KRT - Earnings call transcript Q3 2021

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Operator

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.

Roger Pondel

good and Andrea, you, afternoon, everyone. Thank Karat to Packaging’s XXXX call. earnings quarter third Welcome with Investor Karat Roger PondelWilkinson, I’m Pondel Packaging’s Relations firm. It introduce the Yu; pleasure momentarily Executive Lee. my Chief Alan Peter interim and will Officer, its Officer, Company’s be Chief Financial to

time. except discussing posted Karat over directly Alan? with statements, EBITDA now turn the SEC conditions, over of most is to the XXXX. Packaging subject measures may set remind Securities call time management during control, Alan, its I GAAP Company’s be forward-looking Actual Litigation obligation along with comparable of call, forth SEC’s the forward-looking to Such Private and Alan statements today’s to that, in of as and recently the financial EBITDA non-GAAP statements non-GAAP are from within Risk filings law. forward-looking Form which many Company Reform release, Before no any everyone recent call by it’s CEO, need other Yu. copies A numerous included which registration Factors materially and filed beyond -- that differ Regulation of is today Company’s forward-looking are reconciliation this in I statements pleasure the the to G. with section are and to those Commission, to at to the including measures the update the to margin on SEC defined required turn the of call Securities website. Act also our my press results include most in to on which the Exchange website the the which statement And meaning note www.sec.gov, undertakes by will XX-Q made with IPO most Please measures, that of these available Company’s adjusted are financial adjusted as from could as

Alan Yu

everyone. afternoon, Roger. you, Good Thank

be to with today. you pleased We’re here of all

Our sales to expansion at customer that trends Packaging robust remain grow and Market environmentally and demand pace. products provides. quarter we in a that net Earlier exceptionally growth product continued strong solutions particularly today, the third friendly Karat for an base. our business reflects continued our reported solid favorable, for

third For net guidance that during last we protective particularly were strong, the line pandemic. personal that distributors, with in pace year height the growing equipment third the products of we channel national range XX% online in last quarter, Sales at increased the sales the year-over-year. quarter month, a of just and COVID-XX have our in excluding sold were

Our rate to of as comparative through the and sales toward year-over-year these in our the quarter sales continue third a increased channels also pace. double-digit Online distributor quarter channels. at XX%. XX% rose ship national mix third growth high margin for was Sales sales we

Our and delays inventory sales the from somewhat in constrained was shortages, port third by resulting tight labor conditions quarter.

level remain Despite which freight ease every year. compared quarter quarter third declined increased supply We improvements, the they although facilities to due have in efforts, and targeted fiscal Ocean company in margin freight the last XXXX to last expect at shifted chain. increase costs relative current year-over-year, are and begun is environment the labor rates with we again stabilize other experiencing. primarily use Gross in rose temporary third of the rates these to year, distributions labor managing the to and recently. in the sequential through overtime, the our to recruiting highest

higher preceding third in the negatively quarter. inventory inventory quarter. year quarter, inventory, cost higher by which million from the gross a resulting increased landed second XXXX affected and quarter, affected and from costs the fees last saw same a These and in it brokerage second addition, cost, margin includes gross custom in freight costs its versus duty capitalized $X.X fee in of in into was In resulting landed margins. approximately benefit increased increased Company the prior capitalized Subsequently, were after quarter

to fluctuation especially month, of due the from landed this So, year. cost freight extreme to ocean vary costs month

see pushback. a benefit the likely instituted on respond in margins, current and September landed based in inflationary lower carries without sold quarter the that protect again being will we and costs. product We for and increases shortages price multiple fourth to To the November, current to any the our pressures inventory price

gross As in margins our sequentially fourth the a to improve result, we quarter. expect

business environmentally services into year for in fourth the products, with this for adoption tailwind, seen to balance demand continuing and positive momentum helping our Our support of friendly and we’ve spending, business. consumer quarter the drive secular

As a year. This $XX sequential million decline sales be XXXX to at period quarter, range to the result, of of compared same we’re the up in currently million range, consistent with about last the in midpoint normal $XX XX% the seasonality. targeting with fourth net is

our improve detail. adequate We quarter call time in results to to turn year Growth so questions, our sales gross us million the million. of pass in third $XXX We Peter? to $XXX freight want high margin ability gives higher for leave over I’ll actions and for taken stop also the expect XXXX full in costs margin to our in the in quarter. result Peter range to to we’ve here fourth to on ourselves confidence online discuss and the

Peter Lee

Thank you, Alan.

quarter line Our XX% labor primarily XXXX increased million despite to and prior XXXX Net in costs. shipping although $XXX top increased, growth, expenses gross margin declined higher the over to sales strong third quarter. results, freight, third due and

quarter critical updated, in last year, to to quarter. import the During million. year’s the total third in products of last meet year’s this of pandemic as Since and we represented have sales than the height total X% sales the second products expected shifted last of we $X third in quarter year, a less PPE of declined these need. Sale quickly PPE

for sales business existing XX%, national Online a expanded sales some with rose our sales due rose demand more grew strong year-over-year. Excluding and XX% sales XX%, product, third to retail chains largest fell this shifted in and reflecting from critical PPE from ago XXXX channel. the our Sales XX% customers. distributors, with channel. primarily year continued of investment channel, to for XX% online retail quarter channel quarter, Sales from to

also conditions, increased us portion utilize better requirements which shifted shipping We manage from tight to enabled better our and ourselves a to resources. minimum which labor mix of to retail distributors staffing

a channel. strong growth tables our for to increased in For of release third afternoon reference, $XX profit the PPE this the due XX% by in million quarter, margin. gross partially Gross break quarter, sales for the sales our products issued earlier earnings traditional by to excluding XXXX out decline primarily offset

for higher of decline the points ease margin to continue basis was actions to pass to to costs, XX% have begun gross third year. in through through costs XXXX our even fourth primarily take reflects higher as compared we same Our price last a a series quarter, and stabilize decline which freight gross margin period quarter, The XXX for XX.X% the increases. of

quarter, costs, with reflecting and was duty professional year-over-year slightly third third Operating margin to XX% margin the costs, third lower for due earlier. expenses million. $X and quarter gross $X.X expect workforce capitalization primarily the mentioned costs. and slightly compensation million for the associated Provision sequentially shipping is million, Operating to we see XXXX freight the fourth period from see for in our quarter, as higher Alan Operating quarter freight transportation the tax and higher the to declined than expense expansion, higher increased XX% for to third quarter. principally and in increase payroll stock-based for X.X% improvements $XX compared pressure same lower, last X.X% provision was expenses facility from additional to shipping Although benefits likely $X the million for XXXX for year. same year. income fees was period This of with income last our

for third expect for attributable tax effective and a to tax million share was XXXX diluted $X.X $X.X million range. quarter XXXX XXXX EBITDA adjusted third both year in margin for compared Consolidated a the the to effective last X% the third was million continue to income last mid-XX% per amounted $X.X Packaging the we for $X.X same with Our million XXXX period to on third year. Net Karat for with provided Adjusted was quarter. quarter to income to of operating was in call $X.XX used periods, to rate million Net quarter XX.X% to our in change with basis to $X.X diluted due $X.X the third quarter, million, million $X.XX EBITDA be compared rate ago. consolidated you decline activities third or for share year. compared I compared Adjusted quarter of by and per XXXX decrease or was compared XX% particularly credit period Karat any last The working attributable the line with XXXX we’ll the have. answer for year. to back Adjusted X.X cash Net activities accounts $X.X for for primarily in EBITDA EBITDA year. last million may and Then, was now cash the receivable will Alan? same same question Packaging capital, turn net million X.X%. $X.X for was be remarks. the Karat happy closing in was our in balance. Alan operating attributable period a Packaging

Alan Yu

Thank you, Peter.

we industry. continues foodservice positive secular capture business as trend to the Our thrive in

which gives As conditions a able us tremendous a is believe market products, advantage. to to Packaging respond a range of Karat of wide quickly nimble supplier competition, more and we

solid growth in sales cost we through pressures. proactively delivered Our our as XXXX quarter third worked

over We’re Q&A? another fourth the that, strong, call performance pleased that will we operator. demand Operator, to I’ll in contribute for believe solid to quarter. to the With sales be which the turn continues

Operator

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

Jake Bartlett

of question. is supply question like ability constraints, Great. accommodate than the Thanks taking really to higher you the sounds on first service the my can demand to customers. was Alan, right kind for now. It

sounds quarter, whether -- seasonality wondering the I’m One, be should even it in that the on than higher So that. two makes -- down supply fourth So, goes like but demand it’s now. -- demand questions less?

stays quarter seasonality your in that demand in lessen -- kind of shouldn’t the is the ability fourth quarter? that could third you higher -- impact supply shouldn’t if So, meet, shouldn’t and of same, the to the

Alan Yu

quarter. the correct. due and the -- see in the historically, sales that November or we’re toward I purposes past December. that inventory been not reason the the Jake, to products, And dropped they of starting December, for fourth has or stopped taking is inventory why distributors mentioned and to stopped that quarter, Primary purchasing in of has adjusting Company’s that’s Normally, large October a -- is fourth their account. end in in most going inventory tax inventory, seasonality

account, chain end any find around distributor really to already So, the up. buyers they week, last except likely hard for it’s the vacation, inventory. most national it’s working, the of year, the that stop they’ve most And reducing toward will actually stocked basically,

strong. say, So, the -- freight marketplace the And That’s and in demand are hard they’re bigger the seasonalities. in -- hard even all the I how bought We the have to past, supply, our just Chino, terms now lack we year, due would white not every bigger might in difference basically you’ll change we a the in in people I market. Hawaii cups U.S., experiencing -- this a time of we is the from in are with in see But This the mean, even clear the anywhere of having every pretty same we have thing. produce high sorry, substitution product demand. land go I a usually in time is might airline was they cup. that, in the you And It in to not has every out. right case I how versus local California. gone not cup. have would offload purchased, might on say, it’s substituting -- see to with you any are cup, they’re is we find immediately stopped. the facilities our like people have the the that probably a national straw, cup, this single a see plane, -- It’s shipping product traditionally to won’t lid, in we And right use And surprised say, it’s gotten not it’s now. even branded plain been hasn’t you chain now. market is quarter. be clear case at ship we by the every a manufacturer or And catch a of you a worse go the that gone of and enough third if on we to cup up very the the anymore. And high strong a day, next -- container, demand single

Jake Bartlett

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

Alan Yu

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

Jake Bartlett

it. Got

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

Alan Yu

products is customer -- inventory done ordering reduces from and us. because And -- more that there. our actually coming more more there’s And there sales increase toward out -- or we’ve revenue, basically we’ve more we supply What demand from seen our we’re a import overseas. to overseas,

So, that in XXXX. year we have for protect bring countries product to overseas in, different to so found revenues can mitigate actually vendors more in that we our the

Jake Bartlett

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

Alan Yu

thing. the here’s Well,

capitalization, than basically Our actually had because capitalization north gross is a And we XX%. $X.XX of of had margin $X.X third during of more we part it’s quarter. million, in the -- -- freight reason $X.X That’s main actually reason the of we a quarter, had million. that book pretty that duty gain good second million,

ocean the when of So, products capitalization, quarter. we and second actually enjoy in more duty benefit the at we and higher freight imported rates freight

booking million. seeing negatively In the quarter, reduced actually we’re quarter, the from already and quarters, when freight the that. third on we’re inventories, So, fourth now in we costs lowered second our our $X.X

are the margin. the say, freight that not gain and But be capitalization in in a second it’s see but gross at and wouldn’t will again a million, we $X.X looking the million affecting expecting negative the negative quarter. for Of I we’re duty duty like freight a And fourth $X.X how sure, quarters. fourth going in to capitalization quarter. of We increase actually potentially much, in our

will XXth, large be very increase that gain in So, XXth. fourth which we increase we had be quarter in quarter, a had in -- of favorable It with XX.X%. plus XX.X%, -- like September the will the at pretty that September fairly in third has booked just said, did it definitely north that

of an the because they one of week had requested purchase effect to customers some extra And in. taking pricing, orders

that healthy So, see the -- XX%. quarter our is XXth very on third we helping quarter. to basically. the those a reduction set of -- help And across nicely reach of November September I we in our another Xst going fourth gross item increases quarter. top all in goal sales, That’s pretty this cups margin. are of we’re the the beginning improvement costs, us on -- in do in instituted we fourth mean, hottest That large the reflected selling that’s the the including almost the increase in basically year. carrying, us duty increase, With to freight potentially goal that,

So basically, we’re hoping to see that goal basically.

Jake Bartlett

very Thank you it. much. Great. I appreciate

Operator

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

Ryan Merkel

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

Alan Yu

at see chain are rate of seeing restaurant XX% accounts new in them demand increase do that, rate will this work I’m are for to a especially with, accounts sharing And the Yes. half a customers’ holiday of our with recently in we that or year, containers for food aboard of the us. my chains the the and actually takeout working they that most takeout. will -- only were with not say and promotions, selling season for most I it’s customers, and be our chains, one That I of Uber the restaurant the seasonality they’re these of now that -- the of adding a the -- the they other the the chain robust, takeout chains. only of And new added holiday on chain Eats And product. that XxX, with. dozen channels DoorDash, higher there time for that doing national also all still more because the restaurant are adding our doing best only we is working some -- -- they’re season telling delivering a chain -- large customers, Mainly, us been takeout. they XX% we’ve to from month us

One focusing the of reasons to that staff they’re the on main dining takeout area. is they’re service, lacking

to And way, the So, it to costs the they as just for the floor don’t by work them on have dining. less indoor takeout. serve to actually people

Ryan Merkel

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

Alan Yu

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

reason is it’s truckers, shortage X in because there no a of times of such due only time shortage out that amount to thing of there’s get port, the as to the shortage truckers. of port. a labor So, of The taking container

larger go if we’re So, on Because see these through. inflation, penalties ultimately, really penalty all to be if is because through, we’re waiting, immediately. just this will to going goes the it going to passed consumer even

Ryan Merkel

definitely an situation there. the interesting Yes, with penalties

Okay, thanks. on. pass I’ll it

Operator

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

Michael Hoffman

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

Alan Yu

X We XX margin. are still projecting to EBITDA

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

Michael Hoffman

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

Alan Yu

Yes.

Michael Hoffman

so And in your just buried XQ, in everybody, your sales was for duty freight inventory, your got be to clear high XQ. hurt in

of inventory all most worked You’ve gone? how so or of it’s it’s out, all or gone, gone, it’s of that much

Alan Yu

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

Michael Hoffman

So, out. built XQ that put pressure in gross inventory that X.X the now that was margin into on is

be to unless thinking, thing be cost what there’s going the doing you duty freight in and going on turns, incremental over okay, same inventory to okay? were So, we’re short-term I’m or above

Alan Yu

Yes.

Peter Lee

I may. if Alan,

bit turn little days. XX So, our is a above inventory

cost for then, would that on to sales correct, different the have Following all they inventory. and lower turned. degrees And the quarter average, But, be would each But, it SKUs. questions, turns fourth are yes, different have have answer a your yes, turned. guideline, in assumption that your there would would

Michael Hoffman

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

Alan Yu

that I product And China Earlier we most we Particularly, added are our especially in that right more right stability Taiwan basically uncertain, we’re now, want call, and China, we -- in from don’t with the city vendors, Vietnam. COVID would conference items into these some several it’s of cases shutting side, out to provinces the there -- added of -- Sure. on and say really of now lot vendors. really most their these vendors lid more getting China, mentioned new Taiwan. are down. more that of side, the my the a and move cup I We COVID political away. in actually are that lot and of are increasing on of

COVID. we only intercity to escalation it blackout and we’re three and even For to they’re -- industry don’t -- in know risk. two, restaurants doing begin of doing put, of spiking, due into most takeout more started And that catch and shutting XX%, escalate bad even are citizens, in restaurants concerned area, though weeks and ago, are most that more during because that the any this we’re just period, mean, interstate, concerned this they shutting down, and people China stay COVID -- are could to continues don’t work I we capacity it want the we the travels of just more wintertime, time that residents telling there’ll back take cases to -- any also their down the with will it be COVID shutdown if

and so, also doing into we move So more Taiwan by product Vietnam.

Michael Hoffman

Okay.

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

Alan Yu

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

Michael Hoffman

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

Alan Yu

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

Peter Lee

Yes.

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

Michael Hoffman

Okay.

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

Peter Lee

yes. X.X%,

So QX XX.X… was million, $XX increased total XX% to of revenue,

Michael Hoffman

it’s a percent. on on dollars total better So, but less little

is issue, is leveling you it? a a So, little supply could bit. more could -- sold have if have off And you mostly that gotten

Alan Yu

is know mostly true facility, more in right mainly now. the up issue. product now compostable Chino facility and stocking the through. January line we it supply Actually, our also, a our and up pass And doing Hawaii Xst, will to on we’re that stocking are Right we -- continue

Basically, compostable national We to force using -- of start stocking takeout all compostable basically our their every compostable national on. chain their restaurant, takeout up chain are products. every already on will account cups, containers. and turn that Hawaii our on clear lids, That’s something will to start

moving Hawaii. we in So, out those mid-December start should

Michael Hoffman

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

Alan Yu

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

Michael Hoffman

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

Alan Yu

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

Michael Hoffman

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

Alan Yu

way They say January part. And to IPO that, we noticed really month, next freight as that well compostable the February, in purchase and to straws -- began to We will our start increased straw to or equipment. come we’re cups of something based on the are to automated purchased, percentage the rise, our what and order machines. of purchase We machines. for million demand on in some when all of X% freight to on and and we demand Well, would using, and the the several as takeout I a top to robotic ordered machines or ocean getting of machines, certain these is being $X everything machines, looking next the year. rise, end -- packaging I already -- December, revenue which we plastic additional paper that believe on was mentioned our and container

changed mean, we much training trained in additional why existing is we’ve time hired biggest buying it capacity. our more is now and full the getting is XX% hard. in policy actually -- people The getting capacity, not The that I additional -- of and terms our XX%, the equipment is not thing add to getting of would hard, hardest looking right challenge that staffed, I are We say people the only. that’s people.

the of taking flexibility hours. We’re the schedule employee

So, holidays, services we’re we and Because based lot shipping new available part and that schedules then staff. people be We and know a interviewed newly -- there’s disrupt them. on out. doesn’t making to on work vacation going sick, to hire make for leave. call sure interview calling the on can to flexible for we a product our on employee it They can take their time, calling or want or their of during

working time hiring week most we seasonal day adding a only Saturday, it drivers because very for is XX/X, our Not one days. production -- warehouse five working we’re seasonal as also day. So, workers the shipping, that our production, be to on each start part, part importantly, used more will on facility extra and

day, we believe week our that starting so I can with -- extra an the orders third products, of shipping adding catch up starting November. and We’re

Michael Hoffman

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

Alan Yu

minimum, would million month. estimate I $X.X a

Michael Hoffman

faster, and you because to day ports, if about kind a I $XXX, like day can’t the legal understand companies three how second Certainly, is adding when where vendors they’re a are influence about of containers it’s the talking $XXX, feels this fourth $XXX moving And and other gouging day compounding distributors issue, going any bottlenecks. the the hearing $XXX it’s think Okay. it’s it? against action of you the

are ramifications bottleneck? their you and of sort the that like on waiting port’s the out people the to what’s all here the sitting So, the get gate, legal of containers

Alan Yu

I Well, feel. this how is

these XX/X, sick of workers lot said, to said, Yes, but move like I money consumers. Los of get on you to Because a paying said containers, importer asking going to to happening moving Target, already work sideline to tons month, to don’t And I million large union if help small will going compared be have mean, money And just we’re be I people the with a mean, to We’re how are it’s right out? XX/X. XX/X. it, the to they be because this to to Port Walmart, call Biden basically, already made going these to to the hit you wait now? mean, to millions. sitting Costco. to -- They’re going these the going work people And is hit ultimately, with or Angeles. like or money. more to port not by working. these of making passing -- just whatever to am manage they’re I into a they work on you’re $X.X companies be we’re need President asking them play

an that to and in the to to them going the do requesting down highest it. going inflation we’re Once And this even seen you’re fining people the that’s help. fining have So, shipper don’t inflation higher road. ultimately consumer, the already They is issue. it. to And month. see do not past We’ve goes the fine through,

get And abandoned $XX,XXX already that’s another I’m to to abandon those not want put more might create If container, don’t people going abandoning they importer, someday to when abandon containers, my I’m It’s bottleneck me where the a going port containers if at? to the $XX,XXX is container costing just it. for going I I’ll the fined start worth if it. be just container, containers. it. And

Michael Hoffman

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

Alan Yu

Never It’s challenging. before. been

Operator

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

Jake Bartlett

follow-up. Thanks the for

Alan, kind hit other revenue to the Just you year. of X% a of end come the math, guidance, rough at hit margins about to some of to Global the think of XX% of gross want the if that’s the for some it? seem Just you’re the behind least assume would that down it as kind ex that doing just XX% kind that the that couple EBITDA costs about of Wells have quick to the would -- you X% ones at to on confirm comment being margins, low EBITDA able I

stay as even costs, And percentage of a get you shipping challenged so, down constant those if be come they include sales, there. and a would

which that’s any piece quarter G&A think kind pretty the of the costs, been be second or there coming that Is of operating is, piece been to anything might or quarter. cost abnormal recurring would in significantly ease reason the that fourth? missing going in puzzle other other the quarter, down, is up every have third the So, in the

Alan Yu

are correct. you Jake,

as coming down, We the as costs coming well are seeing down. labor costs shipping

that usual shortages. quarter labor that really things is hit second us the in the of One

third-party hire normal temp staffing. to services. premium have had agency We -- for services, which to agencies, pay hire and which was had than a higher the to out much temp We

And coming over to XX% quarter, a also, second the of -- I California So, employees. lot would to the had transfer the so during direct quarter nearly direct to was into just effectively actually we money quarter. in, and third reduced we more to much the hire other we end spend mitigated Texas, and locations, that California more there road overwhelmed because managed of warehouse the more the into we spend say, product people, which fourth to to warehouse, continuing products almost which we in ship from -- that we have

we will yes, So see shipping down. domestic shipping -- coming

costs see coming will labor down. We

versus a ocean major -- will contracted rate freight our of us see quarter We down, the more utilizing -- quarter. have that in higher we freight rate freight brokerage second because coming freight of third rate also to the use

Jake Bartlett

really then I other from Got bunch, accelerated all it. third. -- another accelerate didn’t a into think the And second question up channels and sales That’s on revenue, year-over-year, solidly national the quarter the accelerated Whereas helpful. just sales it it’s but distributor more. much the

-- less why in just with that environment? they’re national? there harder look be outside likely Is constrained isn’t you, get to incremental growing maybe what there why customers maybe is sales So, on it’s the some to in this quicker reason this for there would environment, channel going

Alan Yu

new We enough We increase national have a lot of accounts. told them chain capacity. have from we don’t

service give we ones. start up first maybe chain to have that account more we get chain service well-known we December, on take Texas, stock to can them inventory. in we Because to to One asking in us time them. that’s told our other once national can we’re we national more So, them existing before ready the do new

no really fulfill to is have XXX%. On basically, to -- selling we the whatever in have order we’re distribution their side, our commitment inventory. There

there entire buying can knowing serve of to just account, we’re distributor because market, as out anywhere can’t from shortage But our mean, products. in to chain the is product take I for everywhere, we’re chain customers. their going national retail they be that getting we So, find account, national

Operator

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

Alan Yu

you, company. operator. appreciate today. us to thanks And joined in Thank our your who everyone interest and support We

smart to commitment working enhancing We our forward our have shareholder and you value. working for with soon. Goodbye. hard look goals again You speaking collective achieving to of

Operator

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

Karat Packaging (KRT) 12 Nov 212021 Q3 Earnings call transcript