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spk03: After successful product sampling and trial orders, we began shipping customized bakery packaging containers for a major grocery chain customer in late September, followed by the initiation of shipments on utensils to another major grocery chain in mid-October. We are now developing additional product offering and intensifying our sales effort in this sector. Sales of our eco-friendly products increased 9% year over year and now represented .4% of total sales in the third quarter. We believe demand for eco-friendly and compostable single-use disposable product will continue to increase and will contribute positively in the long term. We are focusing on new eco-friendly product development to further enhance our competitive edge. By the end of fourth quarter, we expect to launch a new line of our PET cup and lids to meet the rising demand that we're seeing in the marketplace. This new line of our PET product is made with more than 25% recycled PET material. Geographically, we continue to experience strong growth in the Midwest, Northwest, and East Coast compared with last year. Additionally, we see sales stabilizing California, which is our biggest market. Following a sharp decline in the past few quarters. At the gross margin level, we achieved gross margin of .6% in the third quarter versus .9% in the prior year period despite the impact from high ocean fray rate in the first half of the quarter. Heading into the fourth quarter, we are encouraged by the positive momentum and are focused on optimizing inventory sourcing and management, controlling expenses, and enhancing warehouse capabilities. From an inventory perspective, we implemented procedures to optimize sourcing and inventory management. Even with reduced domestic production and increased sales, we expect to be able to reduce inventory import volume in the fourth quarter of 2024 compared to the prior year. Additionally, with decreased ocean fray rate and reduced vendor pricing in certain categories, we expect fourth quarter margin to remain at a higher level. Additionally, we recently implemented measures to further reduce labor and certain other operating costs, and we expect such measures to yield benefit in the fourth quarter. We're also actively looking for a new distribution center in the Southeast region to support anticipated business growth. With a strong operating cash flow, as well as the company liquidity, solid balance sheet, and positive long-term outlook, our board of directors again approved an increase in the quarterly cash dividend payment to 40 cents per share on November 5th, from 35 cents per share in the preceding quarter. I will now turn the call over to Jian Gu, our chief financial officer, to discuss the company's financial results in greater detail. Jian?
spk01: Thank you, Alan. Net sales for the 2024 third quarter were $112.8 million, up .9% from $105.5 million for the same quarter last year. As Alan mentioned, our sales volume grew nearly 10% compared with the 2023 third quarter. Net sales also included a favorable impact from inclusion of $3 million in online platform fees, partially offset by a $5.7 million unfavorable -over-year pricing comparison. By channel, compared with a year ago, online sales for the 2024 third quarter were up 32.8%, benefiting in part from the inclusion of online platform fees mentioned earlier. Retail and distributor channel sales increased .2% and .3% respectively from the prior year quarter as our investments in Salesforce started to come to fruition. Sales to national and regional chains were essentially flat. Cost of goods sold for the 2024 third quarter was $69.3 million compared with $66.6 million in the prior year quarter. The increase was primarily due to higher ocean freight and duty costs, driven by elevated ocean freight rate, primarily in the first half of the quarter, coupled with increased import volume, along with the inclusion of production expenses related to machinery repair and maintenance. Gross profit for the 2024 third quarter increased .7% to $43.5 million from $38.9 million last year. Gross margin for the 2024 third quarter increased 170 basis points to 38.6%, which included a net benefit contribution of 110 basis points from adjustments to net sales related to online platform fees and production expenses in cost of goods sold as discussed earlier. Gross margin also benefited from lower vendor pricing and increased imports as a percentage of total products mixed, partially offset by higher ocean freight costs. Operating expenses in the 2024 third quarter was $32.2 million compared with $27.6 million in the prior year quarter. Operating expenses in the current quarter included online sales platform fees, higher rent and warehouse expense, increased shipping and transportation costs, and higher online marketing expense. Such increases were partially offset by the inclusion of production expense in cost of goods sold as discussed earlier and a decrease in professional expenses due to transaction costs in connection with a secondary offering during the 2023 third quarter. Net income for the 2024 third quarter increased .3% to $9.3 million from $9.1 million for the prior year quarter. Net income margin was .2% in the 2024 third quarter compared with .7% a year ago. Net income attributable to tariffs for both the 2024 and 2023 third quarters was $9.1 million or 45 cents per diluted share. Adjusted EBITDA was $14.7 million for the 2024 third quarter compared with $15.2 million for the prior year quarter. Adjusted EBITDA margin was .0% for the 2024 third quarter versus .4% in the prior year quarter. Adjusted diluted earnings per common share was 47 cents for both the 2024 and 2023 third quarters. We generated operating cash flows of $19.5 million in the third quarter and ended the quarter with $115.6 million in working capital compared with $110.5 million at the end of 2023. As of September 30th, 2024, we had financial liquidity of $75.1 million with another $21.5 million in short-term investments. As Alan mentioned earlier, our board of directors just approved another increase of our quarterly dividend to 40 cents per share. This is on top of the $23 million we returned to shareholders in the current year in regular and special dividend. We remain committed to a balanced capital allocation strategy between shareholder return and long-term growth investments. We expect net sales for the 2024 fourth quarter to increase by net to high single digit over the prior year quarter. Our gross margin goal for the 2024 fourth quarter is approximately 39 to 40%. We're also reaffirming our full year 2024 guidance today. Alan and I will now be happy to answer your questions and I'll turn the call back to the operator.
spk07: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. And your first question comes from the line of Ryan Mayers with Lake Street Capital Markets. Your line is open.
spk04: Hey guys, thanks for taking my questions. Jan, just wanted to follow up and get a good understanding of what you said in regards to the guidance. So thinking about the Q4 guide, you guys called out an increase in sales of mid to high single digit percent. But I believe back to last quarter, sort of the implied Q4 number with the full year guidance, I think was looking for a double digit growth rate. Just wanna make sure I understand that correctly. If there's anything that I missed in, I'm gonna be kind of helpful to walk through that.
spk01: Yeah, so Ryan, thank you for the question. Yes, that's correct. So at this point, we do expect the fourth quarter sales growth to be mid to high single digit. We're also reaffirming our four year guidance, as we mentioned in the prepared remarks. I do also wanted to call out, if you recall Ryan, last Q4 2023, last year, our Q4 net sales amount actually included an accounting misclassification adjustment of a four year amount of a little over $6 million. So that was a benefit to Q4 2023. So that's gonna cause a little bit of an apple to orange comparison in this year. But with that impact, we are still expecting to see mid to high single digit year over year growth in Q4.
spk04: Okay, got it. That makes sense. And then just thinking about the national and regional change segment, looks like revenue was flat for the year over year. Is most of that pricing or is there anything else kinda to call out there? It looks like volume across the business is pretty strong, but just to get an understanding of kinda that segment itself would be helpful.
spk01: You're
spk06: talking about the chain segment?
spk04: Yeah, correct. Cause I know over the past handful of quarters, you guys have obviously made some emphasis of rolling out into new regional change, whether it's with salespeople or additional products, but just kinda get a good feel for that line item.
spk01: Yeah, sure. I can start. I'm sure Alan can add additional detail there. So for some of the chain accounts, that is right, what you said Ryan, as far as the pricing adjustments. We wanted to make sure that we remain competitive in our value propositions with our customers. So we do have some price adjustment in the past quarter. I also wanted to point out, as we mentioned in our prepared remarks, we started shipping in some of the for a major supermarket chain customer, we started shipping to this particular customer in the very last week of September, which was a little later than what we previously anticipated. However, we are at a full annualized volume with this particular customer now, and we do expect to get a benefit in the fourth quarter in the chain segment. Alan, anything else you wanna add?
spk03: Sure, first of all, Ryan, to your first quite earlier question about the double digit growth that we expected. If you look at the, as Jen mentioned that, if you were to take out the $6 million from last year fourth quarter, our revenue would have been $89 million total, but we add a $6 million, so it's $95 million. Now, if we were to take out the $6 million with $89 million compared to what we're guiding right now, it's a little bit over 14%, which is double digit growth year over year. That's what Jen said, if we were to compare it app with Apple, our real growth will be double digit, I mean 14%. Now, in terms of what Jen just mentioned too, in terms of additional national chain account, yes, we just started the supermarket chain accounts, which is very, it's a very recognizable, reputable company in Texas, as well as another national supermarket chain that we're focusing and we started shipping. Of course, there are other national chains that we're working on that we are hopeful that we'll start shipping in the fourth quarter, maybe later of the fourth quarter of this year, or earlier first quarters. That is our goal. And in terms of additional growth that we're seeing as online sales, we're seeing strong online sales, as Jen mentioned earlier in our conference call, we're already seeing a 33% growth year over year, which in the fourth quarter, which we will rely heavily on online sales because we're gonna be promoting more marketing towards that. And the third quarter, we actually invested a lot more in terms of online marketing advertisement, which will come to fruition in the fourth quarter.
spk04: Okay, got it, that makes sense. Yeah, that's the commentary on the guidance and that $6 million impact from last year is helpful and it gives us a good spot. So awesome, thank you for taking my questions.
spk06: Thank you, Ryan, Brian. Thanks, Ryan.
spk07: Next question comes from the line of Jake Bartley with True Securities. Your line is open.
spk05: Great, thanks for taking the questions. My first one is just on the supermarket opportunity. Alan, you mentioned this new account that you've, two new accounts you've brought on. My question is how big an opportunity this is. Obviously focusing on the press release and the call today, but how much of an opportunity really is it for Carrot and maybe in the near and also the long term? And then also what makes Carrot well suited for this business? It seems to be a business you hadn't pursued in the past or maybe you just hadn't had success with it, but what makes this a good business for Carrot to be getting into at this point?
spk03: Well, with the initial number of forecasts projected by the customers, our initial annualized revenue will be around $5 million or a limit of over $5 million to $6 million and we are currently working on additional projects with the same accounts that should bring us to an annualized revenue of $15 million for this one account. And also for another supermarket chain, it's about around half a million to a million dollars to start with and it can grow even larger. What is special about the going after the supermarket chain is that we realize supermarkets have, they have less skews and they use higher volume and this is more catering toward the bakery product. I mean, in our past, our focus would have been in the cup business, in the restaurant business, in the drinking business, but now our focus is going to the bakery business. So it's from the supermarket, we're also wanting to get into the deli business. There's a lot of paper opportunities in the delis and supermarket and bakeries, like the paper containers, the paper bags. So these are the things that we really want to shift into the business that we haven't been focused in the past. In the past, it's always the hot cup, the cold cup, the paper cold cup, the PET cup, the portion cup. Now, as we shift into this business, we see that the opportunities are much greater and the potential is a lot higher than what we have been doing in the selling in the past with the cup business.
spk05: Okay, great. And on the eco-friendly side, nice to see the continued growth there. I'm trying to understand what the implications are for the new product or products that you're going to be launching in the fourth quarter. I mean, how big a deal is that? How much could that be adding to the eco-friendly product growth in 2025 and beyond?
spk03: Well, we're actually starting to add to that. The corrugated box takeout container business. If you were to go out into bakery stores and some of these chains, they're trying to stretch away from the plastic takeout container into the corrugated board box, as well as the bakeries. You can see all these little corrugated boxes, bakery container, paper containers, with the plastic openings. Before, it was all plastic or styrofoam. Paper bag, SOS bag, those are the things that we want to get into. And there's different sizes of SOS bag. It's not just the shopping bag we're looking to. The RPT business is that we've been asked by a lot of our, some of our chains that they want us to reduce the use of virgin material. How can we utilize the use of the recycled material so that we use less plastic as well as more recycled material. In Europe, basically, they ban all plastic, especially if you were to mix with 25% or more of the recycled content material. So this is more of a future, just how we started the PLA cut business back in 2007. If we have to, if companies still have to use plastic, which is more functional, they want us to, at least they want the company to start using less virgin material and more recycled content material. That's part of that. As far as the corrugated box business, it's not just for the packaging, it's now for the food container take-out as well.
spk05: Okay, and then my last question, maybe I'll jump back in with another later, but is the gross margins, obviously the gross margins have been much stronger than initially expected maybe a couple years ago. My question is, and then also continue to remain very strong, obviously, with the guidance in the fourth quarter, my question is how sustainable that is. What portion of this margin expansion versus the 31% you were running two years ago, now you're looking on pace for 39% in 2024. So of the gains, what should we think about as a long-term gain? What's sustainable for this business long-term from a gross margin perspective?
spk03: Well, as Jen just mentioned earlier in my call, we're seeing our, I'm not sure if we mentioned that, our gross margin guidance for the fourth quarter, we're looking at 39 to 40% versus our last quarter, 38.5%. So we're still seeing this margin in the high 30s and the low 40s. Is it sustainable? Well, we believe it is because we're, as we mentioned earlier, we're focusing more on online sales, online revenue. Online revenue generally has carried a larger, higher amount of the margin, basically, profit margin, and we're already at 33% growth, which is about 17 to 18% of our overall revenue. We do, I do expect that to continue to grow into the 20s or the low 20s, overall revenue on the online sales, possibly 25% or more for the online sales compared to our overall revenues. That's gonna help us to boost our overall margin as well as our ocean freight. We do continue to see that ocean freight is not gonna spike up. We're seeing it stabilizing, it's dropping for the remaining of the year and possibly, very likely, the first quarter. So these will also help in terms of reducing our cost and increase our gross margin. So we're doing everything we can in terms of selling online, which online would generate more higher margin for us. That is gonna offset us in terms of growing our volume in the distribution side of the business. There is pricing pressure on the distribution side of the business, but that is helping us with the sales volume. We're looking at volume, potentially up to, over a year, 20% growth in volume-wise, overall volume-wise in the fourth quarter.
spk05: Sorry, the volume, just that last comment, the volume from the distributors in the fourth quarter or overall, you expect the mix to be very high for volume in terms of what's driving sales?
spk03: Overall, volume to be 20% higher.
spk06: In the fourth quarter?
spk03: In the fourth quarter, yes.
spk06: Got it, thanks a lot, appreciate it.
spk03: Oh, last comment, Jake. While I have you on the phone, we have not seen a double-digit growth for the past 18 months, and basically, we're seeing that as a very hopeful sign that our goal is, we do wanna continue this to be the double-digit growth
spk06: in the growing future.
spk07: Next question comes from the line of Brian Butler with Stifel. Your line is open.
spk02: Good afternoon, thank you for taking the question. I guess, Alan, just to kind of follow up on that, double-digit growth in the future, it looks like very good momentum, and it seems like the market's improved with California kind of flattening, at least not being down more, and then you're moving to super-high growth, markets as well as new products. How do we think about fourth quarter being high, or -single-digit revenue growth? When you look at 25, what's the early thoughts on where that can be? Could that be double digits again, or is it really more of a mid-single digit until maybe some of the macro kind of gets more of a tailwind?
spk03: Well, Brian, as I mentioned earlier in the answer to Jake's question, fourth quarter, if we're comparing the apple to apple, it's already double-digit growth in revenue-wise. If we take out the $6 million, that was, we added the $6 million from online platform fee from January to December. So that's why we're expecting to see, hopefully we're expecting to see, actually we are expecting to see a double-digit growth in the first quarter of 2025 based on that trajectory right now. And our goal is, historically, are in the past year prior to the COVID, we have been growing double digits year over year. And this is basically, it seems like we're on the right track back to our trajectory, double-digit growth, organically.
spk02: Okay, great. And then on the cost side, operating costs, again, the operating costs included the platform fees. When do we anniversary that? And when you think about 2025, how fast should that grow if you're growing the top line kind of double digits?
spk03: We are going to invest, I would call that, this is more of an investment in terms of advertisement for future additional sales online. For online business, in order to continue growth, we're basically acquiring, paying, spending advertisement to acquire a new business for that, so that they can continue this recurrent buyer product on a recurring basis. So if basically our goal is to grow our business, increase by 50% from currently this year of 70 to 75 million to 125 million next year, we are gonna see more expenses spent on the advertisement for the online expense. But at the same time, it's definitely gonna help us increase our revenue faster than it was in the past 12 months.
spk02: Okay, and then on kind of generating that growth, what type of capital expectations do you have from a spending perspective on what has to be outlayed to support kind of that double digit growth? Can you give some color there?
spk03: In terms of capital expenditure, we won't be spending that as much. Basically, we do set a budget in terms of how much online growth and how much we spend on the online advertisement. We'll be pushing it a little bit higher, but we're not gonna go crazy on that. So that's why I don't see a big capital expansion on that part, except for the exception that we are looking to expand additional warehouse space. That is where we're gonna see the capital expenditure on additional warehouse space in the Southeast region, where we definitely want to build a mega center for to support our growth. It could be in the millions on that part. But definitely, we have the cashflow on hand to support that already.
spk02: Okay, and then my last one, you had reported a data breach in the third quarter. Do you have an update on where that kind of stands and what that impact might have been or might be in the future here?
spk03: We actually, based on our initial investigation, there were no material data breach. We were a little bit more cautious in terms of some, it was more of a employee or a couple of employees, they click on the attachment, which were the hacker, we were able to hack into our email system. And at the same time, we hired a third party investigator to investigate. Initial investigation came out that there were no material data breach, we'll continue following through and see if there's any issue with that part. In terms of monetary damages, there were no monetary damages and the amount spent is very nominal, very non-material.
spk06: Great, thanks for taking the questions. Thank you. Thank you.
spk07: Again, if you would like to ask a question, press star one on your telephone keypad. There are no questions at this time. I will turn the call back over to Alan Yu for closing remarks.
spk03: Thank you, Operator, and thanks to all of you for joining us today. We appreciate your continued support. We remain confident about Carat's future and we look forward to keeping you a praise of our progress. Have a great evening and a wonderful thanks to you in holiday season. Thank you all, bye bye.
spk07: And this concludes the meeting. We thank you all for your participation. You may now disconnect.
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