Good day, and welcome to the Karat Packaging Inc. Q3 2022 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Roger Pondel, Investor Relations for Karat Packaging. Please go ahead. Good afternoon, everyone, and welcome to Karat Packaging's 2022 Q3 Earnings Call. I'm Roger Pondel with PondelWilkinson Inc., Karat Packaging's Investor Relations firm. 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 wanna remind our listeners that today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to numerous conditions, many of which are beyond the company's control, including those set forth in the Risk Factors section of Karat Packaging'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. 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 this 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. With that, it is my pleasure to turn the call over to CEO Alan Yu. Alan? Thank you, Roger. Good afternoon, everyone. Our Q3 2022 net sales increased 7% from the prior year period, which was particularly strong quarter from post-COVID reopenings. Results for the most recent quarter were impacted by customers destocking of certain inventories due to supply chain recovery. Nonetheless, we continue to see solid long-term demand, particularly for our environmentally friendly products, which grew 27% over the comparable prior year period. We also are continuing to gain wallet shares with our existing customers, and we recently closed numerous new deals with both new and existing chain and distributor customers. We are fully committed to growing our offering in eco-friendly disposable food service product as more cities and states in the United States and around the world are enacting regulations to ban Styrofoam and single-use plastic. Customer increase are increasing as is demand, and we remain optimistic about our leadership position while we continue to invest in new and innovative compostable products. Our joint venture of building a bagasse factory in Taiwan is progressing well. It is expected to begin manufacturing 100% compostable food service products in December, with first shipment to begin early in the new year. We already are receiving orders and inquiries that could fill capacities. Our initial investment of approximately $6.5 million in this project is on target to produce approximately 648 containers of products annually. We are in discussion with our Taiwan partner to expand production line to double the manufacturing capacity by mid-2023. Gross margin for the Q3 expanded significantly, despite selling through some inventory with higher freight and duty costs absorbed from the first and second quarter. We continue to see solid gross margin improvement into the fourth quarters from normalized ocean freight rates, continued shift to higher-margin products and foreign currency gains, which already allow us to implement some price reduction to proactively pass on savings to our customers. We achieved record quarterly operating cash flow and ended the quarter with financial liquidity of $54.5 million. We are pleased to announce that our board of directors recently declared a special cash dividend of $0.35 per share on the company's common stock. Karat's consistent solid growth has built a strong financial and liquidity position for the company, giving us the flexibility to return excess capital to our shareholders. Proceeding into the Q4 in fiscal 2023, we have implemented a number of new initiatives to significantly grow online sales. We are expecting to continue growth from our eco-friendly product line, improvement in our fulfillment rate with the recent warehouse expansion, and better operating efficiencies. We are currently targeting net sales for the 2022 Q4 s to be in the range of $95 million-$98 million, up from $91.3 million for the 2021 Q4 s. We are confident to achieve our full year average gross margin growth of 31%-32%. I will now turn over the call to Jian Guo, our Chief Financial Officer, to discuss our financial results in greater detail. Jian? Thank you, Alan. We achieved net sales of $110 million for the quarter, up 7% from $102.7 million in the same period last year. With the widely anticipated economic downturn, along with the supply chain recovery, net sales for the 2022 Q3 were impacted by customers destocking of certain inventory. The increase from the strong prior year quarter due to COVID reopenings was principally driven by our eco-friendly products, including continued gains in wallet share with our customers. By channel, sales to distributors, our largest channel, grew 11% for the 2022 Q3. Sales to the retail channel increased 7%. Sales to national and regional chains increased 5%, and sales from the online channel decreased 4% for the quarter. Gross profit increased 15% to $34.2 million for the 2022 Q3 from $29.8 million last year. Gross margin expanded 210 basis points to 31.1% from 29.0% in the same period last year. Gross margin benefited from higher margin eco-friendly products, previously implemented price increases to offset inflation, favorable foreign currency exchange rates, and improved operating efficiencies and leverage. Although ocean freight rates dropped significantly towards the end of the Q3, total freight and duty costs remained elevated at 14.8% of net sales during the Q3 of 2022, compared with 14.1% of net sales in the prior year quarter. The 2022 Q3 freight and duty costs included an impact of $5.9 million from freight and duty capitalization as we sold through some inventory with higher freight and duty costs absorbed from the first and second quarter. We expect total freight and duty costs to continue to decrease as a percentage of net sales in the 2022 Q4 and potentially into 2023. We continue to focus on optimizing our eco-friendly products and online sales and improving operating efficiencies to offset price reductions of certain products. As Alan mentioned, we are confident to deliver on our growth margin goal for the full year. Operating expenses in the 2022 Q3 were $26.3 million or 24% of net sales, compared with $24.4 million, also about 24% of net sales in the same period last year. The net increase in expenses was primarily due to higher labor costs from workforce expansion and an increase in rental expense from our expanded warehouse distribution network. Other income totaled $143,000 in the 2022 Q3, compared with other expense totaled $24,000 in the prior year quarter. Other income for the 2022 Q3 included a gain on foreign currency transactions of $369,000, compared with a foreign currency loss of $63,000 in the 2021 Q3. Net income for the 2022 Q3 increased 51% to $6.2 million from $4.1 million for the same quarter last year. Net income margin was 5.6% for the 2022 Q3, compared with 4.0% a year ago. Net income attributable to Karat Packaging for the 2022 Q3 was $6.1 million or $0.31 per diluted share, compared with $3.8 million or $0.19 per diluted share a year ago. Adjusted EBITDA for the Q3 rose 30% to $11.7 million from $9.0 million a year ago. Consolidated adjusted EBITDA margin was 10.7% in the third quarter versus 8.8% for the same quarter last year. Adjusted diluted earnings per common share increased 50% to $0.33 from $0.22 in the prior year quarter. During the 2022 Q3, we generated record quarterly operating cash flow of $20.2 million and paid off the entire $11.6 million balance of outstanding borrowings on our $40 million line of credit. We believe Karat is well positioned to execute on its future growth strategies. We finished the quarter with $90 million in working capital, compared with $72.1 million at the end of 2021, and financial liquidity of $54.5 million. We continue to explore other options to expand liquidity in support of business growth and to further enhance long-term shareholder value. Alan and I will now be happy to answer your questions, and I'll turn the call back to the operator. Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Jake Bartlett with Truist Securities. Please go ahead. Great. Thanks for taking the question. My first one, Alan, is so I wanted just to see, you know, what your confidence is that destocking, you know, is what's driving the lower sales. I think of, you know, destocking as being more impactful, I would think, to distributors than the chains or something like online. Those channels also, you know, I think grew slower than the distributor channel. First question is really just what's your confidence level that, you know, something as temporary as destocking is what's driving the slower sales growth? Well, first of all, you're right. The chains are not destocking. It's mainly the distributors. A lot of distributors are actually overstocked. I can tell that by talking to a lot of these distributors. They were so afraid of the supply chain disruption and outages in the past month, all of them bought truckloads for themselves and also, as well as, they were buying from us. Some people were buying 30-day, 45-day inventory, and all of a sudden every one of their warehouses, including our warehouse, was packed with product that was coming from overseas. We had to emergently lease a secondary warehouse in California just to store the product. Luckily, we were able to also destock some of our inventories, and that's why actually our operations are back to normal. In the month of July and August, we were just scrambling to find spaces, warehouse spaces to put the product in, and it was actually hampering our operation. We had to spend extra money in terms of extra people to move product. Our efficiency was down. Operational efficiency was down because the warehouse was packed with every product that was blocking every lanes in the warehouse. I think that's the same situation with our customers as well. Alan, what do you think the biggest? I mean, you know, the miss. The, you're below your guidance. The miss on our estimates versus in distributors wasn't by that much. Why do you think you saw so much slower growth, you know, at the chains and online, I think than you would've been expecting? Is it the pricing issue that's coming through? Or just what, you know, I look at, you know, from our coverage in restaurants that, you know, off-premise demand has remained, you know, fairly robust. What do you think is driving that slower than expected growth, if it's not destocking at the chains and the online side of the business? Yes. We have started price reduction. As you know that, we had seven increases last year and two increases this year, mainly due to the increase in ocean freight costs. As ocean freight has dropped, we actually wanted to take the initiative to allow, actually we're starting to lower the price for our customers so they can also benefit from the lower costs and to offset some of the inflationary costs that was incurred during the end of last year and earlier this year when ocean freight was at $15,000 a container. That is also another issue of ours. It's not slower sales, but I would say it's lower in the total overall revenue. Okay. Just onto the pricing, you've obviously taken a lot of price over the last couple of years. Do you expect the pricing, your average prices to be down year-over-year in 2023, you know, as you move forward? Is that a situation where, you know, as you've taken significant price the last couple of years, that it'll actually decrease? Thank you. I do see certain categories in plastic price will be lower, dropping. On the paper side, it has held very strong and also looking to increase in the paper side. The demand for paper has actually increased significantly, especially with a lot in California and other states are banning not only banning Styrofoam, some places are banning plastic overall. The demand on paper is still on the rise and also the which causing a shortage of paper supplies. I do see the plastic side's prices coming down, but the paper side is going up. That's where we see the growth is, the eco-friendly product line, the paper shopping bag versus the plastic bag. The paper food container or compostable paper food container, paper soda cup, or actually even higher costing, compostable paper soda cup versus the traditional plastic cup and Styrofoam cup. That's where I see the separation of the difference in cost and prices. Plastic will come down, paper will go up, which kinda offset each other. On average, you don't think there's gonna be a decrease. You think maybe prices will hold flat in 2023 versus 2022? Really just across your whole portfolio of products, should we expect flat pricing in 2023 versus 2022? Is that the message? No. Actually, I do see plastic side, the cost of plastic product, the selling price, it's gonna come down slowly. On the paper side, it might go up. That's where I see the offsetting. The average even out. The average will be flat. Okay. Thank you very much. Not a problem. Our next question comes from Michael Hoffman with Stifel. Please go ahead. Hi. Good afternoon, Alan. If we could tackle a little bit about what's going on in Q3 and then sort of carry it into the remainder of this year and the next year. The year-over-year growth that happened, how much of that was in physical units or SKUs versus price? I would think that Jian could answer that question in terms of the year-over-year growth number. Jian? Yeah. Hi. Hi, Michael. Hi, Jian. Thank you for the question. Yes. In terms of the quarterly year-over-year growth, actually what we are seeing is, the vast majority of the growth actually was driven by pricing. We actually saw a little bit of a decline in terms of volume. Overall, as we talked about in our prepared remarks, our overall year-over-year growth is about a little over 7%. I will point out, as you probably recall, the year-over-year comp is actually very challenging for us this year because last year, if you recall, Q3 was a really strong quarter, with really strong volume from post-COVID reopening. Last year's year-over-year growth in the third quarter was over 30%. We do, as Alan pointed out, we do still feel really confident with the continued long-term momentum, long-term demand, in our revenue growth. To disaggregate your growth in your model, have you gotten confident about the disruptions occurring across which product lines? Is that where you think you are in the tail of that? Has that happened in the fourth quarter? Or is there another leg to go in these patterns as customer base works through the changing demand side in the marketplace? I'm sorry, would you mind repeating your question, Michael? I wasn't sure if I got your question clearly. I heard quite a bit of a noise. Yeah, sorry, I'm in an airport. You alluded to destocking. When you analyze the types of SKUs that are the focus of that destocking, would you say that there's still more to happen before we're done or it all happened in the Q3? Let me answer that question, since I'm more familiar with the market. I believe that right now, to my knowledge is, from the customer sides, some of the customers still basically overstock. Their warehouse is still full. The retail sector, the retail customers are starting to reducing their inventory on their floor, on their stores. They're starting to reordering, especially this month, particularly, this month in November, versus last couple of months ago. We're seeing that maybe it's holiday season coming up and people are getting prepared for the holiday season. I do see that, most of destocking has happened in the end of Q3 and also the beginning of Q4. For when you give us what you're projecting for Q4 revenue, you factored in an incremental level of destocking as well as whatever the year-over-year price comp would be on the price increases you've done all through the course of the year. Correct. Are there specific SKUs or product categories that are seeing a greater pressure on the destocking than others or sort of no real pattern, it's just overall activity? Yeah, I do see that, on the inventory side, particularly on the plastic sides, customer have been destocking inventory on the plastic side because they see that the price is coming down, so nobody wanna hold on to the inventory that is higher cost, higher value. They know that, they shouldn't be stocking too much on the plastics items. On the paper side, I would think that the customer are not really stocking up because even though that, unlike last year, people are afraid of outages since last year, I think, even with the higher demand in paper, I think inventory is just about correct. It hasn't been like last year where there was a scarcity of the inventory on the paper side. If we were to think about plastics as a percentage of your model, just so we kinda get a sense of, you know, what this pressure feels like. I would think the plastic, it's about 30% of our entire model. Do you think you clear this plastics inventory correction by the end of the Q4? Yes. I do believe that our inventory that we brought in at higher cost will be cleared out by the end of the Q4. Okay. I'm sorry. I know I'm teasing this out piece by piece. Are the freight costs down dramatically? How do I think about the sequential impact, favorable impact of lower freight costs for you? Has this sort of happened in the Q3? There's a tailwind in the Q4, or is this gonna carry into 2023, given sort of the churns in your own inventory and how that freight cost price plays through? As Jian mentioned earlier in the conference call, we've seen most, I would say 90% or 95% of the higher freight and duty costs were absorbed mainly in the Q3. Q2, we absorbed some, but majority of $5.6 million out of the $6.6 million were absorbed in the Q3. In the Q4, we do not think there's much more, actually, freight and duty costs in terms of affecting our costing on the gross margin side. That's why we're seeing that Q4 gross margin will be significantly higher than our second and third quarters, so that we're confident, comfortable that our entire annual gross margin goal of 31%-32% will be achieved by the Q4. Correspondingly, the anniversaring of that would be it would carry into the H1 of 2023. You've got, like, that incremental gross margin leveraging in the H1 of 2023 all else being equal, right? Yes, that is correct. Okay. Then you alluded to a new business expansion of Walmart. When you think about we get through the clearing of the destocking, which will have a unit pressure, you would expect to be positive unit growth and then some level of normal pricing in 2023? Yes, we are, we do expect a positive unit growth in the Q4 s, year over year comp, and also going to the Q1 as now the, I would think that everyone is back to normal. They're allowing us, vendor like us to visit the customers. We're able to sit in front of the customers and start, like, explain to them and also letting them know what kind of compostable product that we now have available. Especially we know that in January 1st, both California and New York are banning PFAS chemical on the bagasse item. That is something that everyone is rushing in to get their hands on the PFAS-free bagasse product, because that will be the law starting January 1st. We are expecting a high we have been receiving abundant increase on these new compostable product, and that's something that will be our focus for the 2023 years. Okay, thank you very much for taking my question. Our next question comes from Ryan Merkel with William Blair. Please go ahead. Thanks. Good afternoon, everyone. My first question, Alan, could you just comment on the outlook for consumer spending on restaurants? You know, as you think about budgeting for 2023, are you thinking about, you know, slower demand for your customers, or are you not seeing that yet? Actually, I'm seeing a slower demand from the mom-and-pop retail stores, but I'm seeing a higher demand in the national restaurant chains. Talking to some of the restaurant chains, they're growing more, as more and more people are spending the money to the fast food chains versus these restaurants, mom-and-pop restaurants. That's where we see this shifting, that part. You know, in prior downturns, what do your customers typically do? Do you see them, you know, looking to save costs? Do they come back to you for, you know, price concessions? Do they try to find lower priced products? Just trying to think through some of the implications of a slower consumer economy next year. This is how I see from talking to the customer perspective on the restaurant side. Right now, their main concern is not the packaging cost. Their main concern is on hiring, getting labor, getting people, staff to work in the restaurant. That is the key. The biggest growth in the expense is actually not on the packaging. It's coming from the labor side. Even the food costs have leveled basically. The packaging, if with us dropping 5%, 10%, to them, it's basically nothing comparable to what the labor cost increase has been in the past two or three months, especially in California. Yeah. Makes sense. Okay, last one for me. Can you comment on how much revenue you expect from the Green Earth Technology joint venture in 2023? We were expecting, I believe, in the past quarter, we mentioned that we're looking to ship around at maximum capacity, 648 containers a year in 2023. In terms of overall revenue, I think it's about around $20 million. I think that was about approximately $20-$25 million overall revenue from that. At the same time, we are actually in discussion with them to increase the capacity by mid-2023 because we're seeing more and more increase in demand in the bagasse product as California and New York banning Styrofoam and other states and cities are banning Styrofoam. The demand for bagasse product is actually on the rise sharply. The supply is actually limited because there aren't that many factories making these bagasse product in the world. Right. Well, it's great to hear. Thanks for the color. Thank you. Our next question is a follow-up from Jake Bartlett with Truist Securities. Please go ahead. Great. Thanks for taking the follow-up. Alan, my question is on the pricing, and you know, I think typically you don't just lower prices because you wanna pass along or for the goodness to your heart. It's because, you know, competition is often lowering prices, too. So I'm wondering whether part of what's happening here is some of the gains you've made into accounts, the kind of incumbent who used to be supplying that account might be getting more aggressive trying to win the business back. I mean, is that what you're seeing? Are you seeing more competition as the supply chain eases and the, you know, maybe the other suppliers can now supply their customers like they had prior? You know, are they simply just trying to compete more to win back that business on price? I think that I don't see our competitors going after the price right now. I think it's more about the service issue. Most of our competitors, the bigger manufacturing domestic ones, they're actually going back to all the customers and letting them know that they overcome the supply issues. Just that there is really not much of a supply chain disruption issue anymore. They're not really lowering the price as much, and that's one of the things. On the distribution side, where they tend to buy from importers from overseas, those are the ones that really starting to come back and start lowering their prices to the market. For us, basically, we do wanna maintain our market share in both the national chain account and distribution account. Also, of course, online, what we're looking for is sharp growth online next year with a lot of implementations, how we start to move forward into different sources of selling channels, including Amazon Canada and Amazon Mexico and Amazon Hawaii. That's where we see our growth is gonna be. In terms of price, I don't think our domestic competitors really are into lowering the price in terms of getting the business back, but rather than offering supplies, basically. Make sure that there's no service disruption. I think that's a key part right now, people want. They want stability. Got it. You don't think you're losing some of the share that you gained, you know, during the supply chain disruptions? You think that you're gonna hold on to those, the business that you gained over the last couple of years? Yes. Actually, also on top of that, as we mentioned earlier, we're actually gaining some new accounts in the Midwest market and Southeast market region, that region that we haven't really been tapping into. Now that we're able to start going out on sales call or people can fly to customers and start presenting our product, we're seeing more and more new customer coming to our way, that basically that needed the product, didn't really have an opportunity to go out for, look for new vendors and suppliers. I think that's something that we're doing right now. Great. Last question, you know, we've been tracking, you know, freight costs from, you know, China, East Asia to the West Coast, and they're down about 85% currently and have been down year-over-year since early July. I just wanna understand how that flows through. I know there's a delay, you know, I guess you have inventory now that has been shipped at that lower price. That's gonna. You know, we have visibility into higher margins, you know, gross margins in the first half of the year. Maybe just help us understand how that looks for the impact on gross margins. It sounds like you're giving customers a. Lowering prices, you know, partly on, you know, passing along those savings from this lower freight. What should we, you know, broad strokes, what should we think about for gross margins in 2023? I believe the gross margin will be, we're looking at actually a 31-32% gross margin in 2023 or even higher because the product that we're now looking to bring in are more eco-friendly products, ESG items. With that, it carry a higher margin. Why I say that it carry a higher margin? There's still limited capacity in producing the right ESG product, the one that has certification, the one that it's approved by the city. With the lack of supplies, of course, the price goes up. Also these are premium product, such as bamboo straws, such as compostable food containers, the bagasse product with PFAS-free chemicals. These are items that basically it carries a higher cost. To make a bagasse product with PFAS-free chemicals, actually, that increased the cost in order to making sure that it can absorb water or absorb grease, not soaking through it. I would think that there is gonna be some kind of elevation in terms of price on these items that will offset the other products like, such as plastic cups, plastic portion cups, in that part, in that sense. I do think that the gross margin, we're looking good on that part, especially with the online sales is growing. We're seeing a great potential in terms of online sales, because we do see that customers are actually ordering more online, looking for these eco-friendly products that they cannot find in the local distribution area. Okay. Then just last, lastly on that, and sorry, just to tack one more on. You know, we're looking at spot rates here as we understand them, as we get them. But you also sometimes are paying contract. So maybe just remind us when you've been paying contract. We think about the year-over-year change in freight costs. I mean, for instance, in the Q2 of 2022, your freight costs were 18% of sales. If I look at that as being, you know, current prices being down, you know, 80% from when they were, you know, the prices at that time, it seems like there could be a major impact on gross margins. You know, again, you might have been not paying. I think you weren't paying the spot market, you were paying a contract at that time. Just remind us what you were, you know, when you were paying contract, when you kind of switched to market, just so we can understand and try to gauge, you know, how gross margin, how the freight cost might flow into gross margins. Sure. Well, last year, most of us importers or people who are importing product had a contract rate of approximately $4,500 per container. The problem is, even though we had a contract rate of $4,500, $4,500 dollars per containers, the ocean freight shippers, they didn't give us any containers availabilities to use that contract rate. We had to go out in the market to get spot rate at $10,000, $15,000, $20,000 dollar per containers. They may give us 20% of what we needed, so perhaps we were able to get 20% of the container we need at contract rate, $4,500, and the rest of the container, we had to go out and get spot rate, paying $15,000 per containers. This year on the different side is that most companies sign a contract of $10,000 per containers started in May. Because the price has been dropping down, most of the importers like us, we stopped using our contract. We went out in the market and got the spot rate of $7,000, $6,000, $5,000, $4,000, up to now it's like 20, a little over $2,000 per containers. These ocean freight liner came back to every one of our importers and says, "Okay, we're gonna change your contract that you signed in April at $10,000. We'll lower it to whatever the spot market rate is." That's the difference between this year and last year. Okay. Thanks a lot. I appreciate it. Thank you. Again, if you'd like to ask a question, please press star then one. Our next question comes from Josh Spector with UBS. Please go ahead. Hello, thank you for taking my question. I was wondering, first of all, if you can maybe discuss a little bit about your rationale, capital allocation regarding paying a special dividend versus buying back company stock or maybe other options that you have. Gotcha. Well, the rationale behind versus buying back stock is that our float in the market is very limited. We don't have that much float of shares in the marketplace. Our goal is actually we do want. That's where our stock price is discounted because we don't have enough float in the market. Okay? We do have excess cash. What can we do with it? Well, we're sitting on it, and we're reducing our capital expenditure. We had in the beginning of last year when we first went public, we mentioned that our expected capital expenditure will be 5% of overall revenue. This year we're looking at 3%. We're looking at next year, our capital expenditure, it's approximately less than 2%. We're actually generating profit, where our ocean freight has dropped, our daily operation cash has increased. We're sitting. Actually, we're seeing we will be sitting on $ millions of cash on hand, and we do not wanna waste our money to go out there, buy company that's overvalued. What we did is we actually found that this new technology company partner with in Taiwan, that they can actually invest in this company with very little money, that we can actually have the availability of what the market, not just U.S., what the world needs is compostable product. That's where we're investing our money into it. Even with that investment and doubling down on that investment next year, we are still going to be sitting on a lot of cash. We have been asking advisors, is it good to repurchase shares? Our advisors are telling us it's not a good idea to repurchase shares because our flow is already small out there in the market. Our goal is actually to have more flow in the market so that we can attract more shareholders. That is our rationale. Great. Thank you. I really appreciate it. It's very helpful. You gave a little bit of detail, but I was wondering if you could maybe expand a little more on your online strategy, and your expectations for growth, you know, in the coming, 2023 and beyond? Sure. Currently, we're selling our product on both Amazon, our own lollicupstore.com. We just added recently Walmart.com, eBay.com, and we're looking at other channels. On the Amazon.com, we've been selling product in the U.S. only. We're seeing that starting January 1st, 2023, Canada is banning all plastic, and there's gonna be a major need for compostable eco-friendly product, not only on the straw side, on the food container, on the cup side, on the container sides. That's where we see we'll be pushing through Amazon Canada. Same thing with Amazon Mexico, also with Amazon Hawaii. With that said, we need to add more warehouse space. We need to have more product in our East Coast warehouse. In the past, we've been struggling to get product into the East Coast, whereas only California has the most of the product, majority of the product. Shipping from California into East Coast, that takes about 5-7 days. Customers who are our B2B customers that are in Connecticut, in Boston, in New York, they don't wanna wait five-seven days to get the product, so we lose that business. That's why our strategy is restock or actually stock up as much as we can in New York, South Carolina. Our South Carolina distribution facility will be double by end of this month with the inspection on the fire inspection that we have increased our facility in South Carolina, which we could serve as Southeast region. The focus of getting Online sales up is how fast can you ship? Well, we can ship within 40 hours. How quickly can you get the product? Do you have multiple DCs that could ship the last mile to the customer faster, so they don't have to wait a week and by ordering, like, going out, driving half a mile, half an hour or 30 minutes or an hour to find their local suppliers. They'd rather order online. We're seeing more people sourcing for eco-friendly product online, and that's where we see our growth is gonna be, eco-friendly ESG product online next year. Thank you. My last question, I appreciate your time. You know, you've been very clear today and over the last several, you know, quarters and years about the growth of eco-friendly products. Can you talk about as you look forward, you know, well beyond next year or the next several years, you know, what percentage of your revenue you see that being because it's, I guess, relatively small today? Right now, I believe our eco-friendly product is approximately 20% of all our revenue. Our new joint venture it's actually selling 100% of eco-friendly compostable revenue with the additional expansion in 2023. That will be 100% ESG product. Adding other ESG products, not only the bagasse product. In U.S., our core business, I do see our, in 2023, we should be at 35%-40%, our goal in terms of ESG product. As we move forward with our growth in revenue, I do see our sales on the paper shopping bag, mainly on the bagasse that has PFAS-free chemical on it, will be the top drivers in the 2023 year. Great. Thank you very much for the color. Really appreciate it. Have a wonderful day. Thank you. This concludes our question and answer session. I would like to turn the conference back to Alan for any closing remarks. Thank you, operator, and thanks all of you for joining us today. We appreciate your support and interest in our company, and I look forward to keeping you apprised of our progress and to speaking with you in the future again. Have a great Thanksgiving and holiday season ahead. Thank you very much. Bye-bye. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.