Good afternoon, and welcome to the Karat Packaging Third Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Roger Pondel, with PondelWilkinson Investor Relations for Karat Packaging. Please go ahead.

Thank you, Andrea, and good afternoon, everyone. Welcome to Karat Packaging’s 2021 third quarter earnings call. I’m Roger Pondel with PondelWilkinson, Karat Packaging’s Investor Relations firm. It will be my pleasure momentarily to introduce the Company’s Chief Executive Officer, Alan Yu; and its interim Chief Financial Officer, Peter Lee. Before I turn the call over to Alan, I need to remind everyone today that our call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to numerous conditions, many of which are beyond the Company’s control, including those set forth in the Risk Factors section of the Company’s IPO registration statement and in its most recent Form 10-Q 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, management will be discussing adjusted EBITDA and adjusted EBITDA margin which are non-GAAP financial measures, as defined by SEC Regulation G. A reconciliation of non-GAAP financial measures to the most recently -- to the most directly comparable GAAP measures is included in today’s press release, which is now posted on the Company’s website. And with that, it’s my pleasure to turn the call over to CEO, Alan Yu. Alan?

Thank you, Roger. Good afternoon, everyone. We’re pleased to be here with all of you today. Our business continued to grow at a robust pace. Earlier today, we reported solid third quarter net sales growth that reflects exceptionally strong demand for our product and continued an expansion in our customer base. Market trends remain favorable, particularly for the environmentally friendly products and solutions that Karat Packaging provides. For the third quarter, net sales were in line with the guidance range that we have increased just last month, growing at a pace of 35% year-over-year. Sales in our distributors, online and national channel were particularly strong, excluding the personal protective equipment products that we sold in the third quarter last year during the height of COVID-19 pandemic. Our rate of comparative sales growth for the third quarter was 43%. Online sales rose 64% year-over-year in the third quarter as we continue to ship our sales mix toward these high margin channels. Sales through national and distributor channels also increased at a double-digit pace. Our sales was somewhat constrained by inventory shortages, resulting from tight labor conditions and port delays in the third quarter. We are managing the labor environment through increased recruiting efforts, the use of temporary labor and targeted overtime, and shifted distributions to other facilities in our supply chain. Gross margin in the fiscal 2021 third quarter declined year-over-year, primarily due to the increase in freight costs which every company is experiencing. Ocean freight rates again rose in the third quarter relative to last year, although they have begun to ease and stabilize recently. Despite the sequential improvements, we expect these rates to remain at the current highest level compared with last year. In addition, gross margin was affected by increased landed cost, which includes freight and duty and…

Thank you, Alan. Our 2021 third quarter results, despite strong top line growth, although gross margin declined and expenses increased, primarily due to higher freight, shipping and labor costs. Net sales increased 35% over the prior to $103 million in 2021 third quarter. During the height of the pandemic last year, we shifted quickly to import PPE products to meet a critical need. Sale of these products in the last year’s third quarter total $5 million. Since we updated, in the second quarter of last year, PPE sales as expected have declined and represented less than 1% of total sales in this year’s third quarter. Excluding PPE product, sales for 2021 third quarter rose 43% year-over-year. Sales of distributors, our largest channel, grew 44%, and sales from national chains expanded 24%, primarily due to more business with existing customers. Online sales rose 64% for the quarter, reflecting strong demand and our continued investment in this critical channel. Sales to retail channel fell 14% from a year ago with some sales shifted from retail to online channel. We also increased minimum shipping requirements to better manage our tight labor conditions, which shifted a portion of ourselves mix from retail to distributors which enabled us to better utilize staffing and resources. For reference, the tables in our earnings release issued earlier this afternoon break out sales of our traditional products excluding PPE by channel. Gross profit increased 29% to $30 million for 2021 third quarter, primarily due to the strong sales growth for the quarter, partially offset by a decline in gross margin. Our gross margin was 29% for 2021 third quarter, a decline of 120 basis points compared to 30.2% for the same period last year. The gross margin decline primarily reflects higher freight costs, which have begun to ease and…

Thank you, Peter. Our business continues to thrive as we capture positive secular trend in the foodservice industry. As a nimble supplier of a wide range of products, Karat Packaging is able to respond more quickly to market conditions and competition, which we believe gives us a tremendous advantage. Our 2021 third quarter delivered solid growth in sales as we proactively worked through our cost pressures. We’re pleased that demand continues to be strong, which we believe will contribute to another solid sales performance in the fourth quarter. With that, I’ll turn the call over to the operator. Operator, for Q&A?

We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Jake Bartlett of Truist. Please go ahead.

Great. Thanks for taking the question. Alan, my first question was on the supply constraints, the ability to kind of to service customers. It sounds like demand is higher than really you can accommodate right now. So, I’m wondering -- two questions on that. One, whether that makes the seasonality less? So demand goes down in the fourth quarter, but -- demand should be -- it sounds like it’s higher than even supply now. So, shouldn’t -- if your ability to supply stays the same, shouldn’t -- and demand is kind of higher in the third quarter that you could meet, shouldn’t that lessen the impact of seasonality in the fourth quarter?

Jake, that is correct. And that’s why I mentioned that we’re not going to see a large seasonality in the fourth quarter. Normally, in the past -- historically, Company’s sales has been -- has dropped in the fourth quarter, starting in October and November and December. Primary reason for that is toward the end of December, most of the distributors stopped purchasing products, they stopped taking inventory, due to inventory tax purposes or adjusting their inventory or inventory account. So, they will stop reducing inventory. And most likely toward the end of the year, the last week, basically, it’s really hard to find any distributor buyers that it’s actually working, most around vacation, except for the national chain account, they’ve already stocked up. So, in the past, we see a bigger change in -- bigger in terms of difference in seasonalities. But this year, due to the lack of supply, we are having just hard -- enough hard time to catch up with the demand. It’s like every single case that we offload the container, it’s gone the next day, every single case of product that we produce in our -- all of our facilities are basically purchased, bought out. We even have to ship product from Hawaii to Chino, at a pretty high shipping freight and they’re gone immediately the by the time they land in California. That’s how the demand is right now in the market. And even with that, every -- I would say, every manufacturer in the marketplace is experiencing the same thing. And I would say, anywhere you go in the U.S., you’ll find people say, sorry, we might not have a lid, we might not have a straw, we might not have a cup, or use a substitution cup. And you won’t be surprised if you go to any national chain and they’re usually a plain white clear cup, not a branded cup anymore. I mean, I was on -- even on the plane, you probably see people are substituting the traditionally airline local cups versus a clear cup. This is how high the demand is in the market right now. And it’s very strong. It has been strong in the third quarter. And we see this -- hasn’t stopped. And it’s gotten worse now.

Got it. That’s helpful. Alan, as you think forward to 2022, it sounds like demand should remain strong. But, how comfortable are you that supply is going to improve so that your sales can grow with that demand, or do you think that really sales growth is just going to be constrained just because of all the challenges that you just mentioned?

I have -- we have been informed by the supply manufacturer, raw material manufacturer, the supply will be even tighter in the year 2022, especially with paper products. Because more and more cities and states are requiring companies to go ESG, and the only way to go there is either bagasse or multi-fiber product or paper. There’s going to be -- there has already been an allocation on paper, raw material, and we’ve been told that, 2022, it’s going to be even worse, and as well as the compostable raw material, 2020 there was more supply in 2022 in the COVID period. But starting now, it has tightened up -- their demand has stayed -- even till 2024 the PLA resin has been basically pre-purchased already.

Got it. So, you see the implication -- hear that right is that you would expect the supply constraints to clamp the sales growth for you in 2022?

What we’ve done there is we import -- we’re actually ordering more products from overseas, or supply more inventory from overseas. And to -- reduces our -- basically increase our sales revenue, because there’s a demand out there. And we’ve seen that more and more customer coming toward us. So, to mitigate that we have actually found more vendors in overseas in different countries to bring product in, so that we can protect our revenues for the year 2022.

And then, just last question on gross margins for the fourth quarter specific and then going forward. But, can you quantify the impact of $1.8 million gain that you had in the third quarter and you expected that to reverse in the fourth? Can you help us by quantifying what that portion could be? And then, separately, as you think about gross margins, if we were to assume that freight costs stay where they are now in the fourth quarter and into ‘22. And then you think about the pricing that you just took, what would gross margins look like in that scenario? So, given your pricing and then assuming that freight costs stay where they are.

Well, here’s the thing. Our gross margin is 29%. That’s part of the reason -- main reason because we had a pretty good capitalization, that $1.82 million, that we -- basically book in third quarter. And during the second quarter, we had actually had a freight duty capitalization of gain of more than $1.8 million, it’s actually north of $1.8 million. So, we actually enjoy the benefit of the freight and duty capitalization, when we imported more products and at higher ocean freight rates in second quarter. So, now in third quarter, when we reduced our inventories, and lowered our freight costs from the second quarters, we’re actually booking negatively on the $1.8 million. In the fourth quarter, we’re already seeing that. We will see that $1.8 million negative affecting our gross margin. And we’re actually looking at a potentially increase again of freight and duty capitalization in the fourth quarter. Of how much, I wouldn’t say, but we are expecting a gain in the freight and duty capitalization in the fourth quarter. But for sure, it’s not going to be a negative $1.8 million, like in the second quarters. So, with that said, it definitely will be in north of 29.5%, just like we did in third quarter at 29.7%. It has -- the favorable gain that will be booked in fourth quarter, plus the increase that we had September 15th, which had a -- very pretty fairly large increase in September 15th. And some of the customers requested an extra one week to taking effect of pricing, because they had purchase orders in. So, those increases are -- reflected in this third quarter. And on top of that, the September 15th increase, we instituted another large increase in November 1st across almost all the -- basically the hottest item that we’re selling -- carrying, including the cups basically. That is going to help us pretty nicely on the fourth quarter gross margin. With reduction in the freight duty costs, improvement in sales, we do see a very healthy fourth quarter. That’s potentially helping us to reach our goal of 31%. I mean, that’s our goal we set in the beginning of the year. So basically, we’re hoping to see that goal basically.

Great. Thank you very much. I appreciate it.

The next question comes from Ryan Merkel of William Blair. Please go ahead.

So first off, Alan, I just wanted to get your view high level, what are you hearing from restaurant customers? How are traffic levels? And then, are you still seeing the delivery and takeout at a very high rate?

Yes. That is -- I do see the restaurant delivering takeout rate at a higher rate because the demand for our 9x9, the takeout food containers from all of our restaurant chain customers, and not only that, on the new customers, and some of our national chain accounts are telling us they are seeing a 30% to 40% increase in the holiday season for the takeout. Mainly, they’re doing -- most of them are doing promotions, adding -- one of my chains, a large chain that we’ve been working with, they only -- they were working only with DoorDash, now they’re adding Uber Eats and other channels of selling the product. And it’s seasonality for the chains. I will say that the best month will be there -- the holiday season for most of these chains that we work with. And also this time of the year, recently we added actually half a dozen or more new chain customers’ accounts that aboard to us -- with us. And I’m sharing that the restaurant still robust, especially in takeout. One of the main reasons that they’re focusing on takeout is they’re lacking staff to service, the dining area. So, it costs them less to just to serve as takeout. And by the way, they don’t have people to actually work on the floor for the indoor dining.

And then, second question, you’ve had a lot of price increases this year. Can you just give us a sense of where’s year-over-year price inflation right now? And I got to think there’s a lot that carryovers next year, if you could just help us with maybe a range on what that might be?

Yes. We instituted at least by price increases this year. And then, most of them are from the last six months, from past six months, basically. Primarily reason, inflation really shot up, labor costs really skyrocketed. It’s really tough to get people, employees, to retain employees nowadays. And not to mention ocean freight, domestic logistic freight cost has also nearly doubled in the past 12 months versus last year. And are we seeing any price stability? No, we have not seen price stability. Primarily, there is a major factor that we’re waiting to see how that’s going to play into our costs, for every importer in the U.S. We’d be notified by all of our shipping carrier. Starting November 15th, the Port of Los Angeles will be penalizing shipper if there’s a container that’s not pulled out of the shipyard. But, the problem is the shippers are telling the importers, they will pass on these penalties into the importers. And of course, the importer will pass on these penalties to the consumers. And in the past, we were told that right now it’s not that importer doesn’t want to get these containers out of the port. It’s the port issue. The port doesn’t have enough employees to get these containers onto the chassis to get to the truck. I mean, there’s truckers. Basically, these trucks, they want to take these containers out. So, there is no such thing as shortage of truckers. The only reason that there’s a shortage of truckers, because it’s taking 3 times amount of time to get a container out of the port, due to shortage of labor in the port. So, ultimately, we’re just waiting, if this penalty is really going to go through. Because if it goes through, we’re going to see even larger inflation, because all these penalties will be passed on to the consumer immediately.

Yes, definitely an interesting situation with the penalties there. Okay, thanks. I’ll pass it on.

[Operator Instructions] And our next question will come from Michael Hoffman of Stifel. Please go ahead.

Hey Alan, Peter. Thank you. Alan, you began this year, going public with a guide that was 9 to 11 EBITDA margins. Based on how you’re framing the fourth quarter, how does that -- how do we stand there? I’m assuming we’re at the low end, but are we going to still be inside 9 to 11?

We are still projecting 9 to 11 EBITDA margin. As we mentioned that the fourth quarter, we do see a strong margin due to the favorable aspect that we’re going to see that we already took a hit after we subtracted in third quarter the freight and duty mobilization, and we’re going to see a favorable freight and duty capitalization which is going to also with the price increases and improving sales, that 9 to 11 is still our target for the year-end.

Okay. And you’re expecting both margin and dollars of EBITDA to be better sequentially?

Yes.

And just to be clear for everybody, so your freight duty was high in 2Q, got buried in your inventory, hurt your sales in 3Q. You’ve worked all of that inventory out, so it’s all gone, or most of it’s gone, or how much of it’s gone?

Our inventory level is at the lowest I’ve seen in this year, currently.

So, that 1.8 that was built into inventory that put pressure on the gross margin in 3Q is now out. So, unless there’s incremental freight duty cost in over and above what you were thinking, doing the same thing on short-term or inventory turns, I’m going to be okay, we’re going to be okay?

Yes.

Alan, if I may. So, our inventory turn is a little bit above 60 days. Following that guideline, to answer your questions, yes, they would have all turned. But, there are different degrees turns for each different SKUs. But, on average, yes, it would have turned. And then, your assumption would be correct, and that the sales in the fourth quarter would have a lower cost inventory.

You have talked numerous times of moving more and more supply out of China into other vendors. And you were being aggressive about doing that, given some of the rolling blackouts are going on in China. What progress did you make on that? Can you share that with us?

Sure. I would say that right now, we’re getting a lot more product out of China into Taiwan. Earlier in my conference call, I mentioned that we added several new vendors. And most of these vendors are in Taiwan vendors, on the cup side, on the lid side, and some of these are -- most of our items that we added and from Vietnam. Particularly, we want to really move away. We don’t -- the political stability of China, it’s really uncertain, especially right now with the COVID that basically -- there are lot of actually increasing COVID cases in China, and more and more provinces are shutting their city down. For any interstate, intercity travels and telling their citizens, residents to stay put, restaurants are doing bad because they’re only doing takeout and most of restaurants are shutting down due to COVID. And we’re concerned that if this continues -- I mean, it just started two, three weeks ago, this escalation of COVID cases spiking, we’re just concerned that during the wintertime, it will escalate even more into the -- more people catch COVID in China and there’ll be more shutdown in industry area, and also the blackout period, even though they -- most of the capacity that we work with are back to 80%, we don’t know -- any time it could begin shutting down, and we don’t want to take that risk. So by doing so, we move more product into Taiwan and also Vietnam.

Okay. So you were about -- I think, if I remember correctly, about 20% out of China, so we’re below 20% now?

I don’t have that number, but definitely I can give you after we -- after the call, we can look into the numbers, see how much we are actually importing from China versus other countries or how much we reduced.

Okay. That would be helpful. And then, you’ve been giving us all on to the year the percent of total revs that were eco-friendly and the trends have been very favorable. What was it the third quarter?

Peters, do you have the number? I think I saw the number was 18%, for eco-friendly products…

Yes. Sorry, I was on mute. It’s $18.7 million, which takes about 18.2% of the total revenue.

Okay. So, that’s I think -- I’m doing off memory, sound sequentially on a percentage basis. Is that correct?

0.2%, yes. So Q2 was $17 million, 18% of total revenue, increased to 18.7…

So, it’s better on total dollars but a little less on percent. So, leveling off a little bit. And is that mostly a supply issue, is -- you could have sold more if you could have gotten it?

Actually, it is true and mostly a supply issue. And also, we are stocking up more on the compostable product line right now. Right now we’re doing the stocking up in our Hawaii facility and our Chino facility, mainly we know that January 1st, -- will continue to pass through. We are already stocking up all of our national chain account on their compostable lids, on their compostable clear cups, basically -- and our takeout containers. That’s something that will start to turn on. Basically, Hawaii will force every restaurant, every national chain to start using compostable takeout products. So, we should start moving those out mid-December in Hawaii.

Okay. And if my memory serves and I almost was forget the AD, whatever it is, but there’s a new content rule coming in, in California. How is that disrupting the whole model at this point, and disrupting might be positive, but how is impacting the model?

I’m sorry. What was it that you mentioned that was a new something coming?

California has got a content -- recycled content packaging - food packaging content rule coming in, I believe in 2022. And I was wondering how that is influencing buying behavior of your customers or your ability to meet the demand side, given what’s happening with the content rule change?

I am not sure which content you’re referring to -- recycling content you’re referring to. I know that California is actually asking people not to serve straws or utensils in open public but asking them to put behind the bar and restaurants upon request. And I know that -- I believe that some of these cities are actually putting more pressure in terms of -- for the restaurant operators to use the compostable product versus paper and plastic. That’s what I know. It’s been going on. And they’re just actually tightening up the rules and adding more product to the list that they’ve already stated in the past. And that basically -- it’s going to really push more customer restaurant and as far as sourcing for proposal products. And we --just the past quarter, we actually created or actually brought in more compostable product line, so that we can serve additional customers.

Got it. Last two for me. Where are you in adding manufacturing capacity, either in California or Texas? And then, I want to come back to November 15th freight duty -- freight volumes?

Well, when we noticed the freight and ocean freight and everything really began to rise, and the demand of these cups being to rise, as well as the demand for compostable straws getting increased on that part. We purchased, based on our -- what we mentioned in our IPO that we’re using, I believe was a certain percentage of our revenue to purchase -- or 5% or something on the -- $5 million I would say to purchase equipment. We already ordered several paper machines, plastic machines, additional straw machines and takeout container machines. And on top of that, we are looking to order some automated robotic packaging machines. They will start to come in December, which is next month, and January and February, all the way to the end of next year. We are looking to add additional -- much more capacity, I would say additional 20%, 30% of our existing capacity. The biggest challenge right now is training the people. I mean, buying the equipment is not that hard, getting it in is not that hard. The hardest thing is getting the people trained and getting people staffed, and that’s why we’ve hired -- we actually changed our policy in terms of full time only. We’re taking the flexibility of the employee schedule hours. So, we’re making available for people to interview -- newly hire or new interviewed staff. They can work part time, based on their flexible schedules and then we can call them. Because we know during the holidays, there’s going to be a lot of employee calling on for a sick, or calling on vacation and take on their leave. We want to make sure that it doesn’t disrupt our services and shipping product out. So, we’re hiring more part time seasonal workers on that part, also seasonal drivers and most -- very importantly, we will start working on Saturday, adding one extra day each week as a working day. Not only for the production, because our production is 24/7, our warehouse facility shipping, it used to be five days. We’re adding an extra day, so that we can catch up with the orders and shipping our products, starting -- I believe starting third week of November.

Okay. And then, on this November 15th fine that’s coming from the ports. Have you looked back at 3Q and said if that fine, it existed during the quarter, what that would have been as an incremental costs?

I would estimate minimum, $0.5 million a month.

Okay. And are you hearing of other distributors and vendors and companies talking about any kind of legal action against the ports, because this feels like a gouging issue, when you think about it? Certainly, I can’t understand how adding a compounding $100 where the second day it’s $200, the three day it’s $300, the fourth day it’s $400 is going to influence moving containers faster, if they’re the bottlenecks. So, what’s the legal sort of ramifications that all of the people like you are sitting here on the gate, waiting to get their containers out and the port’s the bottleneck?

Well, this is how I feel. We’re a small importer compared to Target, Walmart, or Costco. And if we’re going to be hit with $0.5 million a month, these large companies are going to be hit with millions. And basically, ultimately, they’re going to be passing on to the consumers. I am just sitting on the sideline to wait how this is going to play out? Because like you said it, the money will be made by the Port of Los Angeles. I mean, port already making tons of money. They’re paying these union workers a lot of money already to move these -- to call sick or to -- I mean, whatever happening right now? And like you said, it’s not going to help moving these containers, because they just need to get more people into working. I mean, President Biden said, we’re asking them to work 24/7. Yes, you’re asking to work 24/7, but they don’t have people to manage to work 24/7. So, you’re requesting them to do it. They don’t have people to do it. And that’s an issue. And fining the shipper and ultimately fining the consumer, that is not going to help. We’ve already seen the highest inflation in the past month. Once this fine goes through, we’re going to see even higher inflation down the road. And someday they might just abandon the containers. If my containers costing me already $16,000 for a container, if I’m going to be fined another $10,000 container, if I’m the importer, I’ll just abandon it. I don’t want to get it. It’s not worth it. And that’s going to create more bottleneck when people start abandoning containers, where is the port going to put those abandoned container at?

Yes. That’s what I’ve been hearing from other distributors. All right. Alan, good luck. Interesting environment.

It’s challenging. Never been before.

The next question is a follow-up from Jake Bartlett of Truist. Please go ahead.

Thanks for the follow-up. Just a couple of quick ones on -- Alan, the comment about kind of being able to hit at least the low end of that 9% to 11% EBITDA margins, I just want to confirm that that’s the kind of the ex Global Wells EBITDA as you think about it? Just doing kind of some rough math, if you assume that you’re at 31% gross margins behind the revenue guidance, it would seem that some of the other costs would have to come down to hit the 9% for the year. And so, those include shipping costs, even if they come down and stay constant as a percentage of sales, you would be a challenged get there. So, the other missing piece is, or the other piece of the puzzle is recurring G&A or operating costs, which have been going up pretty significantly every quarter. Is there any reason to think that cost might be coming down, anything kind of abnormal that’s been in the third quarter, in the second quarter that would ease in the fourth?

Jake, you are correct. We are seeing the shipping costs coming down, as well as labor costs coming down. One of the things that really hit us in the second quarter is that usual labor shortages. We have to hire third-party -- services, which was much higher than normal services. We had to hire out temp agencies, which had to pay a premium for the temp agency and staffing. So, we managed to hire direct -- more direct people, employees. And also, during the second quarter, we had to spend a lot of -- actually I would say, almost 70% more just to ship products over the road from California into Texas, because there was so much product coming in, we overwhelmed the California warehouse, which we have to spend more money to transfer into the other warehouse locations, which we mitigated that and we effectively reduced that in the nearly end of the third quarter and continuing to fourth quarter. So yes, we will see shipping -- domestic shipping coming down. We will see labor costs coming down. We will also see a major freight coming down, because of us utilizing more of our contracted freight rate -- ocean freight rate versus the higher brokerage freight rate that we have to use in the third quarter -- second quarter.

Got it. That’s really helpful. And then just another question on sales -- and the national sales revenue, it’s up solidly year-over-year, but it didn’t accelerate much from the second quarter into the third. Whereas distributor accelerated a bunch, all the other channels accelerated I think more. So, what is going on with national? Is there some reason why the sales there would be constrained in this environment, maybe they’re less likely to look outside there -- maybe it’s harder to get incremental customers for you, just why isn’t that channel growing quicker in this environment?

We have a lot of increase from new national chain accounts. We told them we don’t have enough capacity. So, we’re asking them to give us more time to get ready to service them. One other national chain that’s well-known in Texas, we told them that we can start maybe December, once we stock up more in our inventory. Because we do have to service the existing national chain account first before we can take on new ones. On the distribution side, basically, we’re selling whatever we have in our inventory. There is no commitment to -- really have to fulfill their order 100%. So, because there is shortage in the entire market, we’re getting distributor buying from everywhere, anywhere they can find product to serve as their retail customers. But for national chain account, we can’t just take our national chain account, I mean, knowing that we’re going to be out of products.

This concludes our question-and-answer session. I would like to turn the conference back over to Alan Yu for any closing remarks.

Thank you, operator. And thanks to everyone who joined us today. We appreciate your support and interest in our company. You have our commitment to working hard and working smart for achieving our collective goals of enhancing shareholder value. We look forward to speaking with you again soon. Goodbye.

The conference has now concluded. Thank you for attending today’s presentation. And you may now disconnect.