Alan Yu: It is very good. I would say the underlying business, I — personally, I think this is the best quarter since the — for 12 months, basically for fourth quarter, because we’ve seen volume decline, pricing decline for the past three quarters, and this is the first quarter, we’re seeing a solid year-over-year growth in volume, in revenue, also in revenue if we had — if we were to use the old accounting method. Revenue was higher, the volume was higher, and the pipeline that we have is stronger than ever. So I would say that this is the best quarter in a year.
Michael Hoffman: Okay. That’s — who knows what the market does tomorrow because it hates misses. But I think the big message here is you’ve got a good underlying fundamental business model still chugging along. You’ve made business decisions to assure the growth rate by moving the distribution centers. And we’ve got this oddball accounting issue. Have we repriced all the inventory for the above average pricing? Is that out? We’re not looking at repricing issues anymore at this point.
Alan Yu: Yes. Well, actually, we’re looking — we’re not looking at any repricing issue. And also one of the major, the question mark that we mentioned that last quarter was the ocean freight. We were not sure — uncertain how the ocean freight is going to play out, but it actually played out pretty well that ocean freight did not increase significantly for the next year contract. So that’s why we’re more confident in terms of raising our full year gross margin guidance. Originally, I believe, it was 35% to 38% or 35% to 37%. Now we’re up to 37% to 40% because we feel confident that we signed — now that we have signed the contract with ocean freight, which was the wildcard. And that’s why we feel very strong that we’re going to see a very strong year with the support of ocean freight as well as strong dollar.
Operator: Your next question comes from the line of Ryan Meyers with Lake Street Capital Markets.
Ryan Meyers: Just kind of as a follow-up to the last question, I just want to make sure I understand it clearly. So it sounds like you priced through the lower — sorry, you went to the lower price inventory this quarter, so pricing shouldn’t be a headwind for the remainder of the year.
Alan Yu: That is correct.
Ryan Meyers: And then, if we think about the eco-friendly business, it came in at 6% growth for the quarter. I know that business has kind of been treading in the double-digit growth rate there. Is there anything to call out about what you guys saw in the quarter for eco-friendly or is that just kind of related to the pricing as well?
Alan Yu: Well, we did see a demand picking up in eco-friendly products. We saw more and more cities actually enforcing composable products and today making even stricter, like the state of Washington is imposing that to be able to not confuse the consumer. Starting in July, they want every compostable plastic items to have some type of green item on it or like the lids, so that they can see it. Specifically, it’s different than the regular PET non-composable lids. And we’re seeing that there’s new laws on the paper bag, shopping bag that basically that U.S. commerce is increasing tariffs on all the imports from overseas which definitely will raise the price for U.S. domestic user starting, I would say, as early as August or September.
Once everyone deplete their inventory, the price can go up as much as 30%, 40% on the paper shopping bag. So, there’s these new laws in different states and cities is actually creating a higher demand in terms of composable product. And we’re seeing more people moving away from just regular plastic into compostable, regular Styrofoam into plastic and also other items. So I would say that those manufacturer that continue to sell Styrofoam, it’s really seeing really a drop in volume wise.
Ryan Meyers: And then if we think about the 8% to 15% top line guidance for the year, just kind of want to get a good understanding of what needs to happen or what needs to come into the model for you guys to hit the higher end of that range?
Alan Yu: Well, if we were to just do organic growth, we’re looking at the 8% range. The reason we’re saying that because last year, our third and fourth quarter, we were not as strong as we had — that — we didn’t have as much pipeline that we have today. And all the pipeline that we have is currently with the national chain account with supermarket. Those are actually turning into revenues. And we’re seeing them in the third and fourth quarter. That will help us to the 8% and 10% gross margin. And also we are aggressively actually in conversation with several different companies potentials that to partner or acquisition that we’re hopeful that by the end of this year or third quarter, we should be able to have some results in terms of what acquisition or what partnership that we may have by third quarter of this year. And that will help us to the double-digit mark by the end of this year, as I mentioned earlier.
Operator: And your next question comes from the line of Ryan Merkel with William Blair.
Michael Francis: This is Mike Francis on for Ryan. And first, a little follow-up on the last question regarding the M&A. Was that 8% to 15% at the end of 4Q that you gave, was that also inclusive of the M&A?
Alan Yu: If we do not include any M&A, that would be in the range of 8% to 10%. If we include the M&A, that would be in the range of 10% to 15%, yes.
Michael Francis: And then next for me, you talked about the distribution, this area being a little weaker. Can you give a little more color around that? Is it just sort of market softness? Or is there anything happening with any of the players there?
Alan Yu: Well, we have been seeing California, West Coast market dropping. The overall environment in California, especially for the mom and pop, smaller restaurant chains that we’re seeing decline in sales, not only that, we’re seeing closures. One of my favorite restaurant that I’ve been going for the past 25 years, they announced shutting down April 30. And we’re seeing more and more restaurants shutting down in California because of the increase in minimum wage. And it’s hard to find laborers in California, especially hard to find people that want to work in the kitchen. We’re still seeing that. We see a little bit — it’s better now that the drop was only single-digit versus double-digit in the past quarters for California.
So that’s where we’re seeing a softness. And also we’re seeing — this is across the board from all the — all of our competitors and distribution that they’re seeing the same thing as well. But we’re seeing a strong growth in online, as well as potentially a stronger growth for the national chain account. That’s why — and also in Midwest and East Coast, that’s why we’re focusing on that part for that.
Michael Francis: Okay, last one for me. You raised the dividend again. Is there any sort of target capital allocation we should think about longer term? Maybe like 1% of operating cash flow or anything like that?
