Q4 2023 Karat Packaging Inc Earnings Call
Operator: Good afternoon, and welcome to the Karat Packaging fourth quarter and full year 2023 earnings conference call. All participants will be in listen-only mode.
Good afternoon, and welcome to the carrot packaging fourth quarter and full year 'twenty twenty-three earnings conference call.
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Operator: To withdraw your question, please press star then 2. Please note, this event is being recorded. I would now like to turn the conference over to Roger Pondel and Vesta Relations. Please go ahead.
Please note this event is being recorded.
Now, let's turn the conference over to Roger Pando Investor Relations. Please go ahead.
Roger S. Pondel: Thank you, Operator. Good afternoon, everyone. And welcome to Karat Packaging's 2023 fourth quarter and full year conference call. I'm Roger Pondel with Pondel Wilkinson, Karat Packaging's investor relations. It will be my pleasure momentarily to introduce the company's Chief Executive Officer, Alan Yu, and its Chief Financial Officer, Jian Guo. Before I turn the call over to Alan, I want to remind all of 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 factor section of the company's most recent form 10-K as filed with the Securities and Exchange Commission, copies of which are available on the SEC's website at www.sec.gov along with other company filings made with the SEC from time to time.
Thank you operator, good afternoon, everyone and welcome to care packaging as 2023 fourth quarter and full year conference call I'm, Roger Parnell with Pinedale Wilkinson cared packaging <unk> Investor relations firm it will be my pleasure momentarily to introduce the company's Chief Executive Officer Alan <unk>.
And its chief Financial Officer, Jan go before I turn the call over to Alan I want to remind all of 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 most recent Form 10-K as filed with the Securities and Exchange Commission copies of which are available on the Sec's website at Www Dot S E C Dot Gov.
Along with other company filings made with the SEC from time to time.
Roger S. Pondel: Actual results could differ materially from these forward-looking statements, and Karat Packaging undertakes no obligation to update any forward-looking statements except as required by law. Please also note that during the 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. 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, I will turn the call over to CEO Alan. Alan, Thank you, Roger. Good afternoon, everyone.
Actual results could differ materially from these forward looking statements and carrier packaging undertakes no obligation to update any forward looking statements except as required by law. Please also note that during the 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. 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 pose.
On the company's website and with that I will turn the call over to CEO Alan you Alan.
Thank you Roger good afternoon, everyone.
Alan Yu: Sales volume for our 2023 fourth quarter grew 7% over the prior year period. Although revenue was again impacted by unfavorable year-over-year pricing comparisons and by startup delays from several new national and regional chain accounts, we estimated approximately $2 to $3 million in revenue from new accounts was pushed into 2024. We are starting to work on orders from these new accounts now.
Sales volume for our 2023 fourth quarter grew 7% over the prior year period.
Although revenue was again impacted by unfavorable year over year pricing comparison and by startup delays from several new national and regional chain accounts, we estimate at approximately $2 million to $3 million in revenue from new accounts was pushed into 'twenty 'twenty four we are starting to work on order.
From these new accounts now as part of our strategic initiatives, we continue to scale back U S manufacturing doing the fourth quarter, which further enhance gross margin to a near record high of 35, 7%.
Alan Yu: As part of our strategic initiatives, we continue to scale back U.S. manufacturing during the fourth quarter, which further enhances gross margin to a near-record height of 35.7 percent. Sales from manufactured products in the fourth quarter were 16% of total net sales, compared with approximately 27% last year. We expect our gross margin to remain at a higher level because of our initiative and the continuous strong US dollar. Sales of our eco-friendly product grew 11% in the 4th quarter over the prior year period.
Sales from manufacturer product in the fourth quarter were 16% of total net sales compared with approximately 27% last year.
We expect our gross margin to remain at a higher levels because of our initiatives and the continued strong U S. Dollar.
Sales of our eco friendly product grew 11% in the fourth quarter over the prior year period.
Alan Yu: This category represented approximately 33% of total sales, which exceeded our expectations, versus 31% last year. We are continuing to develop new and innovative eco-friendly products to meet increasing customer demand and expand our customer base. In 2023, we open new distribution centers in Chicago and Houston and double the size of our Washington State distribution center with the move into a new 100,000 square foot facility. These new distribution centers are fully operational and contributing nicely to geographic and market penetration.
This category represented approximately 33% of total sales, which exceeded our expectation versus 31% last year. We are continue to develop new and innovative eco friendly products to meet increasing customer demand and expand our customer base.
In 2023 we opened new distribution center in Chicago, and Houston and double the size of our Washington State distribution Center.
Well, then move into a new 100000 square feet facilities.
These new distribution centers are fully operational and contributing nicely to geographic and market penetration.
Alan Yu: As part of our growth plan for 2024, we recently signed a new lease for a distribution center in Arizona. We are taking possession of the warehouse now and are expecting it to be fully operational early in the second quarter. We are planning on opening another distribution center in the Southeast region this year. Together with a sales force expansion, we are further penetrating key U.S. markets in the South, Midwest, and Pacific Northwest regions and expect the growth in these markets to more than offset the decline in the California market due to weaker conditions in the restaurant sector throughout the state. Our operating leverage in Q4 2023 was impacted by a write-off vendor prepayment of $1.1 million to purchase certain PPE products in 2021 during a period of extreme inventory supply shortage caused by the pandemic. We are focusing on implementing automation and AI technology at all of our facilities in 2024 to further enhance efficiencies and productivity.
As part of our growth plans for 'twenty 'twenty four we recently signed a new lease for a distribution center in Arizona, We're taking possession of the warehouse now and are expecting it to be fully operational early in the second quarter.
We are planning on opening another distribution center in the South East region. This year together with a sales force expansion. We are further penetrating key U S markets in the South Midwest and Pacific Northwest region.
I expect the growth in these market to more than offset the decline in the California market well weaker conditions in the restaurant sector throughout the states.
Our operating leverage in Q4 2023 was impacted by a write off vendor a prepayment of $1.1 million to purchase certain P. P product in 2020.
So when they appear extreme inventory supply shortage caused by the pandemic.
We are focusing on implementing automation and AI technology at all of our facilities in 'twenty 'twenty four to further enhance efficiencies and productivity.
Alan Yu: Additionally, we are actively evaluating strategic acquisition opportunities this year, as market valuations are showing signs of reality and normalization. With Karat's strong operating cash flow, as well as the company's liquidity, strong balance sheet, and positive long-term outlook, our Board of Directors in February again authorized an increase in the quarterly cash dividend payment to $0.30 per share from $0.20 per share last quarter and from $0.10 per share since the regular quarterly dividend policies were initiated in August 2023. I will now turn the call over to Jian Guo, our Chief Financial Officer, to discuss the company's financial results in greater detail. Thank you, Alan, and good afternoon, everyone.
Additionally, we're actively evaluating strategic acquisition opportunities this year as market valuation are showing signs of reality and normalization.
Carrots strong operating cash flow as well as the company's liquidity strong balance sheet and positive long term outlook. Our board of directors in February again, authorize an increase in our quarterly cash dividend payment to <unk> 30 per share from <unk> 20 per share last quarter and from 10 cents per share since the <unk>.
Our regular quarterly dividend policies once the initiatives in August 2023.
I will now turn the call over to Jan Guo, Our Chief Financial Officer to discuss the company financial results in greater detail Jan Thank.
Thank you Alan and good afternoon, everyone.
Jian Guo: As Alan mentioned, we delivered another quarter of significant margin expansion and business performance. As I go through the key financial metrics here, I will be talking about certain misclassification adjustments made in the fourth quarter of 2023 for the four-year amounts within the income statement with no impact on that income. The prior year amounts were not adjusted due to their immaterial impact on the overall financial statement.
As Adam mentioned, we delivered another quarter of significant watch an explosion in business performance.
Is that go through the key financial matrix here.
I'll be talking about a set of misclassification adjustments made in the fourth quarter of 2023 for the full year amount within the income statement with no impact on net income the play yet a month well not adjusted due to the immaterial impact on the overall financial statement.
Jian Guo: Net sales for the 2023 fourth quarter were $95.6 million, including an adjustment of $6.5 million of online sales platform fees for the four years, which resulted in an increase to both net sales and selling expenses. Net sales were $92.7 million in the prior year quarter. Thus, volume increased 7.3% over the prior-year quarter, which was offset by an unfavorable year-over-year price comparison, as we have passed on savings from ocean freight and raw material costs to customers primarily in the last quarter of 2022 and first half of 2023. By channel, compared with a year ago, sales to distributors, our largest channel, were lower by 6.0% for the 2023 fourth quarter. Sales to national and regional chains decreased 3.6%, sales to the retail channel decreased 5.2%, and our online channel sales were up by 68.2%, including an impact of 60.7% from the adjustment of online sales phone fees, as discussed earlier.
Net sales for the 2023 fourth quarter, well 95, plus $6 million, including an adjustment of $6 $5 million online.
Platform fees for the full year.
Which resulted in an increase to both net sales and selling expenses.
Sales were $92 $7 million in the prior year quarter death.
Volume increased.
3% over the prior year quarter, which was offset.
By unfavorable year over year price comparison, as we have passed on savings from ocean freight and raw material costs to customers primarily in the last quarter of 2022 and first half of 2023.
By channel compared with a year ago, Dallas, two distributors, our largest channel was lower by 6.0% for 2020 three in fourth quarter.
Sales to national and regional chains decreased three 6%.
Sales to the retail channel decreased five 2% and our online channel sales were up by 68, 2%, including the impact of 67%.
Okay.
Cell phone fees discussed earlier.
Jian Guo: We are encouraged by the volume growth in our business, as well as the growth of our ego-friendly products, online channels, and the increased geographic penetration on the East Coast, North America, and Asia. Mitt Wood, cost of goods sold for the 2023 fourth quarter was $61.5 million, which included an additional import duty reserve of $2.3 million and an adjustment of $3.9 million of certain production expenses from general and administrative, compared with $63.0 million in the prior year Gross profit for the 2023 fourth quarter was $34.1 million, which included the additional duty reserve and the impact from the adjustment discussed earlier, versus $29.7 million in the prior year quarter. Gross margin expanded 370 basis points to 35.7% in the 2023 fourth quarter from 32.0% for the prior year quarter. However, close margin in the 2023 fourth quarter included a negative impact totaling 240 basis points from the additional duty reserve and the impact from the adjustment discussed earlier.
We are encouraged by the volume growth in our business as long as the growth of our Eagle friendly products online channel and the increased geographic penetration in the east coast northeast.
West.
Cost of goods for the 2023 fourth quarter. It was 61 $5 million, which included an additional import duty with the idea of doing it in others and it not judgment of $3.9 million all of a sudden production expenses from general and administrative expenses.
Compared with $63.0 million in the prior year quarter, which included an out of period inventory write off of $1 $7 million.
Gross profit for the 2023 fourth quarter was $34.1 billion, which included the additional annuity reserves and the impact from the adjustment discussed earlier versus $29.7 million in the prior year Accordingly.
Gross margin expanded 378 basis points to 35, 7% in the 2023 fourth quarter.
From 32% for the prior year play gross margin in the 'twenty to 'twenty three fourth quarter included a negative impact totaling 240 basis points.
The additional tariff and the impact from the adjustment discussed earlier.
Jian Guo: Despite the unfavorable year-over-year price comparison, gross margin benefited from our efforts to scale back manufacturing in the U.S. in favor of imports, which carry higher margins and improve operating efficiency. Operating expenses in the 2023 fourth quarter were $29.5 million, or 30.8% of net sales compared with $24.9 million, or 26.8% of net sales in the prior year quarter. Operating expenses in the 2023 fourth quarter included the negative impact of a vendor prepayment write-off and the adjustments discussed earlier totaling $3.6 million. The increase was primarily driven by higher labor costs, increased rent from additional leased warehouses, and workforce expansion. However, the increases were partially offset by lower shipping and transportation costs, stock-based compensation, and Fed debt expansion.
Despite the unfavorable year over year price comparison gross margin benefited from our efforts to scale back manufacturing in the U S in favor of imports, which carry higher margin and improved operating efficiency.
Operating expenses in the 2023 fourth quarter were $29 $5 million or 38% of net sellers compared with $24 $9 million or 26, 8% of myself in the prior year quarter.
Operating expenses in the 2023 fourth quarter included the negative impact of a vendor prepayment write off and the adjustments discussed earlier totaling $3.6 million. The increase was primarily driven by higher labor costs increased rent from additional.
The warehouses and work force expansion.
Second increases were partially offset by lower shipping and transportation cost base.
[noise] based compensation and bad debt expense.
Jian Guo: Net income for the 2023 fourth quarter was $4.2 million, compared with $4.5 million in the prior year quarter. Net income for the 2023 fourth quarter included the negative impact from the additional duty reserve, vendor prepayment write-off, and a tax adjustment of $300,000, totaling $2.9 million. Net income margin was 4.4% in the 2023 fourth quarter compared with 4.9% in the prior year. Net income margin in the 2023 fourth quarter included a negative impact from the duty reserve, vendor prepayment write-off, tax adjustment, and the adjustments discussed earlier totaling $360,000. Net income attributable to Karat for the 2023 fourth quarter was $3.9 million or $0.19 per diluted share, compared with $4.5 million or $0.23 per diluted share.
Net income for the 2023 and fourth quarter.
With $4 $2 million compared with $4 $5 million in the prior year quarter net.
Net income for the 2023 fourth quarter included the negative impact from the additional duty because vendor prepayment write off at a tax adjustment of 200000 totaling $2 $9 million.
Net income margin was four 4% in the 'twenty 'twenty fourth quarter compared with four 9% in the prior year quarter.
Net income margin in the 2023 fourth quarter included a negative impact from the duty reserve vendor prepayment write off tax adjustment and the adjustments discussed earlier totaling 350 basis points.
Net income attributable to carriage for the 2023 fourth quarter was $3 $9 million.
<unk> 19 cents per diluted share compared with $4 $5 million or 23 per diluted share last year.
Adjusted EBITDA, a non-GAAP measure in the 'twenty to 'twenty, three fourth quarter with $8 $6 million right now.
Jian Guo: Adjusted EBITDA, a non-gap measure, in the 2023 fourth quarter was $8.6 million versus $9.9 million in the prior year quarter. Adjusted EBITDA in the 2023 fourth quarter included a negative impact of $2.3 million from the additional duty reserve, as discussed earlier. Adjusted EBITDA margin was 9.0% in the 2023 fourth quarter versus 10.7% in the prior year quarter. Adjusted EBITDA margin in the 2023 fourth quarter included a negative impact from the additional duty reserve and the adjustments, totaling 330 basis points. Adjusted diluted earnings per common share was 24 cents per share in the 2023 fourth quarter compared with 30 cents per share in the prior year quarter. We believe Karat is well positioned to execute on its future growth strategy.
$99 million in the prior year quarter adjusted EBITDA in the 'twenty two 'twenty three fourth quarter included a negative impact of $2.3 million from the I guess, you're not you're really sad as discussed earlier.
Adjusted EBITDA margin was 9.0% in the 2023 fourth quarter versus 10, 7% in the prior year quarter.
The EBITDA margin in the 2023 fourth quarter included a negative impact from the additional duty reserve and the adjustments.
Totaling 230 basis points.
Adjusted diluted earnings per common share was 24 cents per share in the 2023 fourth quarter compared with 30 cents per share in the prior year Accordingly.
We believe Cabot is well positioned to execute on its future growth strategy. We finished 2023 with 110.
Jian Guo: We finished 2023 with $110.3 million in working capital compared with $84.5 million at the end of 2022. As of December 31, 2023, we had financial liquidity of $59.3 million with another $26.3 million in short-term investment. I will now close with our 2024 online.
$3 million in working capital compared with $84 $5 million actually the end of 2020 two as.
As of December 31st 2023, we have financial liquidity of $59.3 million with another $26 $3 million in short term investments.
I will now close with our 'twenty 'twenty four all luck.
Operator: Net sales for the 2024 first quarter are expected to increase by Miss Single-Digit from the prior year quarter based on the current competitive environment and the new business outlook. Our gross margin goal for the 2024 first quarter is approximately 37 to 39 percent. For full year 2024, we expect net sales to grow 8% to 15% and gross margin to be in the range of 35% to 38%, assuming no significant increases in ocean freight rates. Alan and I will now be happy to answer your questions, and I'll turn the call back to the operator. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad.
Net sales for the 'twenty 'twenty four first quarter are expected to increase.
Mid single digits from the prior year quote based on the current competitive environment and the new business outlook.
Our gross margin goal for the 'twenty 'twenty four first quarter is approximately 37% to 39%.
For full year 'twenty 'twenty four we expect net sales to grow 8% to 15% gross margin to be in the range of 35% to 38% assuming no significant increases in ocean freight rates.
Alan and I will now be happy to answer your questions and I'll turn the call back to the operator.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad. If you were using a speakerphone. Please pick up your handset before pressing the keys.
Operator: If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question is from Jake Bartlett with Truist Securities; please go ahead. Great, thank you so much for taking the question. You know, my first question is on sales in the fourth quarter and, you know, backing out or, you know, backing out the online sales adjustment, you know, there was a, it was lower than guidance. Even I think, you know, if you add the two to three million that they kind of moved forward into the first quarter of 14, it was below guidance. So the question is, what is driving that, you know, what versus expectations, what really drove the lower than expected results in the fourth quarter per sale? Jake, let me answer that question.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question is from Jake Bartlett with true of Securities. Please go ahead.
Great. Thank you so much for taking the question Mike.
My first is on the sales in the fourth quarter, and you're backing out or you're backing out the online sales adjustment. Yeah. There was a it was lower than guidance, even though I think if you add the two to 3 million that they kind of moved forward into the first quarter of 14. It was below guidance. So the question is what is driving that.
Yeah, well what versus expectations, what what really drove the lower than expected results in the fourth quarter per sale.
Okay. Let me answer that question well first of all we did see a slowdown in customers.
Alan Yu: Well, first of all, we did see a slowdown in customers purchasing product for inventory back in December. Especially in the month of December, we saw a significant slowdown in all of our distributors picking orders on that front. And one of the main reasons for that was that our main chain accounts were saying that they were overstocked, and business was not as good as last year. So that was one of the main reasons that we had a really slow inventory. Okay, and I remember the stocking or maybe de-stocking for the distributors being an issue or just a dynamic in the fourth quarter that maybe had gone away. Is this maybe a return to a normal kind of behavior from the distributors, or are we still in kind of abnormal territory with how they're behaving? We understand that every year, especially at the end of the year, in December, our customers go on vacation, and they try to de-stock whatever and return inventory that's excessive. That's kind of a normal seasonality thing.
Purchasing product for inventory.
Back in December, especially in the month of December we saw a significant slowdown in all of our distributors are taking orders on that part and one of our reason is that our main chain account or saying that they were overstock and <unk>. The business was not as good as last year. So that was one of the membrane reason that we had a really a slow in December.
Okay and remember.
Stocking or maybe destocking for distributors is it is an issue or just a dynamic in the fourth quarter that maybe you hadn't done in a way is this is this maybe a return to normal I'm kind of behavior from the distributors or are we still in kind of abnormal territory with with how they're behaving right now.
We understand that every year, especially at the end of the year is December or customer who goes on vacations and they they tried to destock whatever and returned inventory out of our excessive that's kind of a normal seasonality things one way to avert that it will be adding additional new accounts, new businesses to have offset that especially.
Alan Yu: One way to avert that would be adding additional new accounts and new businesses to offset that. Especially this year, now that it's different than the prior year. In the prior year period, people were concerned that there might be a shortage, so they tend to stock up during the holiday.
This year now that it's different at lash, though actually that last at the last quarter was different than prior year, but in the prior year period as people are concerned that there might be a shortage. So states tend to stock up during the holiday, but last quarter, especially in December but people understand that there's a bunch of inventory out in the market. So they wouldn't be too concerned about.
Alan Yu: But last quarter, especially in December, people understood that there was abundant inventory out in the market, so they wouldn't be too concerned about bringing too much inventory into their warehouse. And I believe that most companies, or most of our customer distributors, are overstocking in inventory at their warehouse. They're struggling with warehouse space. In the past year, when they were short of space, they actually released additional space, but now that warehouse space has become so expensive, people are trying to reduce their warehouse storage space to reduce their cost of operation. Okay.
Yeah bring too much inventory into their warehouse and I believe that most companies are or most of our customer distributors are overstocking in the inventory in the warehouse that they're struggling with the warehouse spaces in the past years, when they they're short of spaces to actually at least additional spaces, but now the warehouse space because it's so expensive people are trying to reduce their.
Warehouse storage space to reduce their cost of operation.
Okay, and then and then last question on sales.
Alan Yu: And then last question on sales. You know, Alan, if you could just describe the pricing environment. It feels like part of why, you know, the sales were kind of expectations and guidance was marched down in 2023 was because of just pricing and your desire to pass along lower costs through price. Have we stabilized there?
Please describe the pricing environment. It feels like part of why the salesmen kit sales were kind of expectations and guidance was March down in mid 2023 was because of just pricing and your your your your desired or to pass along price uplifts on lower costs through price have we stabilized there do you think that you feel more.
Alan Yu: Do you think that you feel more confident that pricing is not going to continue to come down in 24 and that, you know, maybe it's kind of bottoming out and will grow from here? Yes, in 2023, I would say that in most industries, especially packaging industries, we're seeing prices coming down due to overstocking, due to the lower cost of ocean freight, due to the lower cost of raw materials. And we're seeing basically, not only the bottom, but a kind of a rebound a little bit in terms of pricing in some categories, like the glove, like certain categories that are in shortage that are from overseas. So that's what we're seeing right now. We're seeing, I would say that we pretty much came to the bottom in the fourth quarter, and it started a little rebound in the first quarter of 2020. Okay, I'll pass it on and jump back in the queue. Thank you so much.
But pricing is not going to continue to come down in 'twenty four and that maybe is it just kind of bottoming in and we'll grow from here.
Well.
Yes in 2023, I would see that in most industries, especially packaging industries. We're seeing everyone has seen our prices coming down due to overstocking due to the lower cost of ocean freight due to lower cost of the raw material and we're seeing basically not only bought them, we're seeing a kind of a rebuy.
A little bit in terms of pricing in some categories like the gloves like are certain categories that are in shortage from overseas. So that's what we're seeing right now we're seeing it but I would say that we're pretty much when it came to the bottom in the fourth quarter and it started a little rebound in the first quarter of 2024.
Okay I'll pass it on and jump back in the queue. Thank you. So much. Thank you Jake.
Michael Edward Hoffman: Thank you. The next question is from Michael Hoffman with Spiefel. Please go ahead.
The next question is from Michael Hoffman with Stifel. Please go ahead.
Jian Guo: Hi Alan, Jian, can I ask some modeling questions about 2024? So we just get all the details. Could you give us a little thoughts about where SG&A lands, interest, expense, taxes? And then lastly, free cash flow, and sort of either a dollar amount or a cash conversion ratio of your EBITDA, just so we can... Complete the Model.
Hi, Alan Jen can I have some modeling questions about 'twenty 'twenty four so we just get all the details so could you give us a little.
Thoughts about where SG&A lance interest expense taxes.
And then lastly, free cash flow in through either a dollar amount or a cash conversion ratio of your EBITDA. Just so we can complete the model.
Oh, Yeah, yeah yeah.
Jian Guo: Yes, sure. Let me take that question. So, we can provide some high-level estimates, obviously, we provide to the client, and revenue and gross margin don't necessarily go down into all the details. But
So then you take that okay. So we.
We have provided some high level estimate would provide.
Revenue and gross margin don't necessarily go down into all the detail.
But.
Jian Guo: But we can definitely share some of our thoughts here. And again, as we mentioned in the guidance, the thoughts on the four-year performance, a lot of that, especially for the second half, this is just a caveat: the second half of 2024 is going to be assuming we don't have significant changes in the ocean freight rate. At a high level, when we're thinking about, I think, Michael, you're asking operating expense and interest expense and cash flow, right? So operating expense, I would say, at a high level, this is an area of focus for the management team right now.
But we can definitely see some of our thoughts here and again as we mentioned in our guidance. Therefore, yeah. The thoughts on the full year performance a lot of that especially for the second half they can get a copy off the second half of 'twenty 'twenty four is going to be assuming we don't have significant changes.
In the ocean freight rates, but high level, when we're thinking about I think Michael Youre, asking operating expense and interest expense and cash felt right no operating expense I would say.
I Love all our this is a L L O.
Our focus for the management team right now and our goal is to continue to improve the leverage there.
Jian Guo: And our goal is to continue to improve the leverage there. I want to say 2024 high level operating expense. On a four-year basis, it's probably going to be fairly consistent or a little bit better than 2023 when you take out some of the discrete items that we incurred in 2023. I think overall operating leverage is going to improve a little bit. We do expect to see some improvement, especially related to labor costs, partially offset by an increase in rent expense, some of the fixed expenses as we continue to expand our warehouse space. So at a high level, that's the operating expense, operating leverage. Interest expense year over year, I don't see any significant changes. The term loans, and again, these are the term loans that we have on Global Wealth, which is a consolidated variable interest entity. These are the term loans on Global Wealth's books, so not our operating entity. But again, both term loans are at a fixed interest rate.
I wanted to say 'twenty 'twenty four high level operating and expense.
On a full year basis, it's probably going to be.
Fairly consistent Oh, a little bit better than 2023.
You take out then you come off that.
Discrete items that we incurred in 2023, I think overall operating leverage it's going to improve and better bet. We do expect to see some improvement, especially related to labor costs, partially offset by a increase.
Increase in rent expense somewhat fixed expenses as we continue to expand our warehouse space. So high level. That's the operating expense operating leverage interest expense year over year I don't see significant change in that.
The $10 and again these are the term loan that we have on global warehouse, which is a consolidated variable interest entity. He said that Tom those are global warehouse books, so not all of our operating entity, but again they are both term loans or the.
Interest rate, we don't expect significant changes year over year, our interest expense free cash flow. We do believe our free cash flow is going to be country. It's going to continue to be really really strong in 'twenty 'twenty four we talked previously about the pivoting to a more.
Jian Guo: We don't expect significant changes year over year in interest expense. However, free cash flow, we do believe our free cash flow is going to continue to be really, really strong in 2024. We talked previously about pivoting to a more asset-light model, focusing on imports as opposed to making heavy investments in capex investments here domestically. So we do expect to continue with that model into 2024 and continue to expect strong free cash flow in 2024. So when you just give us a sense of the cash conversion of your EBITDA, I mean, just to put it in perspective, I mean, you're in the 70s percent of your EBITDA converted into cash. Should we assume that that carries into 2024 as well? Thank you for the details on the sales year over year change in the segments. When you look at the ones that were negative, what's the balance between price and volume? Like, is there positive volume but really negative price, and so the whole thing is negative?
Light model focusing on the import as opposed to.
Making heavy investment.
A capex investment here domestically it though.
Would you expect to continue with that model into 'twenty 'twenty, four and continue to expect strong free cash flow in 'twenty four.
So when you just give us a sense of cash conversion of your of your your EBITDA I mean, you're right.
You just put it in perspective, I mean, you hear in the seventies per cent of your EBITDA converted into cash should we assume that that carries into 2024 as well.
Cash flow from ops less all capital spending understood understood I would think it will be it won't be it won't be in that range. It won't go down range, Okay, and then Alan and John can you help us a little bit about it. Thank you for the details on the sales year over year change in the segments.
When I when you look at the ones that were negative.
What's the balance between price and volume like is there positive volume, but really negative price and so the whole thing is negative and throw I'm trying to get at is that there was a decent underlying volume number but I'm overshadowed by the resetting of price for raw materials lower freight all that stuff.
Jian Guo: That's what I'm trying to get at, is that there was a decent underlying volume number, but I'm overshadowed by the resetting of the price for raw materials, lower freight, all that. How do I think about that across those segments? Yes, in the fourth quarter of 2023, the volume did increase. I believe, Jian, what is the percentage of the volume increase overall versus... And how was that distributed across the four segments, the operating line? When you think about, directionally, you know, positive and negative distributors, national retail versus online.
How do I think about that across this.
The segments.
Yeah. So in the fourth quarter 2023 the volume did increase I believe Jan with it what as a percentage of all the increase overall versus that.
And how was that distributed across the four segments the operating lines.
When you think about that.
Directionally positive negative distributors national retail versus online.
Alan Yu: I would say that the mainly online sales volume was more positive, and into the retail segment, I would say the retail segment was positive. In the distribution segment, I would say it kind of evened out a little bit, but mainly, our growth in the volume is more on the online as well as the national chain. Okay, and then you alluded to this a little bit, Jen, about cadence, but can we talk because you're going to start the year at a much stronger gross margin and finish the year lighter to get to the average. Talk to us a little bit about how to think about that cadence. Is there anything lumpy about it, or do I just sort of gradually bring it down all year long?
I would say that the mainly online sales volume was more of a positive and into D. I always say the retail segment was positive in the distribution segment I would say, if you kind of even out a little bit but bailey our growth in the volume is more on the online as well as the national chain.
No.
Okay and then.
You alluded to this a little bit John about cadence, but can we talk because youre going to start.
Start the year at a much stronger gross margin finished the year lighter to get to the average of.
The guidance you.
Talk to us a little bit about how to think about that cadence is there anything lumpy about it or do I, just sort of gradually bringing it down all year long.
Alan Yu: to work out to get to the midpoint of the range. Well, here's the thing, I think if you're referring to 2023, 2024, or 2023. Yeah, 4. With the guidance, you start the year at a 37-39% gross margin in the first quarter, but the full year is below that. So is it a gradual decline every quarter, or is there, how do I think, I'm just trying to, you know, our modeling, thinking about the case, a sure steady decline each quarter so you know I get to a blended average for the full year? Well, this is how Jim mentioned earlier that there's a very big uncertainty of contract renewal for ocean freight in May of 2024. So we kind of know exactly what's going to, But the big uncertainty is, what is the U.S. dollar, is it going to be weakened or maintained as strong as we are today, as well as ocean freight, is it going to maintain the current level, or is it going to increase? If it increases, by how much?
To work out to get to the midpoint of the range.
Well, here's the thing I think if you're referring to 2023 or if we if the 'twenty 'twenty 'twenty four and it was 123, yeah for it with the guidance you start the year at a 37% to 38 or 39% gross margin in the first quarter, but the full year is below that so is that a gradual decline every quarter.
Order or is there how do I think I'm just trying to you know our modeling thinking about the cadence sure steady decline each quarter. So you know I get to a blended average for the full year outlook.
This is how what Jim mentioned earlier that there's a very big uncertainties of contract renewal for the ocean freight in May of 'twenty 'twenty four so we kind of know exactly what's going on.
Occurred in the first quarter and second quarter, but we it's a big uncertainty is what does the U S. Dollar is gonna be weaken or to maintain strong as we are today and as well as ocean freight is it going to maintain the current level was going to increase if it increase how much it increases so kind of put it a cushion in terms of the last two quarter of the end of the year, but we know that our volume is.
Alan Yu: So kind of put a cushion in terms of the last two quarters of the end of the year. But we know that our volume is going to be strong, our expected volume this year, we're hoping, we're looking for a goal of 15% growth margin, not growth rate, 15% growth in volume-wise. That is our goal that we're looking to shoot for.
Gonna be strong our expected volume this year, we're hoping we're looking for a goal of a 50% gross margin.
Gross margin of 50% growth in volume wise that is our goal that we're looking to shoot for and in terms of of course. The gross margin. We're also adding in there's just some changing in search of a calculation classification, we used to have the capex on the at the at the operating level, but now.
Alan Yu: And in terms of, of course, the gross margin, we're also adding in; there's some change in terms of calculation and classification. We used to have the CapEx at the operating level, but now, starting 2023 or 2024, we'll bring the CapEx into the top of the levels. So basically, that will affect the gross margin also. That would be one of the big aspects that would affect the margin. Okay, so just so I think I understand you, you are being conservative about the direction of ocean freight under your guidance. But it's a point of opportunity if, in fact, the ocean freight proves to be. Assistant at Current Levels, is that what I'm, did I hear that correctly?
Starting 2023 or 'twenty 'twenty four will bring our capex into the they are the on the top of the AR levels. So basically that would affect the gross margin also that would be one of the big aspect that will affect the margin.
Okay. So just so I think I understand your you were being conservative about the direction of Ocean freight in your guidance.
But it's a point of opportunity if in fact, the ocean freight proves to be consistent at current levels is that what I'm hearing.
Michael Edward Hoffman: I may be misunderstanding what you're saying. Yes, that is correct. If the option frame remains stable, then basically, I would say that this is definitely beneficial for our third and fourth quarter. Okay. That's what I thought you meant. All right. Thanks. Thank you, Michael. The next question is from Ryan Meyers with Lake Street Capital Markets. Please go ahead.
I hear that correctly I mean, maybe I'm misunderstanding, what you are trying to tell me.
Yes that is correct if the ocean freight maintained stable then basically I would say that this is definitely beneficial for third and fourth quarter.
Okay. That's what I thought you meant alright. Thanks, Thank you Michael.
The next question is from Ryan Meyers with Lake Street Capital markets. Please go ahead.
Ryan Robert Meyers: Hey, guys, thanks for taking my questions. First one for me, so if we think about the revenue guidance range, the 8 to 15% growth, you know, what would you need to see to come in at the high end of that range? Is that more of a stabilization in pricing or even a little bit of improvement in pricing? Just want to get a good understanding of, you know, how we potentially could see that 15% top line growth for 2024. Sure.
Hey, guys. Thanks for taking my questions.
First one for me. So if we think about the revenue guidance range to 8% to 15% growth you know what would you need to see to come in at the high end of that range is that more of a stabilization in pricing or even a little bit of improvement in pricing just wanted to get a good understanding of how we potentially could see that 15% topline growth for 'twenty 'twenty four.
Sure.
Alan Yu: Well, Mike, Ryan, in the past year, prior to the pandemic, our company has been growing double digits every year, year over year. And last year was a much different environment, because in 2022, there was a major spike in ocean freight, and we have to add the price of the cost of goods sold and the retailing prices based on that. And there was a deflationary factor during the last year, 2023. But in 2024, as everything stabilizes, our selling volume is going to increase with the addition of new sales reps that have been going out there in the street, selling to more new chain accounts. And we're already seeing that we've added several dozens of new accounts in the past few months, basically.
Sure well, Mike Ryan in the past year doing prior to putting that makes our company has been growing double digit every year year over year and last year was a much different environment because in 'twenty 'twenty. Two there was a major spike in ocean freight and that we after at the price of cost of goods sold and the selling price.
Based on that and there was a deflationary factors during the last year 2023 but the.
'twenty 'twenty four as everything stabilized are filling volume its going to increase with adding new sales reps. That's going out has been gone going out there in the street sell into more new chain accounts and we're already seeing that we're adding several dozens of new accounts in the past few months basis.
Alan Yu: So we're adding about 20, 30, 40 accounts; I would say 40 accounts every quarter, distribution and chain accounts. And with that said, that's going to add a lot to our top line, as well as our existing customers; we're adding additional new items such as napkins and other new categories that we're selling in that we're looking to bring in this year, an additional 300 to 400 FKU that will also add to our top line. On top of that, we're looking at acquisitions this year. As we mentioned, doing our IPO, one of the things for our growth strategy is to start looking at acquisition targets. In the past years, we've been looking at it, but the price was not that reasonable.
So we're adding about 2030 40 accounts Ah every I always say 40 accounts every quarter's distribution and chain accounts and with that said that's going to add a lot to our topline as well as our existing customers, we're adding additional new items, such as napkins and other new category that we're selling in that.
We're looking to bringing in this year additional three to 400 S. K U that will also add to our top line I'm on top of that our worst where we're looking at acquisition. This year as we mentioned during our IPO one of the finger for our growth strategy is to start looking at acquisition targets in the past.
Yours.
Looking at it but with the price was not that reasonable and we're seeing that are people without looking at yourself there business got where potentially we can acquire are becoming more realistic numbers that we can see that we can look into now. So if we were to hit the 15% range I would say that would have a small acquisition I'm not going to.
Alan Yu: And we're seeing that people that are looking to sell their business that we potentially can acquire are becoming more realistic numbers that we can see that we can look into now. So if we were to hit the 15% range, I would say that would be a small acquisition. We're not going to talk about large acquisitions, but we're looking at the small side acquisition. Got it.
We're not gonna talk about large acquisition, but we're looking at the small sized acquisition.
Alan Yu: That makes sense. And then, if we think about the softness that you commented on in the distributor and national channels in the fourth quarter, I just want to get a good understanding of how much of that was driven by just the California market versus how much of it was the overall system as a whole. The California market In the fourth quarter, we saw a decline of almost like a double digit decline in terms of California year over year. The restaurant environment in California is really bad for this industry and also as far as competitiveness is concerned. There are a lot more importers in California. However, restaurants are not doing well, especially the mom and pop that are serviced by distributors.
Got it that makes sense and then if we think about the softness that you commented on in the distributor and national channels in the fourth quarter just wanted to get a good understanding of how much of that was driven by just the California market versus how much of it was the overall system.
As a whole.
California market in the fourth quarter, we saw a decline of a almost like a double digit decline in terms of California year over year.
The restaurant environment, California, It's it's really bad in this industry and also as well as competitiveness. There's a lot more importers in California restaurants are not doing well, especially the mom and pops that are serviced by distributors to the ciena counts. However, it's doing but much better than the distributors this mom and pop shops, which we're seeing a lot of rest.
Ryan Robert Meyers: The chain account, however, is doing much better than the distributors, the mom and pop shops, which we're seeing a lot of restaurants closing and going out of bankruptcy. That's what we're seeing in fourth quarters in California. Got it. Thank you for taking my questions. The next question is a follow-up from Jake Bartlett with Truist Securities. Please go ahead.
On closing and going out of bankruptcy, that's we're seeing in fourth quarters in California.
Got it thank you for taking my questions.
The next question is a follow up from Jake Bartlett with <unk> Securities. Please go ahead.
Jake Rowland Bartlett: Hey, thanks. Thanks for the follow-ups here. You know, my first question was just on that discussion on guidance, Alan, and you mentioned volume expectations of 15%, but the guidance is eight to 15%. So, you know, is that just a follow-on from the lower pricing that we had by the end of the year, just helping us understand the dynamics. I know there's this mix that goes on as well as impacts, you know, sales growth. So maybe just help us mesh the 15% volume growth and 8 to 15% revenue value. Yes, volume-wise, it's per case count. The case counts could be something that's worth $3, $4 a bottle or something that is $80 a case.
Hey, Thanks, and thanks for the follow ups here.
First was just on that discussion on guidance Alan you had mentioned a vault.
Volume expectations of 15%, but the guidance is 8% to 15% so.
Is that is that just a follow on of the lower pricing that we had by the end of the year or just just helping us understand the dynamics. There I know, there's this mix that goes on as well as impacts.
So maybe just help us.
Mesh the 15% volume growth in the 8% to 15% revenue guidance.
Yes, we're where volume wise, it's per case counts the case counts could be.
Something that's worth $3 $4 of bottles or something that is a $80. A case. So that's where we're seeing the volume growth is our well count getting by the numbers of bottles in number of cases that were selling the year over year comparison, and we're already seeing where we've seen the growth starting in the fourth quarter, especially the.
Alan Yu: So that's where we're seeing the volume growth. We're calculating by the numbers of bottles and the number of cases that we're selling, the over-year comparison. And we're already seeing growth starting in the fourth quarter, especially November and December of last year. And we're already seeing some strong growth this year already in the first three months of this year. And with the new customers that were just acquired recently and also the potential customers that are in our pipeline, we're seeing this number continue to grow.
November and December of last quarter last year, and we're seeing already seen some strong growth this year already in the first two months.
First three months of this 2024 already and where with the new customer that were just acquire reasonably and ultra C potential customers that are in our pipeline. We're seeing this number to continue to grow so 15% is I would say that it's more of a conservative number that we're going to I'm going to say in terms of volume growth.
Alan Yu: So 15%, I would say that it's more of a conservative number that I'm going to say in terms of volume growth based on the number of customers that we have in the pipeline. But this can be average because, of course, we're looking at the second quarter and third quarter, which is always our stronger quarter versus our first quarter and fourth quarters in terms of volume growth. So we're going to be looking at 15% as our target in terms of average growth quarterly-wise. And in terms of revenue, we have kind of a strong base already in 2023. And we're seeing that with volume growth and new accounts added, and that's where we see revenue growth at 8% to 15%.
Based on the number of customers that we have in pipeline, but this can be average because of course, we're looking at the second quarter and third quarter is always our strongest quarter versus our first quarter and fourth quarters in terms of volume growth price. So we're gonna be looking at a 50% is our target in terms of absolute gross quarterly wise and in terms of revenue.
Revenue, we have a kind of a strong base already in the 2023, and we're seeing that with these volume growth and new account at it and that's where we see the revenue growth at 8% to 15% of course that is the revenue guidance that we want to be conservative because in 2023 we have.
Alan Yu: Of course, that is revenue guidance that we want to be conservative because in 2023, we have a very-we kind of have a decline in our revenue growth from 2023 compared to 2022. So we're trying to catch up in terms of 2024 to grow beyond the revenue we had in 2022. But just so I understand, the offset to volume growth is negative mix or negative price, or else revenue would be higher than volume, I assume. So why is revenue growth slower than volume growth?
It's a very we kind of have a decline in our revenue growth from 2023 compared to 2022. So we're trying to catch back in terms of 'twenty 'twenty four to grow beyond the revenue we had in 2022.
But just so I understand the offset to the volume growth is negative is a negative mix or or negative price.
Revenue would be higher than than volume I assume so what why is revenue growth slower than volume growth.
Jake Rowland Bartlett: The pricing, you're right. We are having to compete with our other vendors for pricing. So we're doing both, competing with other vendors as well as selling more at a higher price volume-wise online. Okay. And then, Jen, the question on, you know, operating expense or G&A growth, I just want to make sure your comment, you said it was, you know, you want to improve versus 23, which is on a percentage of sales basis. You don't expect the absolute, you know, G&A or operating expenses to be lower year for year. So I just want to make sure that that's the right method.
The pricing you're right.
So we are having to compete with our other other vendors for pricing. So what we're doing both are competing with other vendors as well as selling more higher price volume waiting online.
Okay, and then in Gen <unk>.
Question on operating.
Operating expense for G&A growth I, just wanted to make sure. Your comment you said it was.
Do you want to improve versus 'twenty three that's on a percentage of sales basis, you don't expect the absolute.
G&A or operating expenses to be lower year over year, so that that I just want to make sure that that's the right message.
Jian Guo: That's correct, Jake. It's the leverage, the percentage. Percentage of sales. Okay. And then just on the adjustments for the online sales platform fees, kind of moving from, you know, I guess going into selling, increasing selling expenses and retail sales, also the production expenses, moving out of G&A to cost of goods. How should we think of that just from modeling?
That's correct Jay it's the leverage the percentage.
Okay, and then and then just on the adjustments for the online sales platform fees kind of moving from I guess going into selling is increasing selling expenses.
Retail sales also the production expenses moving out of G&A too to cost of goods. How should we think about just for modeling you're not telling US you know how much they were per quarter in 'twenty three but it should we just divide those adjustments by four and assume that that's the right kind of impact on a quarterly basis as we look to two <unk>.
Jian Guo: You're not telling us, you know, how much they were per quarter in 23, but should we just divide those adjustments by four and assume that that's the right kind of impact on a quarterly basis as we look to model 24 and beyond? That should be pretty close, with the only caveat, well, a couple of caveats there, the online platform fee. With the significant growth of our overall online sales, I would expect that amount to increase in 2024 compared to 2023. On production expenses, I would expect the 24 amount to be slightly below the 23 amount because of the continued spillbacks of the overall domestic production activities here. Okay, and then lastly on the import duty reserve, is it the same kind of way to think about it there that it, you know, maybe should have been higher earlier and was taken all at once here? Or is that not how it works?
24 and beyond.
That should be that should be pretty close with the only caveat oh well.
Couple of comments there is the online platform fee.
With the significant growth of our overall online sales I would expect that amount to increase in 2024 compared to try to target to me on the production expense I would expect 24, our mom to be slightly below the 23 about it.
Does that continue to scale back Oh, I'll stay overall domestic production activities.
Okay, and then lastly on the import duty reserve is it the same kind of way to think about it there that you know maybe should've been higher earlier was taken all at once here or is that not how that works. So just how would a.
Jake Rowland Bartlett: So just just how would it, how would, By taking this reserve now, how would it, you know, impact the next three-quarter cause? Would it be higher because you would have, you know, if that was reserved, if you reserved more appropriately, you know, on an ongoing basis, you'd have..., you know, a higher cost of goods sold. Is that how we should think about it?
But by taking this reserve now how would it impact you know the next three quarter Cogs.
Would it be higher because you would have.
If that was the reserve as we reserved more appropriately.
On an ongoing basis you'd have.
Higher cost of goods sold is that how we should think about it.
Jian Guo: Can I just make sure I understand your question correctly, Jake? You're talking about the reserve for duty? Import duty?
Can I just make sure I'm understanding your question correctly, you're talking about everybody started for the duty import duty, yes, yeah.
Jian Guo: Yes. Okay. So, this reserve, we actually don't expect a significant change in 2024, currently, based on the best information that we currently have. The reason why we had an increase in the reserve, in this charge, which you're right, impacted Q4. So, the reason why we had an impact was there was a change in estimate. It was a lost contingency.
Okay.
I, we actually don't expect a significant change.
In 'twenty 'twenty fault current shaped based on the best information that we currently have the reason why we had an increase in the reserves in this triage, which youre right. It impacted Q4 cost of goods sold the reason why we had the impact was there was a change of estimate it was a contingent.
It was a loss contingency we previously reserved took a charge should be there.
Jian Guo: We previously reserved, took a charge, reserved based on our best at that point in time, back in the second quarter of 2023, we had an investigation going on. So, we took a reserve back in Q2, 2023. Fast forward to Q4, 2023, we had some updates in events and circumstances that helped us better estimate this reserve. This lost contingency, that's the reason why we recorded an adjustment to this charge.
Our based on our pets.
Our estimate about finding high fat in the second quarter of 2023, you had an investor investigation going on.
So we took a reserve back in Q2 'twenty 'twenty.
2023 asphalt was it Q4 'twenty to 'twenty three we had some updates and.
Estimate updates in events and circumstances that helped us better.
Estimate this reserve.
This this this loss contingency that's the reason why we recorded an adjustment to this triage.
Jian Guo: As of right now, based on the information and assistance provided from the Council, we do not expect significant changes in 2024. That being said, you know, as we think about this reserve amount as of 12-01-2023, this is based on the best estimate that we currently have. There might be future options that we would look into, but as of right now, we don't expect significant changes in 2024 related to this chart. Jake, let me add something to what Jian just mentioned. This reserve is a special duty reserve.
We are as of right now based on the information and assistance provider from the counsel, we do not expect significant changes.
In 'twenty 'twenty, four and that being said you know.
As we as we.
Think about this reserve amount as of 12 31 2023. This is based on our best estimate that we currently have there might be future options that we would look into but as of right now we don't expect it.
Significant changes in 2024 related to the.
To discharge.
Let me add to what Jim just mentioned this reserve is a special duty reserve space on an item that we have imported from overseas and this basically.
Alan Yu: It's based on an item that we have imported from overseas. And this basically, all the investigation has confirmed and finalized. So in 2024 and onward, we won't have to deal with this, any type of importing issue with this particular product. But for the amount that we reserve, are we going to see a cash payout anytime soon? No. It might be a couple of years down the road since we appeal. And this $2.3 million or $3.5 million is the highest reserve we're putting in. And then, very likely, this reserve will change to a different amount, which is we're looking at a lower amount; the dollar amount that would change.
Everything else investigation has confirmed finalized so in 'twenty 'twenty four and onward. This we won't have to deal with this any type of it importing issue on this particular product but for.
For the moment, we reserve or are we going to see a cash payout anytime soon no it might be a couple of years down the road since we aren't going to appeal and this is just hot this $2 million to $3 million were $3 $5 million is the highest reserve or putting and then were.
Very likely this reserve would change to a different amount, which is we're looking at a lower amount or the amount that dollar amount that would change but that this is the highest the most we will see in terms of the duty that where we're liable for it basically.
Alan Yu: But this is the most we will see in terms of the duty that we're liable for, basically. Great. That makes sense.
Right that makes sense I appreciate it thank.
Michael Edward Hoffman: I appreciate it. Thank you. The next question is a follow-up from Michael Hoffman on Stiefel.
Thank you.
The next question is a follow up from Michael Hoffman with Stifel. Please go ahead. Thanks, the M&A just to be clear I'm, given the quality of the cash flow I presume you would be able to fund the small M&A that youre thinking about all from sources that you generate so it's self funded.
Michael Edward Hoffman: Please go ahead. Thanks. The M&A, just to be clear, given the quality of the cash flow, I presume you would be able to fund the small M&A that you're thinking about all from sources that you generate, so it's self-funded.
Alan Yu: Correct. Okay. Unless... Yeah.
Correct, Yeah, unless yeah, I mean, we're basically we have over.
Alan Yu: I mean, we're... A hundred million dollars, like Jian mentioned in our report, over $110 million in cash flow in terms that we can utilize, which we're not going to utilize all of it, but for sure, that's something that we can do self-reliant. The big statement is that there's nothing on the radar that you're going to drive the leverage up. This can be self-funded off of cash, and the leverage stays relatively low.
$100 million of it like a.
Like Jim mentioned in our report over $110 million in cash flows in terms of that we can use that utilize which we're not going to utilize all of it but for sure. That's something that we have we can do self funded.
Hey.
That's a big statement being is that there's nothing on the radar that youre going to drive the leverage up this can be self funded off of cash.
And the leverage stays relatively stable.
Michael Edward Hoffman: Yes, yes, and we are going to generate even more cash this year. Okay. This concludes our question and answer session. I would like to turn the conference back over to Alan Yu for any closing remarks. Thank you everyone for joining our 2023 fourth-quarter earnings call. And I would like to say thank you all and have a nice day. Thank you very much. Bye-bye.
Yes, yes, we and also where all where we are going to generate even more cash this year right right. That's that's what I'm trying to get at okay. Thanks.
This concludes our question and answer session I would like to turn the conference back over to Alan you for any closing remarks.
Thank you everyone for joining R. R. R. R 2023 fourth quarter, earning calls and I would like to say thank you all and have a nice day. Thank you very much bye bye.
Alan Yu: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Operator: The Bulletproof Executive 2013, and more. https://www.youtube.com.ac Logo Logo, Thank you for watching. The Bulletproof Executive 2013, The Bulletproof Exhibit. All rights reserved.
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