Q4 2024 Karat Packaging Inc Earnings Call
Operator: Please stay. followed by the number one on your telephone keypad.
Probably the number one on your telephone keypad. Thank you I think know Hanczyc Niccolo very two roads you ponder Investor Relations you may now begin.
Operator: Thank you.
Operator: I'd like now hand the call over to Roger Pondel, Investor Relations. You may now begin.
Speaker Change: Thank you operator, and good afternoon, everyone and welcome to care packaging as 2020 for fourth quarter Conference call.
Roger Pondel: Thank you, operator, and good afternoon, everyone. Welcome to Karat Packaging's 2024 fourth quarter.
Roger Pondel: I'm Roger Pondel with Pondel-Wilkinson.
Speaker Change: Roger Pond dealt with Pinedale Wilkinson cared packaging investor relations firm.
Roger Pondel: It will be my pleasure momentarily to introduce Officer, Alan Yu, Industry Financial Officer, Before I turn the call over to Alan... Thank you.
Speaker Change: My pleasure momentarily to introduce the company's Chief Executive Officer, Alan you as Chief Financial Officer, Jim Go before I turn the call over to Alan.
Speaker Change: I wanted to remind our listeners that too.
Speaker Change: Today's call May include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Speaker Change: 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 Exchange Commission and copies of which are available on the Sec's website at www.
Roger Pondel: forward-looking statements. including those set forth in the risk factor section of the company's most recent Form 10-K, as filed... differ materially from these forward-looking statements.
Speaker Change: The FCC Dot Gov, along with other company filings made with the SEC from time to time.
Speaker Change: Results could differ materially from these forward looking statements and care packaging undertakes no obligation to update any forward looking statements except as required by law. Please also note that during this call we will be discussing adjusted EBITA adjusted EBITA margin adjusted diluted earnings per share.
Roger Pondel: and Karat Packaging undertakes no obligation to update any forward.
Roger Pondel: Please also note that during this call, we will be discussing adjusted EBITDA. at Dow Margin, Adjusted Diluted Earnings Per Share, and Free Cash Flow, which are non-GAAP financial measures as defined by SEC Reg G.
Speaker Change: Sure Ed free clash cash flow, which are non-GAAP financial measures as defined by SEC Reg 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.
Roger Pondel: A reconciliation of the most directly comparable gap measures to the non-gap financial measures.
Alan Yu: Included in today's press release which is now posted on the And with that, it's my pleasure to turn the call over to CEO Alan Yu. Thank you, Roger. Good afternoon.
Website and with that it's my pleasure to turn the call over to CEO Alan you Alan.
Alan: Thank you Roger Good afternoon, everyone. We ended 2024 with a strong fourth quarter. Our sales volume grew 14% of net sales grew six 3% over the prior year quarter. Despite a $4 8 million out of period benefit included in the prior year quarter from online sales platform.
Alan Yu: We end it 2024 with a strong fourth quarter. This slide is 4.8 million out-of-period benefits included. prior to your quarter from online sales. We achieved gross margin of $39.5 billion.
Related to the first three quarter in 2023.
Alan: We achieved gross margin of 39, 2% in the fourth quarter versus 35, 7% in the prior year period as.
Alan: Positive momentum continues in 2025, we are prioritizing to further strengthen our supply chain resilience in preparation for tariff uncertainties.
Alan Yu: 5, we are prioritizing to further strengthen are supply chain resilience in preparation for tariff uncertainty. We have reduced our reliance on China for imported goods to approximately 20%. Shifting our sourcing to countries with more favorable trade conditions and minimum tariff like Taiwan. We continue to actively work on further diversifying our supply chain outside of China and securing additional vendor demand.
Alan: We have reduced our reliance on China for imported goods to approximately 20% shifting our sourcing to countries with more favorable freight conditions and minimum tariff like Taiwan.
Alan: In 2024, we imported over 50% of our global purchases from Taiwan, We continue to actively work on further diversifying our supply chain outside of China.
Alan: Securing additional vendor discounts to mitigate pricing and margin pressures.
Alan Yu: To Mitigate Pricing and Margin Pressure While we try to protect pricing, we are evaluating product pricing holistically. and have implemented pricing increases in certain categories to be effective in March and April. With a strong U.S. dollar and expected stable ocean freight rates this year, we expect the recent imposed tariffs to have minimum long-term impact on margins. Geographically for the quarter, we experienced the strongest growth in the Midwest, and we continue to penetrate market in other regions, including the Pacific Northwest and East Coast. Sales in California, our biggest market, began to stabilize in the preceding third quarter, and I'm happy to report that the positive trend continued in the fourth quarter, when sales began to grow modestly in December.
Alan: While we try to protect pricing, we are evaluating product pricing holistically.
We have implemented pricing increases in certain categories.
Alan: March and April with a strong U S dollar and expect a stable ocean freight rates. This year, we expect the reason imposed tariffs to have minimum long term impact on margin.
Alan: Graphically for the quarter, we experienced the strongest growth in the Midwest and we continue to penetrate market in other regions, including the Pacific Northwest at East Coast.
Alan: In California, our biggest markets begin to stabilize in the preceding third quarter.
Alan: And I'm happy to report that the positive trend continued in the fourth quarter.
Alan: Our sales began to grow modestly in December.
Alan: Sales of our eco friendly product in the fourth quarter increased 11% year over year and represented 34, 5% of total sales we continue to observe more state and local government legislation, requiring recyclable or compostable food service products for example, California's ban.
Alan Yu: Sales of our eco-friendly product in the fourth quarter increased 11% year-over-year and represented 34.5% of total sales. We continue to observe more state and local government legislation requiring recyclable or compostable food service products. For example, California's ban on Styrofoam went into effect on January 1st, 2025.
Paul: I'll start with Paul went into effect on January one 2025, we expect demand for infill for any product lines will accelerate and we continue to actively developing new innovative products to enhance our competitive position.
Alan Yu: We expect demand for our eco-friendly product lines will accelerate and we continue to actively develop new and innovative products to enhance our competitive position.
Alan Yu: Our strategic focus for 2025 are to drive sales growth and improve our operational January and February 2025, we are seeing robust sales, growth and continued strength in our pipeline. We expect the positive momentum to continue into the rest of 2025, and we are closing new business. expected to convert into revenue in the second half of the year.
Paul: Strategic focus for 2025 arches that drive sales growth and improve our operational efficiencies in January.
Paul: During 2025, we are seeing robust sales growth and continued strength in our pipeline. We expect the positive momentum to continue into the rest of 2025.
Paul: We are closing new businesses.
Paul: <unk> to convert into revenue in the second half of the year.
Paul: To support our anticipated growth as recently announced we signed a new lease on a 187000 square foot distribution center near our headquarters in Chino, California.
Alan Yu: To support our anticipated growth, as recently announced, we signed a new lease on a 187,000 square foot distribution center near our headquarters in Chino, California. This facility almost doubles our current distribution capability in California and provides much needed capacities to support our anticipated growth and add approximately 500 new FKU of paper products.
Paul: This facility almost doubles, our current distribution capability in California, and provide much needed capacity to support our anticipated growth and approximately 500, new skus of paper products.
Alan Yu: Ahead of the peak summer We anticipate the new distribution center to be fully operational by about this May.
Paul: Ahead of the peak summer season.
Paul: We anticipate the new distribution center to be fully operational by about this may we are also reevaluating, our operating processes and investing in automation and AI support to enhance productivity and maximize operation efficiency with a lean team.
Alan Yu: We are also re-evaluating our operating processes and investing in automation and AI support to enhance productivity and maximize operation efficiency with a link.
Alan Yu: As part of our long-term growth strategy, we will continue to explore sales opportunity outside of our traditional channels, such as the supermarket sector. We are in the product testing stage with some of our large supermarket customers to further expand our relationship with them, and we are working on expanding our sales team with experienced representatives focused on this sector.
Paul: As part of our long term growth strategy, we will continue to explore sales opportunity outside of our traditional channels such as the supermarket sector. We are in the product testing stage with some of our largest supermarket customers to further expand our relationship with them.
We are working on expanding our sales team with experienced representatives focused on this sector.
Alan Yu: With our strong operating cash flow, as well as liquidity and balance sheet, and positive long-term outlets, our Board of Directors again approves the increase in the quarterly cash dividend payment to $0.45 per share, paid on February 28, 2025. stockholder of record as of February 24, 2025.
With our strong operating cash flow as well as liquidity and balance sheet and positive long term outlook. Our board of director again, proving the increasing the quarterly cash dividend payments to <unk> 45 per share paid on February 28, 2025 to stockholder of record as of February <unk>.
Jan: For 2025, I will now turn the call over to Jan <unk>, Our Chief financial Officer to discuss the company's financial results in greater detail Jeff.
Jian Guo: I will now turn the call over to Jian Guo, our Chief Financial Officer, to discuss the company financial results in greater detail. Thank you, Alan. Let me provide an overview of our Q4 performance and I'll close with our guidance for 2025. Net sales for the 2024 fourth quarter were $101.6 million, up 6.3% from $95.6 million in the prior year quarter, which included a benefit of $4.8 million from the adjustment of online platform fees for the first nine months of 2023. As Alan mentioned, our volume grew 13.9% year-over-year. Pricing was unfavorable by $5.4 million year-over-year. Online platform fees decreased $3.4 million from the prior year quarter, reflecting the impact of the prior year out-of-period adjustment.
Jan: Thank you Alan.
Jan: Let me provide an overview of our Q4 performance and I'll close with our guidance for 2025.
Jan: Net sales for the 2020 for fourth quarter, well $101 6 million.
Six 3% from $95 6 million in the Pea.
Prior year quarter, which included a benefit of $4 $8 million.
Jan: Adjustments of online platform fees for the first nine months of 2023.
Jan: As Alan mentioned, our volume grew 13, 9% year over year pricing was unfavorable by $5 $4 million year over year online platform fees decreased three 4 million from the prior year quarter, reflecting the impact.
Jan: The prior year out of period adjustments.
By channel compared with the prior year quarter.
Jian Guo: By channel, compared with the prior year quarter, sales to our distributor channel for the 2024 fourth quarter were up 13.8%, sales to the national and regional chains were up by 1.7%, and sales to retail channel decreased 1.4%. Online sales were down 6.1 percent, or $1.1 million, reflecting the impact of the prior year out-of-period adjustment. Cost of goods sold for the 2024 fourth quarter was $61.8 million, which included an additional import duty charge of $0.6 million on paper shopping bags. 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 the adjustment of $3.4 million of certain production expenses for the first nine months of 2023.
Our distributor channel for the 2020 for fourth quarter, well up 13, 8% sales to the national and regional chains.
Jan: One, 7% and sales to retail channel decreased one 4%.
All lines sales were down six 1% or $1 $1 million, reflecting the impact of the prior year out of period adjustment.
Jan: Cost of goods sold for the 2020 for fourth quarter was $61.8 million, which included an additional import duty charge of $6 million on paper shopping bags concept.
Jan: Cost of goods sold for the 2023 fourth quarter with 61 5 million, which included an additional import duty reserve of $2 $3 million and the adjustments of $3 $4 million of certain production expenses for the first nine months.
Jan: 2023.
Jan: Product costs increased $12 $2 million year over year, primarily as a result of volume growth, partially offset by a favorable impact from reduced vendor pricing is stronger.
Jian Guo: Product costs increased $4.2 million year over year, primarily as a result of volume growth, partially offset by a favorable impact from reduced vendor pricing, a stronger U.S. dollar, and an increase in imports as a percentage of total product made. Gross profit for the 2024 fourth quarter increased 16.8% to $39.8 million from $34.1 million in the prior year quarter. growth margin expanded by 350 basis points to 39.2% in the 2024 fourth quarter from 35.7% in the prior year quarter. The 2023 fourth quarter included a net unfavorable impact of 290 basis points from the out-of-period adjustments related to online platform fees and production expenses, as well as additional import duty reserves.
Dollar and an increase in imports as a percentage of total product mix.
Jan: Gross profit for the 2020 for fourth quarter increased 16, 8%.
$39 $8 million from $34 $1 million in the prior year quarter.
Jan: Gross margin expanded by 350 basis points.
39, 2% in the 2020 for fourth quarter from 35, 7% in the prior year quarter.
The 2023 fourth quarter included a net unfavorable impact of 290 basis points from the out of period adjustments related to online platform fees and.
And production expenses as well as additional import duty reserves.
Jian Guo: Gross margin benefited from lower vendor pricing, favorable foreign currency impact, and product mix. partially offset by a higher freight and duty cost. Operating expenses for the 2024 fourth quarter increased 10.4% to $32.5 million from $29.5 million in the prior year quarter. selling expenses for the 2024 fourth quarter was $13.9 million compared with $16.0 million in the same quarter last year, which included the impact from an adjustment of $4.8 million of online platform fees for the first nine months in 2023 and an adjustment of $1.5 million of sales labor costs for the first nine months in 2020.
Jan: Gross margin benefited from lower vendor pricing favorable foreign currency impact and product mix.
Jan: Really offset by higher freight and duty cost.
Jan: Operating expenses for the 2020 for fourth quarter increased 10, 4% to $32 $5 million from $29 $5 million in the prior year quarter.
Jan: Selling expenses for the 2020 for fourth quarter was $13 $9 million compared with 16.0.
Jan: In the same quarter last year, which included the impact from adjustments of $12 $8 million of online platform fees.
Jan: First nine months in 2023.
And an adjustment of $1 5 million of sales team.
Jan: <unk> costs for the first nine months in 2023.
Jian Guo: General and Administrative expenses were $18.4 million compared with $13.2 million in the prior year quarter, which included a favorable impact from the adjustment of $3.4 million of certain production expenses for the first nine months in 2023 into cost of goods sold and an unfavorable impact of $1.1 million in write-off of a vendor prepayment upon the resolution of a legal contingency.
Jan: General and administrative expenses were $18 $4 million compared with $13 $2 million in the prior year quarter, which included a favorable impact from the adjustment of $3 $4 million of certain production expenses.
Jan: The first nine months in 2023 into cost of goods slowed.
Jan: And an unfavorable impact of $1 $1 million in write off of a vendor prepayment upon the resolution of a legal contingency.
Additionally, the year over year increase in general and administrative expenses was driven by an increase in labor costs and rent expense for our workforce expansion.
Jian Guo: Additionally, the year-over-year increase in general and administrative expenses was driven by an increase in labor costs and rent expense from workforce expansion and additional leased warehouses and higher stock-based compensation and transportation.
Jan: And additional leased warehouses and higher stock based compensation and transportation costs.
Jian Guo: Operating income for the 2024 fourth quarter increased 57.8% to $7.3 million from $4.6 million in the prior year quarter. Net income for the 2024 fourth quarter increased 40.3 percent to $5.9 million from $4.2 million in the prior year quarter. Net income margin was 5.8% in the 2024 fourth quarter compared with 4.4% in the prior year quarter.
Jan: Operating income for the 2020 for fourth quarter increased 57, 8% to $7 3 million from $4 $6 million in the prior year quarter net.
Jan: Net income for the 2020 for fourth quarter increased 43% to $5 $9 million from $4 $2 million in the prior year quarter net.
Jan: Net income margin was five 8% in 2020 for fourth quarter compared with four 4% in the prior year quarter.
Jian Guo: net income attributable to Karat for the 2024 fourth quarter increase. 44% to $5.6 million, or $0.28 per diluted share, from $3.9 million in the prior year quarter, or $0.19 per diluted share. Adjusted EBITDA increased to $11.3 million for the 2024 fourth quarter from $8.6 million for the prior year quarter. Adjusted EBITDA margin was 11.1 percent of net sales for the 2024 fourth quarter compared with 9.0 percent for the prior year quarter.
Jan: Net income attributable to carriage for the 2020 for fourth quarter increased.
44% to $5 $6 million or 28 cents per diluted share from $3 $9 million in the prior year quarter or <unk> 19 per diluted share adjust.
Jan: Adjusted EBITDA increased to $11 $3 million for the 2020 for fourth quarter from $8 6 million for the prior year quarter.
Jan: The EBITDA margin was 11, 1% of net sales for the 2020 for fourth quarter compared with 9.0% for the prior year quarter.
Jian Guo: Adjusted diluted earnings per common share rose to $0.29 for the 2024 fourth quarter from $0.24 for the same quarter last we generated operating cash flow of $8.3 million in the fourth quarter and ended 2024 with $114.6 million in working capital compared with $110.5 million at the end of 2023. Our free cash flow was $7.5 million in the fourth quarter.
Jan: Adjusted diluted earnings per common share rose to 29.
Jan: For the 2020 for fourth quarter from 24.
Jan: For the same quarter last year.
Jan: We generated operating cash flow of $8 3 million in the fourth quarter and ended 2024 with $114 $6 million in working capital compared with $110 $5 million at the end of 2023, our free cash.
Jan: <unk> was $7 $5 million in the fourth quarter.
Jian Guo: As of December 31st, 2024, we have financial liquidity of $67.8 million with another $28.3 million in short-term investment.
As of December 31st 2024, we have financial liquidity of $67 $8 million with another $28 $3 million in short term investments.
Jian Guo: As Alan mentioned earlier, our board of directors approved another increase of our quarterly dividend to $0.45 per share. We remain committed to a balanced capital allocation strategy between shareholder return and long-term growth investment. We expect net sales for the 2025 first quarter to increase by 6% to 8% over the prior year quarter. Our gross margin goal for the 2025 first quarter is approximately 37% to 39%. We expect adjusted EBITDA margin to be between 9% and 11%. On a four-year basis, we expect year-over-year revenue to grow 9% to 11% in 2025, and gross margin to be in the range of 36% to 38%.
Jan: As Alan mentioned earlier, our board of directors approved.
The increase of our quarterly dividend to <unk> 45 cents per share.
We remain committed to a balanced capital allocation strategy between shareholder return and long term growth investments.
Jan: We expect net sales for the 2025 first quarter to increase by six 2% over the prior year quarter, our gross margin goal for the 2025 first quarter.
Approximately 37% to 39%.
Jan: Adjusted EBITDA margin to be between nine and 11%.
Jan: On a full year basis.
<unk> year over year revenue to grow 9% to 11% in 2025 and gross margin to be in the range of 36% to 38%.
Jian Guo: We expect adjusted evidence margin to be in the low to mid-double digits.
Jan: We expect adjusted EBITDA margin to be.
In the low to mid double digits.
Jan: Alan and I will now be happy to answer your questions and I'll turn the call back to the operator.
Jian Guo: Alan and I will now be happy to answer your questions, and I'll turn the call back to the operator.
Jan: Hi, everyone and welcome to Cara Packaging, Inc. Fourth quarter 2024 earnings Conference call. Please note that this call is being recorded.
Operator: Hello everyone, and welcome to Karat Packaging, Inc. 4th Quarter 2024 Earnings Conference Call. Please note that this call is being recorded.
Operator: At this time, I would like to remind everyone, in order to ask a question, press star and then the number one on your telephone keypad. Again, that's star and one on your telephone keypad. We will pause for a brief moment to wait for the questions to come in.
Jan: This time I would like to remind everyone in order to ask a question press Star and then the number one on your telephone keypad again that star and one on your telephone keypad.
Jan: I'll pause for a brief moment to wait for the questions come in.
Jan: Your first question comes from the line of Brian Meyers from Lake Street Capital Markets. Your line is now open.
Ryan Meyers: Your first question comes from the line of Ryan Meyers from Lake Street Capital Markets. Your line is now open. So, you know, just thinking about what you gave. You know walk me through kind of what you guys and Accelerator. You look at the full year guide, obviously it implies that, you know, sequentially throughout the year the growth is going to accelerate. Just wondering if there's anything to call out there or anything.
Brian Meyers: Hey, guys. Thanks for taking my question. So just thinking about what you gave for the first quarter revenue growth guidance.
Brian Meyers: Walk me through kind of what you guys are expecting as far as an acceleration of growth goes because if you look at the full year guide obviously it implies that sequentially throughout the year. The growth is going to accelerate just wondering if there's anything to call out there or anything we should be aware of.
Brian Meyers: Well first of all we're seeing already seen California has in the past two years, California market has been basically a market that we saw we have seen decline until the fourth quarter and that is one of our biggest market and we're now seeing that California market stabilizing and growing modestly.
Alan Yu: Well, first of all, we're already seeing California has, in the past two years, California market has been basically a market that we have seen decline until the fourth quarter. And that is one of our biggest markets. And we're now seeing the California market stabilize and growing modestly.
Alan Yu: And our largest market in Texas, we're seeing that market growing big time in the Midwest. That's where we're seeing that more people are switching out of plastic styrofoam into other type of material. It could be plastic. It could be compostable. And also plastic bags into paper shopping bags. So we're seeing more and more of that in the Midwest. Midwest has been a market with a lot of heavily on styrofoam. And now they're finally moving away from styrofoam.
Brian Meyers: Our.
Brian Meyers: Largest market in Texas, we're seeing that market growing big time.
Brian Meyers: That's where we're seeing that.
Brian Meyers: More people are switching out of plastic styrofoam into other type of material could be plastic.
Brian Meyers: Could be a couple of slides and also.
Brian Meyers: Plastic back into paper shopping bags, so we're seeing more and more of that in Midwest Midwest has been a market with a lot of heavily on styrofoam and now they're finally moving away from styrofoam and.
Alan Yu: Basically, if the Trump tariff goes through with the Mexico 25% and also 25% in Canada, we're going to see a major run on our product in the second quarter. So we're ready for the tariff, basically. That's why we leased a double the size of our California warehouse, and we're actually shipping not only... Before previous year, we normally shipped 25%, 20% increases from our normal volume in summer season. This time of year, we're asking our overseas production manufacturers to ship 200%, 300% of what we used to sell in the past year. So we're wrapping up our inventory as the ocean phase is kind of in a good pricing right now, and we know that there's still many uncertainties, but we know for sure anything coming out of China, it's basically like paper product, it's now being taxed 45%, which whoever is importing from China will stop immediately.
Brian Meyers: Basically if the Trump tariff goes through with the Mexico, 25% and also 25% in Canada, we're going to see a major run on our products.
Brian Meyers: In the second quarter. So we're ready for the tariffs basically that's why we see we lease.
Brian Meyers: The size of our California warehouse.
Brian Meyers: Actually shipping not only before previous year, we normally ship, 25%, 20% increases from our volume normal volume in summer peak season. This time of the year, we're asking our.
Brian Meyers: Overseas production manufacturers to ship 200, and 300% of what we used to sell in the past year. So wrapping up our inventory at the Ocean freight is kind of in a good pricing right now and we know that there are still many uncertainties, but we know for sure anything coming out of China.
Basically like paper product is now being tax, 45%, which whoever is imported from China will stop immediately there's no way they can afford that and the reason is important it's really helping us basically it's not a tailwind is actually.
Alan Yu: There's no way they can afford that. And the reason import is really helping us, basically. It's not a tailwind. It's actually not a headwind for us to tariff. It's actually we're seeing as a tailwind.
Brian Meyers: It's actually not a headwind for us to tariffs, it's actually we're seeing as a tailwind for us.
Jan: Okay, and Brian that makes so Brian this is Jan.
Jian Guo: Ryan, this is Jian. If I can just add on real quick to what Alan was talking about. Also, what we build in this model behind the guidance for four-year revenue growth is we are taking into consideration what we are seeing in our pipeline, the new deals that we signed or are very close to get signed that we expect to convert into revenue around that part of this. Got it.
I can just add.
Speaker Change: If I can just add on real quick to what Alan was talking about also what we build in this model behind the guidance for full year revenue growth is.
We are taking into consideration.
Speaker Change: We are seeing in our pipeline the new deals that we signed or are very close to get signed that we expect to convert into revenue a rocket part of this year.
Speaker Change: Okay got it and then just as a follow up that I will ask a similar question on the adjusted EBITDA margins, obviously, you guided 9% to 11% in the first quarter and the year low to mid double digits is that just a function of you guys are gaining scale kind of on the operating expense lines as you ramp revenue or is there anything else to think about there as far as the difference.
Alan Yu: And then just as a follow-up to that, I will ask a similar question. back to end the year. Load to mid-double digits. Is that... Yes, one thing that we're seeing with us in the fourth quarter, we ramp up online sales and we also sell online shipping and also the local shipping cost has gone up. So immediately starting next week or actually the following week, we found actually a different carrier shipper that would save almost a big time basically. We're looking at all these operational savings that we can find in terms of shipping our product. And not only the online shipping but also offline shipping.
In the first quarter and the full year.
Speaker Change: Yes, one thing that we're seeing with us in the fourth quarter, we ramp up online sales and we also sell unlike shipping and also local shipping cost has gone up so immediately starting next week, we're actually following week, where actually we found.
Speaker Change: Actually.
Speaker Change: Different carriers shippers that would save almost.
Speaker Change: A big time basically we're looking at all of these operational savings that we can find in terms of.
Speaker Change: Shipping a product not only the only shipping but also offline shipping recently, the trucking truckload shipping from California to everywhere in the U S has dropped by 35% as well as the I will say the rent the lease.
Alan Yu: Recently the truckload shipping from California to everywhere in the U.S. has dropped by 35% as well as the, I would say, the rent, the lease. Recently the newly released warehouse in California is actually down nearly half of what it was a year and a half ago, the lease rate. Got it, thank you.
Speaker Change: Recently, the operational the newly leased warehousing, California is actually down nearly.
Tough, although it was a year and half ago the lease rate.
Speaker Change: Got it thank you for taking my questions.
Jake Bartlett: Your next question comes from the line of Jake Bartlett from true is the Securities. Your line is now open.
Jake Bartlett: Your next question comes from the line of Jake Bartlett from TruVist Securities. Your line is now open. Great. Thank you so much for taking the question.
Jake Bartlett: Great. Thank you so much for taking the question my language about the composition of revenue growth are the drivers of revenue growth and 25, Alan if you could maybe help us understand how much is volume how much is price.
Alan Yu: You know, mine was about the composition of revenue growth or the drivers of revenue growth in 25. Alan, if you could maybe help us understand how much is volume, how much is price, and then I have some follow ups from that. the volume is going to be the double digit in terms of growth. We're already I would say that anywhere from 10, 20% volume growth. Pricing because of tariff we already announced pricing increase. So there's going to be some type of growth in revenue, but I wouldn't say a lot because we're trying to help our customers, not trying to.
Jake Bartlett: And then I have some follow ups from that.
I am going to say the volume is going to be.
Double digit in terms of growth, we're already I would say that.
Jake Bartlett: The way from 10% to 20% volume growth.
Pricing because of tariff, we already announced price increase so theres going to be some type of growth in revenue, but I won't say a lot because we're trying to help our customers trying to.
Alan Yu: increase as minimum as possible and to teach our operational expense and with the savings in Ocean Freight. So we got to work with our client and that's why our clients trust us and continue to give us more business because we're seeing a lot of these existing customer of ours, chain accounts. They're giving us more businesses in terms of the way that we can offer them savings and also different type of savings and also creativity in terms of different type of packaging. Many of them want to switch out of their plastic bag into paper bag and many of them want to switch out of their plastic container into paper corrugated boards.
The increase as minimum as possible and to choose our operational expense and what the savings and ocean freight. So we got to work with our client and Thats why our clients Trust US and continues to give us more business because we're seeing a lot of these existing customer of ours ciena counts, just giving us more businesses.
So the way that we can offer the savings and also different type of savings and also creativity in terms of different type of packaging many of them want to switch out as you pass it back into paperback and maybe with the one that was some of them want to switch auditors plastic container into paper corrugated boards. So we're doing a lot of things on that part.
Alan Yu: So we're doing a lot of things on that part. Got it.
Jake Bartlett: Got it so just maybe to dial in on the pricing part it has been negative it's been a headwind for a little over two years now.
Alan Yu: So just maybe to dial in on the pricing part, it has been negative. It's been a headwind for a little over two years now.
Alan Yu: And it sounds like maybe pricing could remain a bit of something that you kind of use to help drive volumes. Is that the right way to think about it, that we should maybe think about slightly negative pricing in 2025? I don't see any negative pricing in 2025. There will be price increase for sure. That's a guarantee. 2025, there's some pricing. We already announced it.
Jake Bartlett: And it sounds like maybe pricing could remain.
Jake Bartlett: A bit of something that you've kind of used to help drive.
Jake Bartlett: Volume is that the right way to think about it that we should maybe think about slightly negative pricing in 'twenty five.
Jake Bartlett: I don't see any negative pricing in 2025.
Jake Bartlett: There will be price increase and so for sure that's a guess.
Jake Bartlett: <unk> 2020 through some price increases, we already announced it and it's just that.
Alan Yu: And it's just that if there's going to be more announcement of price increase due to tariffs.
Jake Bartlett: If theres going to be more announcements of price increase due to tariffs.
Jake Bartlett: Okay great.
Alan Yu: Okay, great. And if you can just build on the comments you just made about the tariffs on Canada and Mexico, just remind us what the dynamic is there. Why is that, from those two markets specifically, why would that be a tailwind for your business? Well, there's some manufacturers of plastic materials and aluminum items out of Canada, and if the 25% goes in place, basically... their existing clients that will not be able to accept that increase. Same with Mexico, Mexico use has been, a lot of these distributors are ordering from Mexico from paper product, not necessarily plastic, more of a paper items, paper portion cup, paper bag and paper other items, paper goods and janitorial items. Now if the U.S.
Jake Bartlett: You can just to build on those.
Jake Bartlett: Comments, you just made about the tariffs on Canada, and Mexico, just remind us how the what the dynamic is there why is that so from those two markets specifically why would that be.
Jake Bartlett: A big tailwind for your business.
Jake Bartlett: Well there is there is some manufacturers of plastic materials in alumina items out of Canada.
Jake Bartlett: And if the 25% goes in place basically.
Our existing clients that will not be able to accept that increase seamless Mexico, Mexico use has been there.
Jake Bartlett: A lot of these distributor are ordering from Mexico is on paper products not necessarily a plastic more of a paper items paper portion of the paper bag and paper other items paper goods and janitorial items now is the U S tax Mexico, 25% basically the imported.
Alan Yu: taxed Mexico 25%, basically the importer will have to raise their price and basically, I mean with us, we're, like I said, we have been very nimble, we have been very importing from different parts of the world, it could be from, not just, we move a lot out of China already, so our goal is by June of this year, only 10% of the product out of China, that's our goal.
Jake Bartlett: We'll have to raise the price and basically I mean with us.
Jake Bartlett: Like I said, we have to be very nimble, we have been very important from different parts of the world.
Jake Bartlett: There could be from not just we move a lot out of China already so auto is by June of this year only 10% of the product out of China. That's our goal remember we were 50% two years ago now in June we already know, it's 10% or less out of China. So basically these terrorists.
Alan Yu: Remember we were 50% two years ago, now in June we already know it's 10% or less out of China, so basically these new tariffs are not going to hit us at all, basically there's not a major impact. So we're moving to a different part of the country in Southeast Asia, and that's the only item that's basically unavoidable, everybody have to increase, it's aluminum, because the announcement was that. 25% tariff is globally, including Japan, including Turkey, anywhere. So that basically is a given. That aluminum product has to go. Okay.
Jake Bartlett: Terrorists not going to hit us at all basically its theres not a major impact so we're moving to a different part of the country in southeast Asia and.
Jake Bartlett: That's the only item thats basically its an avoidable everybody has to increase its aluminum because the announcement was that.
Jake Bartlett: 25% tariff is globally, including Japan, including Turkey anywhere so that basically is it given that the aluminum product has to go up.
Jake Bartlett: Okay and then the last question is on the freight we were looking at it looks like that kind of a spot market or the the open market here for <unk>.
Alan Yu: And then the last question is on the freight. We were looking at the, it looks like the kind of the spot market or the open market here for freight has come down a ton in the last month. You know, what do you have baked into for freight costs in 2025? And, you know, is it potential to see some upside to that or what's the story? Is that a kind of a lever point could really help your margins or not? Well, freight started to drop in the fourth quarter last year, ocean freight. And there were some additional charges like peak season surcharge up until end of, I believe, February.
Jake Bartlett: Freight has come down a ton in the last months.
Jake Bartlett: What do you have baked into for freight costs in 'twenty, five and is it potential to see some upside to that or.
Jake Bartlett: Whats the story is that a kind of a lever point, where it could really help your margins or not well.
Jake Bartlett: Freight star.
Jake Bartlett: It started to drop in the fourth quarter of last year Ocean freight and there were some additional charges like peak season surcharge.
Jake Bartlett: Up until the end of belief February.
Alan Yu: So starting March, the ocean freight dropped about, I would say, about 20% on that part. It has stayed up there, down there, for a while. And we don't expect the 2025 year contract, there's going to be an increase because the shippers are actually seeing the decline in shipping product from Asia. and for the domestic... because economies seem to be slowing down a lot, so an oil price has come down, so all these truckers are actually looking for businesses, and that's giving us an opportunity to save on the operational side. So as Jian mentioned, fourth quarter, our operational expense was higher, and we're seeing that starting in March, our operational expense is coming down, and second quarter it's going to come down even lower than versus compared to fourth quarter and first quarter of this year.
Jake Bartlett: So starting March the ocean freight drop about I would say about 20% on that part and how should they stay up there down there for a while.
Jake Bartlett: And we don't expect the 2025 year contract that's going to be increased because.
Jake Bartlett: The shippers are actually seeing the.
A decline in shipping product from Asia.
Jake Bartlett: For the domestic trucking.
Jake Bartlett: Economy seem to be slowing down a lot. So on the oil price has come down. So all these truckers are actually looking for businesses and that's giving us an opportunity to save on the operational side. So as Jim mentioned fourth quarter operating expense was higher and we're seeing that starting in March our operational interest is coming down in the second quarter, it's going to come down even lower.
Sure the versus compared to fourth quarter and first quarter of this year.
Jake Bartlett: Great Alright. Thank you so much I appreciate it.
Alan Yu: Great. All right. Thank you so much. I appreciate it.
Jake Bartlett: Thank you.
Speaker Change: Next question comes from the line of Brian Butler from Stifel. Your line is now open.
Brian Butler: Next question comes from the line of Brian Butler from Stiefel. Your line is now open. Good afternoon. Thanks for taking the question.
Brian Butler: Good afternoon, thanks for taking the questions.
All right.
Alan Yu: First question, just maybe can we talk about the segments across the national accounts, distributors, online, and retail? How should we think about that in 2025 and what's driving, considering you had such a big outlay or a big performance in distributors in the fourth quarter? Well, for the distribution channels, we're seeing California distributors, the major distributors coming to us, tore us to sign an agreement because they have to substitute out Styrofoam. So they're buying more of the plastic hinge containers, and we actually forecast a 400% increase in the sales of our plastic container in replacement of Styrofoam.
Brian Butler: First question, just maybe can we talk about the segments across the national accounts distributors online and retail how should we think about that in 2025, and what's driving and considering you had such a big outlay.
Brian Butler: Performance in distributors in the fourth quarter.
Brian Butler: Well 40 distribution channels, we're seeing California distributor distribution, the major distributors distributors coming to us Torres to sign agreement because they have to substitute out styrofoam. So they are buying more of the plastic hinge containers and we actually.
Forecast at 400% increase in the sales of our plastic container and the replacement of the styrofoam. This just on the distribution also on the paper back side, we're seeing the major sharp increase of approximately 100% to 200% increase in the paperback because.
Alan Yu: This is from the distribution. Also, on the paperback side, we're seeing a sharp increase, approximately 100% to 200% increase in the paperback because there are places banning plastic back, and some national chain account is actually switching entirely out of the plastic back into paperback. And that's where we're seeing the growth in distribution also on the chain account. This is for the chain account on the paperback side. And also for the chain account, we're seeing some of the chain account moving away from Styrofoam into plastic containers, as well as some jump into the corrugated boxes, like these pizza boxes.
Brian Butler: It replaces banning plastic bags and some national chain account is actually switching entirely out of the past it back into paperback and that's where we've seen the growth in distribution also on the chain accounts. This is what the kind of color on the paperback side and also for the chain account, we're seeing some of the chain account moving away from styrofoam into plastic containers as well as some jump in.
Brian Butler: <unk> the corrugated boxes like these pizza boxes.
Alan Yu: They used to just put pizza in them. Now they're putting tacos, they're putting actually entrees in these smaller size pizza boxes. So that's where we're seeing a sharp increase in the distribution channels. And some of these chain accounts are coming toward us because they want to consolidate vendor. Here's the thing with the challenge of having multiple vendors. They can't get a full truckload per item, so their shipping cost is expensive. And so they want to reduce not their FOB pricing on the cost of goods itself, they want to actually see an overall saving in the landed cost.
They used to just put pizza and now they're putting toggles theyre, putting actually entrees in the smaller size of pizza boxes. So that's where we're seeing a sharp increase in the distribution channels and some pizza chain accounts are coming towards us because they want to consolidate vendor here's the thing with the.
Brian Butler: The challenge of having multiple vendors they have to they cant get a full truckload for items. So they're shipping cost is expensive and so they wanted to reduce not their fob pricing on the on the cost of good itself. They wanted to actually see a overall saving in Atlanta costs. So that's something that we're offering to our customers that we can provide Atlantic coast. So this year.
Alan Yu: So that's something that we're offering to our customers, that we can provide a landed cost.
Alan Yu: So this year, actually, we're going to be purchasing around 15 to 20 additional trucks and trailers, not just increasing our size of our warehouse, we're actually increasing our fleet. So we can do more delivery ourself into these chain accounts, distributors, retail accounts. We're seeing that that part, we're going to see, we can enjoy more saving in the operational side. Okay.
We're gonna be purchasing around 15 to 20 additional trucks and trailers not just increasing our sizable warehouse, we're actually increasing our fleet. So we can do more delivery yourself introduced chain account distributors retail accounts, we're seeing that that part we'll have to see how we can enjoying more savings in the operational.
Brian Butler: Syed.
Okay.
Brian Butler: And following up, I guess, on that kind of vendor consolidation, when you think of your revenue growth, that double digit, which is impressive, you know, maybe break that down. What's the market growing at? And then where are you taking share?
Following up I guess on that kind of vendor consolidation. When you think of your revenue growth that double digit which is impressive.
Brian Butler: Can you break that down what's the market growing at and then where are you taking share clearly some of that vendor consolidation, but is there. Other places you are taking share in 'twenty five and supermarket.
Alan Yu: Clearly some of that vendor consolidation, but is there other places you're taking share in 25? And is supermarket, you know, is there any growth built in there on those trials that you're kind of in there? Is that part of your 2025 guidance as well? Yes. Supermarket growth is our part of our guidance. National chain account is part of our guidance.
Brian Butler: Is there any growth built in there on on those trials that youre kind of in there is that part of your 2025 guidance as well.
Brian Butler: Yes supermarket growth is our part of our guidance National chain account as part of our guidance and also introducing new paper products additional 500 S. K U on the paper product that is in the bakery bag in the.
Alan Yu: And also introducing new paper products, additional 500 SKU on the paper product that is in the bakery bag, in the deli wraps, in the sandwich bag. So these are the sector that we have never been into.
Brian Butler: Delhi wraps in the sandwich back. So these are the sector that we have never been into in.
Alan Yu: In the past two months, we've seen a couple of our competitor being acquired by our competitor also. The acquisition actually caused more of a disruption in that industry, which is favorable to us as well. So we're one company that can ship all the product in one location versus you have to ship multiple locations. And like I mentioned earlier, you know, customers switching out of plastic bag into paper, that's basically a market share we're taking from plastic bag. And also, we're seeing this is a major issue with the importers. The tariff increase, a lot of these smaller importers without the cash flow, they will run into trouble of being able to import product in because of cash flow.
Brian Butler: In the past two months, we've seen a couple of our competitor being acquired by a competitor and also the acquisition actually costs more of a disruption in the industry.
Which is favorable to us as well. So we're one company that can ship all the product in one location versus you have to ship multiple locations and.
I mentioned earlier customer switching on the pass it back into paper, that's basically a market share we're taking from pass it back and also we're seeing this as a major issue with the employers.
Brian Butler: The tariff increase a lot of these smaller imported without the cash flow they will run into trouble of being able to import product and because of capital now that you have to putting more money on the tariff side versus on the just on the ocean freight on the product itself a carrier packaging lockout were strong robust in terms of our cash flow. So.
Alan Yu: Now that you have to put in more money on the tariff side versus just on the ocean freight, on the product itself. I mean, at Karat Packaging, Lollica, we're strong, robust in terms of our cash flow. So we can utilize this cash flow to bring more product as well as having increased storage, investing in trucking. So, I mean, we have that leverage now.
Brian Butler: We can utilize this cash flow to bringing more products as well as having increased our storage in investing trucking. So I mean, we're we have that leverage now.
Speaker Change: Okay, great and actually on cash flow, how should we think about that I mean, you talked about building up inventories in the first quarter, how should we think about cash flow through 2005, and what kind of capital.
Brian Butler: Okay, great.
Brian Butler: And actually, on cash flow, how should we think about that? I mean, you talked about building up inventories in the first quarter. How should we think about cash flow through 25?
Alan Yu: And what kind of capital spending are you looking at? You talked about adding trucks. So maybe how do we think about free cash flow sequentially through the quarters and a total for where 25 could come out? We're looking at the – we actually reduced in the past year – for the past 24 months, we've reduced our manufacturing in the U.S. And that cost – with that reduction, we've reduced our maintenance cost, CapEx, on that as well. So our maintenance CapEx is down very low to approximately maybe $1 million or less a year. Our major capital investment will be on the truck, brand new truck and fleet.
Brian Butler: Capital spending or are you looking at you talked about adding trucks.
So maybe how do we think about free cash flow sequentially through the quarters and a total for it to kind of where 25 could come out.
Where we're looking at it we actually reduced in the past year for.
Brian Butler: For the past 24 months.
Brian Butler: We've reduced our manufacturing in U S and that also would that reduction we reduced our maintenance cost capex on that as well. So our maintenance capex is down very low approximately maybe $1 million or less a year or a major capital investment will be on the truck brand new trucking fleet that reduces our expenses and operate.
Alan Yu: That reduces our expenses and operational costs because we increase our EBITDA because that's back on depreciation. I would anticipate our capital expenditure to be around $5 million this year.
Cost of goods it.
Brian Butler: It would have the least the trucks and maintenance costs that but the thing is it will increase our EBITDA because thats, we step back that's back on depreciation I would expect and anticipate our cap.
Capital expenditures kind of expenditure to be around $5 million this year.
Brian Butler: Sure.
Alan Yu: I like this video. Yeah.
Yeah.
Brian Butler: Yeah. Bryan this is Karen just to answer your question about the free cash flow and the way to think about kind of the free cash flow is obviously as you're aware we were just talking to keeping guidance at the adjusted EBITDA margin level.
Jian Guo: Oh, Brian, this is Jian. Just to answer your question about the free cash flow, the way to think about kind of the free cash flow is obviously, as you're aware, we were just talking and giving guidance at the adjusted EBITDA margin level. For free cash flow, I would expect the free cash flow conversion ratio to be each of the quarter in 2025 to be fairly consistent with 2024 in terms of the cadence.
Brian Butler: For free cash flow I would expect the free cash flow conversion ratio to be each of the quarter in 25, it could be fairly consistent with 2024 in terms of the cadence.
Brian Butler: Okay, great. Thank you for taking the questions.
Brian Butler: Okay, great.
Brian Butler: Thank you for taking the questions. Thank you. Thanks.
Brian Butler: Thank you.
Thanks, Brian.
Michael Francis: The next question comes from the line of Michael Francis from William Blair, your line is now open. Hey guys, this is Michael for Ryan. Thanks for taking the questions. First one for me, and you talked about sort of that good growth in the Midwest and some stabilization in California and the new DC there.
Speaker Change: Question comes from the line of Michael <unk> from William Blair. Your line is now.
Brian Butler: Hey, guys. This is Michael Thank you Ryan Thanks for taking the questions.
Brian Butler: First one for me you talked about sort of the growth in the Midwest and some stabilization in California, and the new DC. There. So I was wondering looking at 25, what's sort of the geographies you feel you have the most opportunities.
Alan Yu: So I was wondering, looking at 25, what sort of geographies you feel you have the most opportunity? I am going to bank on the Midwest. That is where we see the most opportunity. in Texas, especially in Texas. Okay, any reason why in Texas? Well, our largest manufacturing facility is located in Texas, and a lot of our chain accounts are moving into Texas. And we're seeing, I mean, I myself moved to Dallas myself last year, and I'm there all the time and see that the rows are growing, people are moving to Dallas and Texas everywhere, and restaurants are booming.
I am going to bank on the Midwest.
Okay.
Brian Butler: But I think the most opportunity in Texas, especially in Texas.
Brian Butler: Okay any reason why indexes well.
Brian Butler: Our largest manufacturing facility is located in Texas.
A lot of our chain of cows are moving into Texas, and we're seeing I mean, I myself move to Dallas myself last year and.
All the time and see that the Roes are growing people are moving to Dallas, Texas everywhere and restaurants are booming and they are opening a restaurant everywhere. So basically we're seeing business.
Alan Yu: They're opening restaurants everywhere. So basically we're seeing business, I mean, if you see, if people see that business is down in California, it's growing greatly in Texas, at West.
Brian Butler: If you see if you see that business is slowing down in the California. This growing greatly in Texas that Wes.
Brian Butler: Okay got it.
Alan Yu: And then looking at gross margins for next year, the guidance is down about 200 basis points, the midpoint from where you finished this year at. Can you talk about what's sort of driving that decline and then are there any sort of positives or offsets that could help there? Well, right now, the tariff is very uncertain. So for us to set the entire year of gross margin, it's hard to really to anticipate. We don't know if the tariff is going to increase on Vietnam or if there's going to be an additional tariff on Malaysia or additional tariff on Thailand or is it going to be globally.
Brian Butler: And then looking at gross margins for next year, the guidance is down about 200 basis points.
Brian Butler: From where you finished this year at all.
Can you talk about what's sort of driving that decline and then is there any sort of pause since youre offsets that could help there.
Brian Butler: Well right now we the tariff is very uncertain so for us to set the entire year of gross margin.
Brian Butler: It's hard to really to anticipate.
Brian Butler: No.
Brian Butler: If the tariffs on the increased.
Brian Butler: Whatnot or theres going to be additional tariff on Malaysia, or additional tariff, Thailand or is it going to be globally. So we kind of wanted to anticipated forecast a little bit into it for now.
Alan Yu: So we kind of wanted to anticipate, forecast a little bit into it for now because a lot of things are uncertain right now. For one thing for sure, the strong dollars, the lower ocean freight, it's helping us a lot in terms of the gross margin. But we'll see after, I would say it should stabilize, there should be more clarity after May of this year because right now this month, we're still seeing one day there's an increase of 10 percent, 20 percent and next two days later, there's a withdrawal or a pushback. So right now, we're just waiting to see what's going to happen.
Brian Butler: Because it's a lot of people are uncertain right now, but once you for sure.
Brian Butler: Strong dollar is the most are the lower ocean freight is helping us a lot in terms of the gross margin, but we will see after I would say it should stabilize.
Brian Butler: It will be more clarity after may of this year because right now this month, so we're still seeing a one day.
Brian Butler: Increase of 10% and 20% in next two days later.
Withdrawal or pushed back so so right now we're just waiting to see what's going to happen yeah.
Brian Butler: Okay, and then last one for me you mentioned your operating expenses coming down to the second quarter from the fourth.
Brian Butler: Okay, and then the last one for me, you mentioned your operating expenses coming down to the second quarter from the fourth.
Jian Guo: Can you talk a little bit about what you're assuming on the OPEC side in 25?
Can you talk a little bit about what you're assuming on the opex side.
Brian Butler: 25.
Jian Guo: Jian Guo, can you go over that with Michael? Yes. So, Michael, just to make sure I'm hearing your question correctly, your question is about what we build in the model for the operating expenses for 2025. Is that correct? Yeah, that's correct. Okay. Yeah, sure.
Jack can you go over that with the Michael.
Jack: Yeah, So Michael just to make sure I'm hearing your question correctly. Your question is about what we build in the model for the operating expenses for 2025 is that correct.
Yes, that's correct.
Jack: Okay, Yeah sure so happy to provide a little more kind of a year or so.
Jian Guo: So, happy to provide a little more color there. So, in our model for 2025, we considered a few things at the operating expense level. One is the continued saving opportunities, as Alan talked about, to drive operating efficiency primarily in the operations. In our operations, Alan talked about potential savings on the shipping side. That's primarily the truckings and shipping of our online orders. The other component of that really also is, as we're gaining efficiency, we're trying to – we're exploring kind of opportunities to get more savings on the labor side. The third area that we're building kind of on the operations side, just in terms of saving opportunities, is to look at our online sales.
Jack: In our model for 2025.
Jack: We considered a few things are actually operating expense level. One is the continued.
Speaker Change: Saving opportunities as Alan talked about could be more to drive operating efficiency, primarily in the operations or operations Alan talked about potential savings on the shipping.
On the shipping side, so thats, primarily the trucking.
Speaker Change: Shipping up all of our online orders.
Speaker Change: The other component of that really also is as we're gaining efficiency we're trying to.
Speaker Change: Two we're accelerating kind of opportunities to get more savings on the labor side.
Speaker Change: The third area that we built in kind of in the on the operation side, just in terms of seeing the opportunity.
Speaker Change: To look at our online <unk> online has been a great one.
Jian Guo: Online has been a great, one of our most significant drivers of growth as we, in the past, made significant investment on the marketing side, on the platforms to really drive that growth. We also have opportunities to potentially scale back on some of the investment and maintain that momentum on the online sales growth. So those are the major areas that we've considered in terms of building the model for 2025.
Our.
Speaker Change: The most significant drivers of growth as we in the past we've made significant investments on the marketing side on that platform to really drive that.
Speaker Change: That growth.
Speaker Change: Also have opportunities to potentially scale back on some of the infrastructure investments and maintain that momentum on the online sales growth. So those are the major areas that we have.
Speaker Change: I will say that in terms of building the model for 2025.
Speaker Change: Okay.
Michael Francis: And that's all for me.
Thank you Priscilla.
Alan Yu: Thank you.
Speaker Change: Yeah.
Speaker Change: I'd now like to hand back the call over to Alan you CEO go ahead Sir.
Alan Yu: I'd now like to hand back the call over to Alan Yu, CEO. Go ahead, sir. Thank you, operator, and thank you to all of you for joining us today. We appreciate your continued support. We remain confident about Karat's future, and we look forward to keeping you appraised of our progress. Thank you very much.
Alan: Thank you operator, and thanks to all of us for joining US today. We appreciate your continued support.
Alan: We remain confident about <unk> future and we look forward to keeping you appraised of our progress. Thank you very much have a nice day bye bye.
Alan Yu: Have a nice day.
Yeah.
Operator: Thank you for attending today's call, you may now disconnect, goodbye.
Speaker Change: Thank you for attending today's call you may now disconnect Goodbye.
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Operator: Thanks for watching!