Earnings call transcript Q1 2023

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Operator

Good day and welcome to the Karat Packaging Inc.

First Quarter 2023 Earnings Conference Call. Today, all participants will be in listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. Instructions]. [Operator event this being is note, recorded. Please

now Roger Pondel, would like ahead to to over conference the Investor turn sir. I Relations. go Please

Roger Pondel

Packaging's momentarily Karat Yu; Financial Packaging's and Welcome Relations Officer, firm. call. Thank Alan afternoon be Investor the Roger XXXX my Officer, company's will Karat Executive pleasure I'm PondelWilkinson, operator, Chief earnings introduce first Jian and with you, Pondel its It Guo. quarter to good to everyone. Chief

to as over Risk the filings are call forward-looking of listeners to law. Securities which at including recently Private the remind turn of with Karat differ set want company other include within all forward-looking subject in today's are most I except these the statements company's Actual Securities section update I materially many control, to results statements conditions, from meaning Packaging on those could forth which may call statements Factors Before the numerous XXXX. Such Act that of by and beyond time. Exchange Alan, are company's of the as the to www.sec.gov, Litigation the any available filed forward-looking XX-K obligation SEC's website to SEC from Reform no made Commission, of forward-looking with copies required undertakes time statements, Form the with along and the

in adjusted release, EBITDA comparable by the reconciliation now financial adjusted on press A that today's non-GAAP measures SEC most be and during adjusted call, is margin financial note the the measures directly G. also is EBITDA, earnings will of Regulation Please defined website. included non-GAAP which to per today's we diluted as posted which measures company's are GAAP share, discussing

Yu. it that, to the CEO, is to over Alan with my turn Alan? And call pleasure

Alan Yu

Roger. afternoon everyone. Thank you, Good

reduction since were the record strategy. first achieve XXXX results reflects in XXXX; despite XX.X% adjusted able company's margin deflationary of and execution environment we performance We a of gross Our business multiple implemented. EBITDA the quarter industry-wide that record price to strong our IPO a and

Moving ahead of for feet this an our and management Chicago Houston, fill addition year. the warehouse signed on square strategy inventory distribution growth earlier with rates, center following a a recently we in lease XX,XXX improving

geographic Our Coast progressing well. region for expansion on plans the Midwest East and the are

With that the recent were of and the the this new additional together pick fourth again during the expansion of quarter contracts to the during activity we year, team signed second sales last expecting half with revenues up year. are marketing

half year, be first XXXX same lower for As peak period level. to was inventory at the a the revenue is expected the reminder, than of last for when pricing sold

period that order addition, time to high due last volumes In supply were unusually during shortages. year

our while items execute manufacturing on the sourcing enlarged business products import overhead. network our in asset-light during few past scaling to higher-margin continue in increasing plan, giving are We now flexibility without back California, us we greater production additional and months focusing significantly Asia have

strong. category To me first compostable the for remains And demand the grew quarter prior this XX% quarter. eco-friendly products our growing and over demand year in

of eco-friendly goals proportion bagasse Taiwan toward eco-friendly a strategy recent our Due is multiple decided Kerry Global and category of regulatory growth XX% the shift to for and [ph] sales. venture and be in sourcing sell XXXX the delays around Our construction product imports Group. to approval the to factory we diversifying total to to product joint

to the three-month soon close transaction are period We expecting or a thereafter. within

plus selling X% of about equal interest. $X to initial million With the our investment price

and proceeding upgrade well. significant e-commerce a platform are made support online our and we Canada to and Hawaii our expanding team. to Lastly, Sales underway

project the online business first We again cash direction. efforts to benefits generated operating of some going We in are during of continue strong seeing positive the dividend our a flow the flow cash with quarter on allowing Directors and and per Tuesday, another XXXX, to Board our seek as special share. Accordingly, throughout $X.XX of is announced declared excess Karat new generate which of opportunities. capital common positive now

to discuss greater Guo, detail. Chief call the Jian Financial our results I Officer in to financial will now company's Jian? the turn over

Jian Guo

year-over-year Thank quarter to our you, Alan. XXXX liquidity the external to Despite adapt environment a comparison we demonstrated the margins to and were strengthen able challenging company's ability first results business enhance as position. significantly

than $XXX.X the as expectation. for quarter $XX.X a from was XXXX to slightly first million ago. million sales anticipated better X.X% decreased our This year Net original

first X.X% the and volume the for a freight channel was other supply increases strong channel, first by particularly inventory the to at was resulting lower in strong price quarter quarter. and from revenue overall By quarter distributors sales XXXX our costs extraordinarily due year's ocean shortage Last peak higher with to industry. largest

Sales and increased chains sales national channel sales XX.X% retail channel X%. regional decreased to decreased from online and to XX.X%, almost the

and our support begun efforts As platform investment marketing to to Alan mentioned earlier, our bear fruit. e-commerce have

the for quarter. eco-friendly first Sales our of increased XX.X% products

experiencing further XX% as position growth from regulatory XXXX the first in ago. in landscape. Karat and sales with part sourcing of We evolving our product our total the products leadership a based as year strong our offering products continue Eco-friendly well strengthen as of on quarter network to enlarged compared XX% these expansion represented

costs, operating which to in significant net with improve. compared X.X% lower materials decrease to for sales improvement quarter last the the XX.X% sales the quarter certain Gross were XXXX $XX.X quarter, and XX.X% points in of profit of net last gross of freight and continuing the record amounted year. margin benefited XXX efficiencies are increased Also margin expansion prior over costs an We first achieved quarter. of by XX.X% from ocean million to productivity in basis year. first first raw for year million XXXX $XX.X Gross a

sales offset quarter primarily million shipping expense Operating and workforce in to quarter. higher were the The the online in million increase by growth. XXXX support rental sales net prior expense and with and compared $XX.X first and increase The bad increase to marketing was partially expenses in warehouses in from costs expenses added the or XXXX in decreases was transportation debt two expenses. or XX.X% additional sales net May in of operating XX.X% due of expansion $XX.X year

the XXXX first a Net last X.X% ago. X.X% to was the margin XX.X% same $X.X from $X.X million in income quarter million for XXXX the year. compared income increased with Net quarter year for first quarter

Net prior quarter. was $X.XX with income prior the Adjusted the non-GAAP to quarter. Karat in attributable for compared XXXX XXXX the $X.XX was diluted quarter or first million $X.X share first or quarter diluted share a year $XX.X in the for year per EBITDA, measure $XX.X million million million compared $X.X with per

to first quarter. common for XXXX Adjusted rose ago. net EBITDA adjusted from of margin earnings to per XX.X% diluted XX.X% Consolidated share expanded compared per per share share sales year $X.XX a with the $X.XX

the position $XX.X working liquidity execute Karat's consistent $XX.X the of capital another has built solid well-positioned to million with strong investments. liquidity with short-term company. We end financial with $XX.X is $XX company its and compared The million quarter a in growth million the future growth million on in of and for finished XXXX financial strategies. at have

warehouse, contracts year down into from are we second additional increased benefits net better further reiterating the high additional single marketing from rate Moving new efforts pricing X% the be XXXX, digits, for by we sales are and forecasting to space inventory fill about increase with expected full for comparisons. quarter Moreover, year-over-year. revenue to

will of back production inventory and and equipment create more needed, longer for now improve space scaling in import products further As disposing Alan selling that and mentioned, to and manufacturing efficiency. California, no raw materials to be warehouse are management we

write-off in range million $X.X the second operating currently in XXXX, charge million inventory to of of remaining expecting to expenses. $X.X $X $X.X the the we're million Accordingly, write-off of record including with approximately an to impairment quarter in million

to benefit than more to expect the from strategy impairment of We charge. this shift offset

the quarter not margin was indicative exceptionally gross margin believe future for gross the of high is first we At quarters. the level, and

charge year towards the reaffirming even from are to goal of our with expected range to XX% and to XX%, We second as the shift freight, continue and XXXX our operating ocean stabilized efficiencies. efforts the increase items to improve impairment expect full be in import, quarter benefit margin high-margin in the we to

answer questions, call happy to will and be turn now I I'll operator. Alan the to and back your the

Operator

Today's Securities. with We will session. first now comes the Jake [Operator proceed. Truist Instructions] Bartlett question begin Please question-and-answer from

Jake Bartlett

adjusted million to EBITDA? much flowing so expenses. that gross I'm margin to on roughly -- last I make inventory that of comment trying And includes margin get be guide. want sure XX% the the from reiteration in adjusted to EBITDA. that off write was My were the of first and the that write-off you were just what's XX% what to out gross kind backed through to your taking going Thank Great. or of question. your margin so sure for make $X expenses I think gross those

Alan Yu

been included. has included. That also is it also Yes, Yes.

Jake Bartlett

as impairments? EBITDA you those back of Okay. won't -- out But report your adjusted you kind will

Alan Yu

can basically XX% the answer higher. the the answer it's can that I question XX% would our adjusted But that be margin I question. think in or other you that, impairment. It's the Jian question? question, to Jian better included to answer gross that

Jian Guo

Thank Jake. question. Hi, Jian. This is Yea. the for you Yes.

scaling working the charge is to second in we a are our back this will obviously, So adjusted nonrecurring thinking, our the quarter with we be auditors related EBITDA California. but on presentation of production

add the EPS the as to in well the as adjusted consider second quarter. we'll back So for write-off EBITDA adjusted

Jake Bartlett

Okay.

just much implied seems rest us in mean, freight maybe gross Is the for of benefiting of gross going point, improvement that to to It that help the year-over-year margin price you than could little guidance it's you're I I in a for I gross adjusted prices till gross rest expansion year that no the understand margin be And wouldn't think a just you is the within costs. and freight margin read range. strong a -- matter So year? you bit lowering margin that like a you're quarter. from that. it guess, my first higher lower the we see expansion be of still have on year-over-year -- such prior

Alan Yu

improvement. in margin as gross see mentioned want our we the that but announcement go fourth aggressively. earnings quarter And we the do and We third goal in out to -- is

margin with looking to that higher lower So we chain -- the a volume was balance for will with the revenues of and pricing. much to chain that able margin able be account accounts the lower are the and increase some out

But spaces. up set all, levels have now the and it space we We're we're so making now initially. all first able We to in what that, the do can we go can additional existing the at -- a of when out we to or time with can adding inventory basically rate. fill And increase it's base because our and new doing done warehouse that racking didn't same warehouses existing move increase larger able able right in -- warehouse warehouse we're up the the additional so. is to we're space to warehouse we do weren't so,

At XX% conservative with just this and time, go we bit out can the new stating after same being at margin. point. a XX%, the We're go lower somewhat accounts a little

Jake Bartlett

just a new the Got fill half business back it. coming strong the little you business more are rates of growth And is year. quantify, new maybe a you how how year. if the detail of the maybe maybe includes Guidance, can obviously, the that improved, half Maybe where describe some drivers on that in very that back online. confident have to of

us as remains hockey of fit growth as aggressive to here even -- mentioned. comfort be of pricing to as some Just that going even trajectory you kind give you're kind able you're the

Alan Yu

that definitely looking an doing eco-friendly paper realized SKU and third Well, product XXX line that's people elegant where -- is add online. fine more and well is looking additional one to product, business eco-friendly and We're are line, the expensive on bagasse of we've thing coming-in in XXX to online quarter. the for more of our more

the corrugated box in high-margin take-out focusing bring boxes. It's and more we're the doughnut containers It's anymore. even boxes, custom containers At items custom just looking as same printing printing and bagasse custom paperless time, and custom on as to such also not the product. pizza cup the hinge we're plate bagasse as the well

past terms seen recently, are saying that in the so to we've to in on the side, eco-friendly many by cities XX, the are being us. focusing forced moving companies especially faster coming items XX eco-friendly they're days, more products. just There into of we're that to because They're move

additional think our XX% products So, be from cup. when with bring product margin revenue the to our to goal of -- we versus number; our now would coming annual I plastic a product, eco-friendly sold of a set be at we would conservative cup, the going the higher in that portion right the traditional the that we're amount

is margin competing. competition the -- market and much are saturated items more cheap plastic they're not versus the eco-friendly the bringing that out because we're the there's really There's limited, there. importer items the lot All not basically a product

Jake Bartlett

And is question Okay. then, on last sorry, the…

Jian Guo

just Jake, I chime maybe Hey -- can quick. real to in

how we pretty a pick wondering level already. half is to primarily lot this couple were you that things. second Alan provided about think feel year. think confidence high a confident just of comes would in right summarize, I I And I of of think and of from Maybe trend the the color great sales say, our up I

One, we warehouses. new already signed some

We are getting in the around the towards ready end towards move the the the or of of -- second some second in to quarter -- quarter. warehouses

spaces Alan's that's adding know also along we existing So warehouses. some point, racking to coming the and we're in of

ready be soon here. to pretty going is infrastructure that So

as touched on a going a our discussions well what be visibility in then chunk big our one And our I have of -- business of other we great earlier point of do into is right? will is, from we thing pipeline, think lot volume the this some I just to out,

of we previously beginning starting going our contracts new pipeline, end around some of to the we're in third So quarter, signed -- the the start second quarter. end the shipping of were in the of know the towards that also that we sitting

right visibility So guidance. we into is of of lot comfort, our lot some gives great in a do have confidence and that sales a overall our volume what

Jake Bartlett

go how bagasse Got selling eco-friendly. out your in of I hurt And JV kind it. -- much lastly, of does ability does or to pulling into the that -- then that the mean it, Taiwan joint

I that a exit the How had think that you JV? some that mean you excitement that. around isn't headwind do of for -- Doesn't those -- think plans? I kind of about that

Alan Yu

joint are the I of abroad the last people down to venture, bagasse into because also went and overseas, year, we go -- manufacturing shut product were to was that in joint sourcing travel I went able to overseas. looking get the And couldn’t factory to venture travel, when market And We domestic course, our manufacturer, plant the yes. came I year production overseas. already Jake, to US, intel with able this started couldn't who has to they going source.

originally, I with better was pricing, the product so not was a there coming newer -- and in that factory that in find product, we joint joint that better the was equipment. we to market. around is in we when during overseas time there And that bagasse bagasse that went these so venture we And out of on started when abundant didn't do Asia. you there are suppliers out plants are partners venture, aware able -- many out I with also, Asia know more of that And and the where and

challenging manufacturer, products shut shut manufacturer also this are we one reason dollars thing that of And to down with competitors, was to demanded a it manufacturing that plant and equipment produce of that the one most quality. -- these know start for to product how the bagasse domestically be our US, US, is the down higher pouring money them these but and bagasse people hard is in US, which want start know lost we Second, with and looking this heard they've the to in it's product finding a year. a production we these maintain highly I going know to to didn't in to one millions we the of be to larger

manufacturing of they course couldn't regulatory factory out we that a get -- of couldn’t permit. contract And risen scaling can there decided to is the because at that now to that's of same issues us So, we agreement cost that signed the made out we're back California California course back because comparably. back not in time the manufacturing year-over-year that thing has in only one

expensive. going It go even cost use is more for electricity space and California. And the we with manufacturing become in beneficial has labor just more actually to be to costs going our space heard the that reduce up up it's to which space, regulation going their manufacturing with the toward warehouse us going higher with

factory without lower to being that now joint we're cost committed even to from said, vendors. products Taiwan, So, the able higher with find venture, premium the different in

our And sources use versus and Asia throughout bagasse Asia release of in I countries bagasse after earlier find plastic we're produce widespread going US. are India even in able additional what reducing mentioned that to eco-friendly that's they're how to product domestically. terms That's because Asian the starting in

Jake Bartlett

I so appreciate Great. it. much. Thank you

Alan Yu

you, Thank Jake.

Operator

with Meyers Capital Ryan from comes question Street Markets. next Please Lake The proceed.

Ryan Meyers

guys. Hi taking Thanks my for questions.

First me. one for

competitors? like some gain aggressively, versus taken you've share do of As able to been you've your down you feel market pretty price

Alan Yu

Yes.

Ryan Meyers

it. forward. Not Got Straight easy enough.

guys the think new right should of sales the or of in about second here typically growth people confidence it get kind are the we can to the the we think how take making sales ramp second and investments does how half, about As accelerate speed in you new how now online and up add sales half? customers, new help long in your rep sales team to a level

Alan Yu

Well, right to sales back scaling competitors terms in experienced operations with territory. With staff. the looking certain in area of back looking now our we're for scale demand

a pick basically, to So, new we're the people looking in People And reps. we're are actually similar able new industry. for up picking job. sales up

they're only certain is most that reps to thing is us of to difference couldn't compete also we are product. basically where they're selling we're between limited we a product price limited us because certain different with our interviewing new they're these restricted they that one And key have -- the sales that sell and of and stating that and competitors ways have everything

the in their have of faster. enables consolidate. these the city, the small offering manufactured facility. that and stored rep we're Versus in sell that companies terms They sales our a structure the that Most in And o of regional, quickly might territory. a different product flexibility company be can't

sales us, of our to go flexibility the in giving for rep But pricing. lot and also our anywhere. sales to We're authority basically terms flexible. very product selling a the out customers and of can They're go

said, we with about rep. So, sales sales couple of that in revenue new a takes for bring that only it see months to the staff

Ryan Meyers

Okay, think in that Houston. how and we feel look XXXX, of it warehouse Do the evaluate be space the rest will FY XXXX for or Chicago added then you'll then warehouse a should to that’s year? warehouse for the we like you And helpful. in obviously more about that in

Alan Yu

up is That lease to increase Northwest end the of able We've August. online with already basically facility in add in of negotiating into sell in supplies. Seattle our double Seattle goal looking BXC We're territorials Our type is consumers to to directly. the US different different because service looking throughout the customers. different space to also commerce our we're visibilities to also party to And go to our the we're area.

Party went of went that consumer demand different heard -- goods. out type and and we anniversary birthday plates, Lately of there of type all City is high cups, a and bankrupt napkins

to this us our staff of something than as we're just in And segment. help looking the year, team looking first additional into terms online business quarter double get in the to team months, grow that more we're members which online of to grow That's enlarged we additional actually and we having past three our doubled.

Ryan Meyers

Thank it. taking Thanks you. questions. for Got my

Alan Yu

Thank Ryan. you, Jake --

Operator

Stifel. proceed. Ryan Please with question next comes Our from Hoffman

Michael Hoffman

is is, but I'm this who Hoffman Michael. Ryan not sure

Alan Yu

Hey Michael.

Michael Hoffman

in a Ryan family. the Don’t even have

that little am get year. I do a freight bit a What think a about what's XQ? XX.X%, trend Jian, against? How ago cadence. comparing year -- good into three hope I ocean Can this whatever. the we and So, I X.X% two, about day. was you have

Jian Gua

for the you thank question. Ryan, Yes.

Alan Yu

It's, Michael. Michael. it's Jian,

Jian Gua

in – know now Sorry have I have don’t Ryan head. stuck I why my I

Sorry.

Michael Hoffman

okay. That’s

Alan Yu

job. It’s my

Michael Hoffman

for me late call Yes, dinner.

Jian Gua

right. Sorry yes. you're , absolutely,

bit think of for we So year quarter ocean a going freight might down, actually sales rest a from pretty of were as percentage little the stable. is come at be first It actually we X.X%. the to even

going the for to X% in the be I year. to range So it's X% rest probably the of think

Michael Hoffman

was XQ, it comparing averaging, And XQ what? through I'm

Jian Gua

would I or take. X% give roughly maybe say, averaging

Michael Hoffman

last From year.

wasn't last the year saying mean So I all XQ. the were Ryan, very last thing in this It's is What's you against me clearly. XX.X% got the trend? that year, confused. I

Jian Gua

QX you're at going it's see a QX So, come XXXX, doing XX% to significant When job. down. year-over-year the comparison, of we're sales. -- Last you'll

very rest then QX of So What I'm X%, we probably to -- X% think close that QX, for to that the be stable. that of -- the the about year, going It's pretty range for is this QX right the came be rest QX, quarter QX. year. in the and saying for percentage to or XX% in of almost going rest the down and in XX% to is, to the -X%

Michael Hoffman

but you I leads XX%. that you it -- being get So, interesting like with it's really XX% seems conservative conservative, then an to stay to

margin an how do to of the a it's freight, of really to So, -- about take mean, because remainder then XX.X% sequential do what midpoint I XX.X%. average effectively think steep that's stay XX% like if and XX.X%, the at helped the margin yet, look And I creating compression drive XX%, XX%. the which like inside would what's I savings year in at

me help much have built in comfortable, here? get So cushion we how

Alan Yu

market interest I know, We US. tried input we've know, -- competitive how coming don't competitive we product the build rate -- don’t in And me going overall how road because restaurants and cushion. to increase try be. and know to the to. the more through down channel with condition we mean and is the market it's, down We in I market -- the the shutting seen Jian, how Yes. it's don't the

just cushions of we maybe, lot So build some cushions. want a to

So all. that and the quarter. fourth in competitive third market, in That's we're the

Jian Gua

Alan And also everything do -- then Michael, just I echo that mentioned.

of a I to mention. wanted additional Just couple items.

some already. of on touched this I think Alan

in margin. some So production of quarter, of overall expecting to currently write-off were right? we talking also California, think we back when of part picture, in inventory related quarter were that's we about the second the the scaling, So second the our about

new price we sales going the members pushing see to as to primarily in really then, place might coming out focus quarter, previously as to We the we also market And quarter fourth -- sales have margin do volume. start board down, we the expect team, and share. from we warehouse, third on reductions additional price additional the the starting come on the infrastructure gain into to discussed, take

XX% are being XX%. those of providing full all considered to of the guidance in So, year

Alan Yu

want starting something plastic that Michael, portion FYI to announced just And X, like we -- we're categories. item X, April for add -- volume moving our another moving by announcement also we June cup in to May I looking June XX%. cup reduced do actually and just highest And in different categories high

are to onetime for we been a and have And we looking know, decrease where see that every last ever monthly. be savings, that customers are we price understand we like So actually been coming it so our but -- done -- down. September, we've we looking since that doing not doing they should

So price least have reduction at last we four done already September. since

Michael Hoffman

Okay.

So just out. play environment to may market understand how the

XQ in the conclusion? built business But gain in If understand range, all is -- if is what to is at in, logic the I'm which not going to probably lived super the can you that I hearing have better. If XX% just trying now push deteriorates, XX% you've XX% -- margin. this I'm better XX% end going share have X%, what to by you stay to this the your to margin. business upside climate stable if business numbers, at share climate I'm current you probably conservatism in numbers business by the you're business to up is have XX% and in a environment Is gain stay grow to environment, XX%. the all want than reasonable I to right that out. is it like a X% to be

Alan Yu

Actually out I month expecting the after. additional and we're great. go business business In environment winning our XXX we chain We're new going have because that go to this account NRA to not company coming every that asked actually is go feel increase out for We're there. aboard. we our And waiting now our sales back We've go. and asking to go ready We've sales we're poach, hold limited been we're space. to to out. reps bid

overall not do our good see we for So but it's environment is good. market company

Jian Guo

statement say is I Michael would your fair. And

Michael Hoffman

right. Okay, all

So room there I could more -- get we're than is upside downside. we being for -- conservative, there's if we but

Alan Yu

lot of room. can room There of is a I a Yes There's lot say. lot. a

Michael Hoffman

Good.

as I idea M&A quarter the fourth back the can't think So of in the or -- to remember we again quarter, maybe some reintroduced that thought starting you it was the and adding, if warehouse might but method half. organic you head something versus organic is adding that Where buying your on things. second of Where through instead into are do I you're trickle around the like, and M&A third about that?

Alan Yu

manufacturing, domestically. lot of now it after a they visiting and manufacturing be equipments. plant worth the vendors this these the the domestic the year time, also as old do manufactured in -- Right maintain that of same at domestically will think manufacturer to A terms the is most also competing have hiring seen maintaining not technician older will challenging overseas equipment point to to have equipment at comparing I a overseas buy it to I merge with has company that these challenging

opportunity. We see will

even been years to So looking they're group to sell capital company year company. manufacturers sell now. by open looking far and that this the to or investment to looking some different but competitors they're ago but approached we've that company to now they last looking represent sell, some looking they're distributors minded they year, were Maybe sell certain two weren't

time it's that right yet. believe not But the we now

ratio, And, to will one looking we're certain location key strategic of the to that they're at. mentioned multiple, times Yeah, a at look us multiples into that see give something particular which rate sell and XX a given us I companies as don't clientele. realistic. looking low company drivers all course, is of EBITDA. That -- of looking Of EBITDA still EBITDA low at we margin the that out enable access is of are at our not current there course, PE is will to low

Michael Hoffman

questions. enough. for That’s fair taking you very Thank the okay. Yeah,

Alan Yu

Thank you, Michael.

Operator

proceed. Please comes from William next Blair. The Ryan question Merkel with

Ryan Merkel

heard in reason quite that My bit name, Haven’t your below more, first the second bit there coming chance coming weakness underlying it's is that. you quarter I question you’ve the price street. from the in demand in on or in my Just some everyone. little a light conference like got saying is on Hi, want customers? little awhile. maybe you're it. revenue call having also Are a guidance that is to be to clear because cut many

Alan Yu

mentioned be but customers. of XX% that, we comfortable -- grow to I profit of I our in terms and bit guidance lower margin the prices and of lowered We same just for. little go no bit is our our that in of likely possibly come up may revenue revenue is room now we to guidance will a in they demand both very in to conservative demand want do volume margin, by there that But from XX% We're seeing do in feel and a revenue conservative. a there little terms the gross to lot want at underlying but and be we're course, wouldn't -- seeing the down. the -- because time we that that

Ryan Merkel

sense. Make Understood.

margins you're a because market aggressive I that accounts Alan, I you follow-up or second to want impact then share, to is of the market wanted Are have with And gross more in half? Okay. national that you on inventory cut below think the gross be mix margin. impacts it now. saying you you said take to the prices to going

Alan Yu

something same believe not at offering well the we're say plastic are at it or at the the with the on No. plastic also creating switching of And ideas, are lot after as new that go different new And compostable a packaging. time, product. as least just with something into the want customers, A not Styrofoam switching We that prices. from to them, I be these prices it's product. paper would be the market into to any customers because type we're customers raw brainstorming everyone we cut from we're wouldn't that's of that That's down. people to able paper approaching that information, receiving that fair pricing And knows material for they receive that should benefit fair market intel all. come has have that part.

doing a all And basically hitting the looking the One things see compostable of traditional wall with grow -- demand And on of really part. driven is room higher-end of side bringing chains. company chains, product. there hitting has midsize sudden that, new the eco-friendly of just toward product. you're is the Styrofoam in business. that business. There the our a we no out there that a in traditionally, been a of buying, the They're selling for is And lot Styrofoam. are that are more to competitor smaller most a But they're

the it And in to XXX% in at the food a a looking cup we're not lid your bring Such just end soda going to NRA lid, That's a paper but not something to compostable something more that product. bring or as out continue a go into don't is different then lid display we're I your the for A also the there for bring looking we'll paper started in even higher market product product. traditional type we're plastic, in. a bagasse, paper compostable That's to though Show. to of we've market believe unique containers. paper

Ryan Merkel

for Thanks color. the it. Got

Alan Yu

Thank you, Ryan.

Operator

further showing to are remarks. question-and-answer the I no this questioners closing Alan we and would in back to now time, over does this any the our Yu for conclude session. turn queue like At conference

Alan Yu

of the day. and have next look everyone Thank you joining And Bye-bye. call. session. earnings Thank the a much very I call on earnings and for wonderful you to you forward Q&A all

Operator

The may you presentation disconnect. attending conference now Thank you is today's for now concluded. and

Karat Packaging (KRT) 10 May 232023 Q1 Earnings call transcript