.
Speaker 5: Despite a challenging year-over-year comparison, first quarter 2023 results demonstrated our ability to adapt to the external business environment.
Speaker 5: as we were able to significantly increase margins and strengthen a company's liquidity position.
Speaker 5: Net sales for the 2023 first quarter as anticipated decreased 9.1% to $95.8 million from $105.4 million a year ago.
Speaker 5: This was slightly better than our original expectation.
Speaker 5: Last year's first quarter was a particularly strong revenue quarter with inventory price increases at the peak due to extraordinarily higher ocean freight and other costs, and strong volume resulting from overall supply shortage in the industry.
Speaker 5: By channel, sales to distributors, our largest channel, was lower by 7.6% for the 2023 first quarter.
Speaker 5: Sales to national and regional chains decreased 14.2%. Sales to retail channel decreased 21.7% and sales from the online channel increased almost 1%.
Speaker 5: As Alan mentioned earlier, our investment and marketing efforts to support our e-commerce platform have begun to bear fruit.
Speaker 5: Sales of our eco-friendly products increased 16.8% for the first quarter.
Speaker 5: We continue to further strengthen our leadership position as Carrot is experiencing strong growth from these products based in part on our enlarged sourcing network and expansion of our product offering as well as the evolving regulatory landscape.
Speaker 5: Eco-friendly products represented 33% of total sales in the 2023 first quarter compared with 25% a year ago.
Speaker 5: Growth profit increased 11.2% to $38.1 million for the 2023 first quarter from $34.3 million for the 2020 first quarter from $34.3 million.
Speaker 5: We achieved record growth margin of 39.8% in the first quarter, an improvement of 730 basis points over the prior year quarter.
Speaker 5: Gross Morten Expansion benefited by a significant decrease in ocean freight costs.
Speaker 5: which amounted to 5.9% of net sales in the 2023 first quarter compared with 14.4% of net sales last year.
Speaker 5: Also, costs for certain raw materials were lower and operating efficiencies and productivity are continuing to improve.
Speaker 5: Operating expenses in the 2023-14 or 25.4 million dollars or 26.5% of net sale.
Speaker 5: compared with $24.8 million or 23.5% of net sales in the prior year quarter.
Speaker 5: The increase was primarily due to workforce expansion, an increase in rental expense from the two additional warehouses added in May 2022, and higher marketing expense to support online sales growth.
Speaker 5: The increase in operating expenses was partially offset by decreases in shipping and transportation costs and bad debt expenses.
Speaker 5: Net income for the 2023 first quarter increased 15.6% to $9.2 million from $7.9 million to $7.2 million.
Speaker 5: for the same quarter last year. Net income margin was 9.6% in the 2023 first quarter, compared with 7.5% a year ago.
Speaker 5: Net income attributable to CARAT for the 2023 first quarter was $9.0 million or 45 cents per diluted share compared with $6.7 million or 34 cents per diluted share in the prior quarter.
Speaker 5: Net income attributable to CARAT for the 2023 first quarter was $9.0 million or 45 cents per diluted share compared with $6.7 million or 34 cents per diluted share in a prior year quarter. But just for the evidence, we've grabbed the dishes from the FX
Speaker 5: A non-GAAP measure was $15.3 million for the 2023 first quarter compared with $13.0 million in the prior year quarter.
Speaker 5: Consolidated adjusted EBITDA margin expanded to 15.9% of net sales.
Speaker 5: compared with 12.3% for the 2022 first quarter. Adjusted diluted earnings per common share rose to 46 cents per share from 36 cents per share a year ago. Carrots consistent solid growth.
Speaker 5: has built a strong financial and liquidity position for the company. The company is well positioned to execute on its future growth strategies. We finished the quarter with $97.4 million in working capital compared with $84.5 million at the end of 2022.
Speaker 5: we are forecasting revenue for the second quarter to be down about 5% year-over-year. Moreover, we are reiterating net sales for the full year expected to increase by high single digits.
Speaker 5: from new contracts increased inventory field rate with additional warehouse space, benefits from additional marketing efforts.
Speaker 5: and better pricing comparisons.
Speaker 5: As Ellen mentioned, we are now scaling back manufacturing production in California, selling and disposing of equipment and raw materials that no longer will be needed to create more warehouse space.
Speaker 5: for import products and to further improve inventory management and efficiency. Accordingly, we are currently expecting to record an impairment charge in a range of $2.7 million to $3.5 million in the second quarter of 2023, including approximately $1.5 million to $2 million write-off of inventory and the total number of purchases is $2.5 million. We are now expecting to record an impairment charge in a range of $2.5 million in the second quarter of 2023, including approximately $1.5 million in the second quarter of 2023. We are now expecting to record an impairment charge in a range of $2.5 million in the second quarter of 2023.
Speaker 5: with the remaining write-offs in operating expenses. We expect a benefit from this shift of strategy to more than offset the impairment charge. At the growth margin level, we believe the growth margin for the first quarter was exceptionally high and is not indicative of future quarters.
Speaker 5: We are reaffirming our 2023 four-year margin goal to be in a range of 32 to 33 percent even with the expected impairment charge in the second quarter as we expect to continue to benefit from the stabilized ocean freight and our efforts to increase import shift
Speaker 5: towards high margin items and improve operating efficiencies. LNNI will now be happy to answer your questions and I'll turn the call back to the operator.
Speaker 2: We will now begin the question and answer session. As a reminder, to ask a question you may press star then 1 on your telephone keypad. If you are using a speaker phone please pick up your handset before pressing the keys. If you would like to withdraw your question please press star then 2.
At this time, we will pause momentarily to assemble our roster.
Today's first question comes from Jake Bartlett with Truist Securities. Please proceed.
Great, thank you so much for taking the question. My first was on gross margin in the gross margin guide. I want to make sure that, so I think from from your last comment that the 32 to 33 percent reiteration of the gross margin that includes what...
roughly $2 million in expenses. Will those expenses, or will that inventory write-off get backed out of adjusted EBITDA? I'm just trying to make sure what's going to be kind of flown to your adjusted EBITDA.
expenses and will those expenses or will that write-off inventory write-off get backed out of adjusted EBITDA? I'm just trying to make sure you know what's going to be kind of flowing to your adjusted EBITDA. That is also included.
Okay. Okay. Yes, also it has been included. Yes.
Okay, but as you report your adjustment of EBITDA, will you, you won't back out those those kind of impairments?
Jan, can you answer that question? I can answer the question that our gross margin is basically 30 to 33 or higher. It's included in the adjusted impairment. But the other question I would think that Jan could be better answer that question. Hi, Jake. This is Jan. Thank you for the question....
We obviously will be working with our auditors on the second quarter adjusted EBITDA presentation, but we are thinking this is a non-recurring charge related to the scaling back of our production in California. So we will consider...
higher than I think maybe prior guidance implies is my read on that. And just to that point, it was such a strong gross margin expansion in the first quarter, it seems like you could have no gross margin expansion year over year for the rest of the year and be within that range.
improvement. Our goal is, as we mentioned in the earning announcement, that in the third and fourth quarter we want to go out aggressively. So we will be able to balance it out with the higher margin and lower margin chain account that we can enable to increase the volume and the revenues.
with something to chain account that are looking for a much lower pricing.
we weren't able to do so because we didn't have warehouse space initially. But now that we are able to set up new additional warehouse space and making space in the existing warehouse, what we are doing right now is we are racking up all the existing warehouses or moving to a larger warehouse and at the same time adding additional spaces. And with that...
when it's done basically we can go out. First of all, we can increase our inventory levels so we can increase the fill rate. At the same time, we can go out and go after the new accounts with a lower margin. We're just being a little bit conservative stating 32 to 33 at this point.
Got it. And maybe just a little more detail on the drivers to the back half of the year. You know, guidance obviously includes a very strong growth in the back half of the year. And maybe if you can describe how spill rates have improved, maybe quantify. Maybe. And maybe if you can describe how spill rates have improved, maybe quantify.
where some of that new business, how confident are you that that new business is coming online? Just give us some comfort that you are going to be able to kind of hockey stick the growth trajectory here, even as pricing remains aggressive as you mentioned.
Well, one thing is our online business is definitely doing well and we've realized that more and more people are looking for an eco-friendly product online.
We're looking to add an additional 200 to 300 SKU on the fine line, more of an elegant expensive line of bagasse and eco-friendly paper products coming in in the third quarter. At the same time, we're focusing more on the high margin items such as custom printing product.
It's not just the custom printing cup anymore. It's the takeout box containers, and even paperlets, and also the custom baguettes plate and custom baguettes hinge containers, as well as we're looking to bring in pizza boxes, corrugated, doughnut boxes. There's so many items that we're focusing just on the eco-friendly side, because we've seen
Recently, especially the past 30, 45 days, more companies are coming to us. They are saying that they are being forced by the cities to move faster in terms of moving to eco-friendly products. So when we set our, right now, our annual goal to be 35% of our revenue coming from the eco-friendly products.
And the margin is limited because there's a lot more importer bringing the product cheap versus the eco-friendly items that were not competing. There's really not much competition out there. Okay, and then, sorry, last question is only... Hey, Jake, can I maybe just chime in real quick? I think you were wondering how...
We already signed some new warehouses. We are getting ready to move in towards around the Some of the warehouses in the second quarter or towards the end of the second quarter So we know that's coming along and we're also adding to Allen's point wrecking spaces in some of the existing
warehouses. So that infrastructure is going to be ready pretty soon here. And then just one other thing I will point out, I think we touched on this in some of the earlier discussions as well, is a big chunk of our business, we do have great visibility into what our volume is going to be from our pipeline.
start shipping towards the end of, around the end of the second quarter, starting also in the beginning of the third quarter. So we do have some great visibility into what our volume is and that gives a lot of comfort, a lot of confidence in our overall sales guidance.
And lastly, pulling out of the Bagaav joint, the JB in Taiwan, or selling it.
You definitely, I mean, it's not a headwind for those plans. How do you kind of think about the exit of that, of that crazy? Jason, yes.
We went into the joint venture last year when people couldn't travel. I couldn't travel overseas. And this year I was able to go abroad overseas. And also of course with the joint venture we were able to get some market intel that domestic manufacturers who have already started manufacturing a cost product in the US.
are looking to shut down their production plant and going to source in OOC because they came to our factory to source. During the time that we started the Bogaz factory joint venture I was not aware of so many Bogaz plants that are out there in Asia and also that are coming around in Asia.
Second, we know that this Bagas product is going to be a highly demanded product in the US and we know that we also want to be one of the manufacturers to start production in the US, but we didn't know how challenging it was to start manufacturing Bagas plant in the US, which most of these larger manufacturers, our competitors, are looking to shut down this year. Something I heard that is...
The reason for them to shut down is they...
supporting millions of dollars and they've lost money and it's hard to maintain these equipment finding the people domestically to produce these products with a higher quality. So now that, of course, because we signed a contract agreement that we can back out, of course there was regulatory issues that the factory couldn't get permit.
And that's one thing that made us decide not only to back out, at the same time we're scaling back manufacturing in California. Because the cost of manufacturing in California has risen year over year, comparably. And we heard that it's going to go even higher with the electricity cost going up, with the labor cost going up, with more regulation toward manufacturing in California.
it is actually going to be beneficial for us to reduce our manufacturing and just use the space, warehouse space, which their space has become more expensive.
So now, with that said, without being committed to the factory in Taiwan to join venture, we're able to find even lower costs, higher premium products from different vendors. And that's what I mentioned in our earlier release that we're able to find additional sources in Asia, throughout Asia.
because even India, they are starting to produce bagasse and use bagasse domestically. That's how widespread the Asian countries are going after in terms of eco-friendly products reducing plastic versus US.
even India they are starting to produce BAGAS and use BAGAS domestically. That's how widespread the Asian countries are going after in terms of eco-friendly products reducing plastic v. US. Great, thank you so much. I appreciate it.
Thank you, Drake. The next question comes from Ryan Myers with Lake Street Capital Markets. Please proceed. Hey guys, thanks for taking my questions. First one for me, as you've taken price down pretty aggressively, do you feel like you've been able to gain market share versus some of your competitors?
Thank you, Jake. The next question comes from Ryan Myers with Lake Street Capital Markets. Please proceed. Hey guys, thanks for taking my questions. First one for me is you've taken price down pretty aggressively. Do you feel like you've been able to gain market shareboards in some of your competitors? Yes.
Got it. That's straightforward and that's easy enough. As we think about the sales team and the ramp here in the second half, how long typically does it take a new sales rep to get up to speed, add new customers, or how should we think about the investments you guys are making in sales right now?
scaling back in certain area, territory. So basically, we are able to pick up new sales reps. People are looking for new jobs. And we are actually picking up people in a similar industry. And also one thing is that the key difference between us and our competitor is that we have everything. We have different ways of selling products. And most of these new sales reps that we are interviewing are stating that many of these last few weeks they have made poor decisions about money. And so we really aim for a lot of good APIs on that side of the road without possible talking anyone for real or the result of an other, that we never had has been that door to one then with our Level story for example I am in a called
basically they couldn't compete with us because they are limited. They are restricted to sell at a certain price and they are limited to a certain product. And the product might be stored and manufactured in a different facility they can consolidate, versus the flexibility that we offer in our company that enables the sales rep to sell quickly, faster.
Most of these companies they have their structure in terms of regional, a city, a small territory. But for us, basically our sales can go anywhere. They are very flexible. We are giving a lot of authority to our sales rep to go out and flexibility in terms of selling the product, the customers, and also pricing.
With that said, we see that it only takes about a couple months for the sales to start bringing revenue in, new sales reps. Okay, that's helpful. And then obviously we added the warehouse in Chicago, warehouse in Houston. Do you feel like that will be it for FY23 and then you will look to evaluate more warehouse space in 24? How should we think about that for the rest of the year?
Our lease is up in Seattle at the end of August . We are already negotiating with the different facilities to double our space in Seattle Northwest area. We are also looking to add different territorials throughout the US because our goal is to increase our online visibility.
to service different types of customers. And also we are looking to going to the B2C commerce, Party Supplies. That basically we are able to sell to consumers directly. Lately we all heard that Party City went bankrupt. And there is a high demand of birthday plates, cups and napkins.
different type of anniversary type of consumer goods. That's something we're looking to get into as we grow our online team. And which, just in the first quarter of this year, the past three months, we actually enlarge our online team members more than double. And we're looking to double in terms of additional staff to help us grow that business segment.
Thank you for taking my questions. Our next question comes from Ryan Hoffman with SPEFL. Please proceed. Yeah, yeah.
I'm not sure who Ryan Hoffman is, but this is Michael. It's Michael. How are you? Hey, Michael. Don't even have a Ryan in the family, so whatever. I hope you have a good day. When we get into a little bit about cadence.
Jen, what's the ocean freight was 14 four year ago five nine this year What how do I think about that trend two three and four Q? What am I comparing against?
Yeah, hi Ryan, thank you for the question. Oh, it's Michael. It is actually Michael. I don't know why they call me that. Sorry, I don't know why I have, now I have Ryan stuck in my head. Sorry. It's Michael Hoffman. Don't call me late for dinner.
Sorry, yeah. So you're absolutely right. So for the rest of the year, we actually think ocean freight as a percentage of sales is actually going to be pretty stable.
It might come down even a little bit from first quarter we were at 5.9 so I think it's probably going to be in the 4 to 6 percent range for the rest of the year. Okay, and I'm comparing two cues through four cues. It was averaging what? I would say averaging maybe roughly
So it's going to come down when you're doing the year-over-year comparison, you'll see a significant...
Last Q2, Q2 2022, we were at 18% of sales. And then that came down to about 15% in Q3, and almost 10% in Q4. What I'm saying is for the rest of the year, Q2, Q3, Q4, we think that we can absolutely rule out the
this percentage is going to be pretty stable. It's probably going to be very close to the 5%, 4 to 6% in that range for the rest of the year. Okay, so
That leads you then to an interesting, I get being conservative, but it seems like it's really conservative if you stay with 32 to 33. So how do I think about what?
creating margin, I mean effectively sequential margin compression to stay inside 32 to 33 because at 39.8 I take the midpoint at 32 and a half and you know and then do an average of what the remainder of the year would look like that's like 30% and yet it's a really steep savings and freight
which helped drive the 39.8, so help me get comfortable. How much cushion have we built in here? We're trying to build cushion, yes. I mean, me and Jen, we try to, we don't know how the market condition is because we've seen the market, the overall market channel, it's...
with the increase in interest rate and restaurants shutting down and more import products coming through the US and I don't know how competitive down the road it's going to be. So we just want to build some cushions maybe a lot of cushions so that we're competitive in the market.
related to our scaling back of the production in California. So that's part of the overall picture when we think about the second quarter margin. And then we also previously discussed starting primarily from the third.
quarter going into the fourth quarter as we have the infrastructure in phase, the warehouse, sales team, new sales members coming on board and we start to really focus on pushing the volume. We do expect to see the margin to come down as we might take additional price reductions.
to gain additional market share. So all of those are being considered in providing the four-year guidance of 32% to 33%.
by 10%. And we're just announced that we're looking to do another announcement, different categories in June 1st, also high-moving volume categories. So we are looking to, we know that we understand that our customers are looking for savings and they see that the price should be coming down and we are actually, we haven't done doing so ever since last September , but not like, you know.
one time a decrease or we've been doing it every monthly. We have done at least four price reduction already since last September .
understand how the market environment may play out. If you have this current business climate that you lived in in one queue, by all what I'm hearing is by by all logic you're going to end up at better than 32 to 33 percent margin. If the business climate
deteriorates, which is what you've built in as the super conservatism and the numbers, you can stay in the 32 to 33 range, gain share, grow the business 5 to 8%, gain share, stay at 32 to 33. But if I have stable business environment, I'm probably going to be better. That is that a reasonable conclusion, not trying to push your numbers out.
Just want to understand if the business environment is like it is right now, it will probably have upside to the margin. Actually, I feel the business environment for our company is great. We're going out there. We're winning every bid that we go after. And NRS next month, actually this month, and we're expecting to increase an additional 100 new chain account business coming aboard.
We've been waiting to go out. We've asked ourselves for it to hold back, not to go out and go quotes, because we have limited space. And now we are asking ourselves it. We are ready to go.
So we do see overall market environment is not good, but for our company it's good. And Michael I would say you're statement of fair. Okay, alright.
So we do see overall market environments are not good, but for our company, it's good. So that- And Michael, I would say your statement is fair. Okay, all right. So I get we're being conservative, but it's-
We could let it we're there's more room for upside than there is downside There is a lot room I can say okay. There's a lot room. Yes a lot. So back in I think I can't remember the third quarter the fourth quarter but we we reintroduced the idea of maybe starting to do some M&A again And you thought about that as something that might
the oversea manufacturing plant comparing to domestic manufacturing, I do not think it is worth it to buy, to merge with a company that has old equipment domestically. A lot of these manufactured domestically, I've seen that they will have a challenging um attitude towards manufacturing. I think a good place to find out if there are only one big generation, is exactly our selection for investment that that design is creating literally, is able to execute in aimage reward our systems inYSU is gonna helmet and terrorize we're gonna ].
year in terms of competing overseas vendors as manufacturers also at the same time. The most challenging would be hiring the technician to maintain the equipment and also maintaining these older equipment. We will see opportunities. So far we've been approached by different companies, capital investment groups.
believe that right now it's not the time yet. Of course, as I mentioned, one of the key drivers that will
enable us to look into a certain company is, will that give us strategic access to a particular location and clientele? That is something we are looking at. And of course, given all of our PE ratio EBDOT multiples are low, we don't see companies out there looking to sell at low at the current.
William Blair, please proceed. Everyone I haven't heard my name used that many times in a conference call in quite a while. I like it. My first question is on second quarter revenue guidance coming in a little bit below the street.
Are you saying that the reason that it's coming in a little bit light is because you're having to cut price more? Or is there also maybe some underlying demand weakness from your customers? I just want to be clear on that. There is no underlying demand, lower demand in our form of customers. We're seeing that because we lowered our prices by 10% to 20%.
And we're seeing that possibly that the volume will go up, very likely, but the revenue might come down. But of course, at the same time, I just mentioned that we do want to be a little bit conservative in terms of the revenue guidance and profit margin guidance, and we want to be a little bit more conservative in terms of the revenue guidance.
We do feel that there is a lot room to grow, and both in revenue and growth margin, but we just want to be a little bit comfortable in terms of conservative.
Then I wanted to follow up on gross margin. Alan, I think you said you want to be aggressive with the national accounts because you have inventory now. Are you saying that you're going to cut prices below market to take market share or is it more of a mixed impact that impacts the gross margins?
in the second half? No, I wouldn't say that we're going to cut prices. We just want to be fair in prices because everyone knows that the raw material has come down. And it's not fair for the customers to not receive any benefit at all. That's something we believe that at least they should be receiving the market pricing.
information, market intel on that part. And also at the same time, we're offering a different type of product. A lot of the customers that we're approaching are people that are stretching their foam, styrofoam, into paper or plastic, as well as stretching foam, paper, or plastic into compostable product.
And that's something that we're able to go after these customers. Creating new ideas, brainstorming with them, new packaging. One of the things that our competitor has been doing, selling more is Styrofoam. And that is, they're hitting a wall on that part.
there is really no room to grow in the styrofoam business. And with that, all of a sudden we see a demand driven toward the eco-friendly side of the business. And traditionally most of the company out there are buying, just bringing in the traditional product. But there are a lot of new smaller chain, mid-sized chains. They are looking for a higher end.
composable product. That's something we're looking to go into more. Even though we're going to continue to bring in the traditional product, we're also looking to bring the higher end, different unique type of composable product, such as out in the market. I don't believe there is a paper lid in the market of your soda cup or paper lid for your food containers.
That's something we just started to bring in and they will display to that in our H show. A hundred percent composal, paper lid, not a plastic, not a bogus, but a paper product.
Thanks for the caller. Thank you, Ryan. At this time, we are showing no further questioners in the queue, and this does conclude our question and answer session. I would now like to turn the conference back over to Alan Yu for any closing remarks.
Thank you everyone for joining the earnings call and including a session. And I look forward to all of you on the next earnings call. Thank you very much and have a wonderful day. Bye-bye.
The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.
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