KRT - Earnings call 3 2023 | Karat Packaging Inc.

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Operator

Good afternoon, and welcome to the Karat Packaging Inc.

Third Quarter 2023 Earnings Conference Call. [Operator Instructions] Please also note that this event is being recorded today. I would now like to turn the conference over to Roger Pondel, Investor Relations. Please go ahead, sir.

Roger Pondel

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

turn including meaning Alan, want along of numerous Before of Securities Reform are Exchange which of those as other with made with our the the Commission. to forward-looking recent from include set filed forth XXXX. company's over which call are XX-K control, www.sec.gov, of company's of statements many copies available Act in to today's company Private conditions, to the that filings may on Risk call Factors Form time. are SEC and And the Such statements remind the the section to with I the I SEC's listeners within subject forward-looking time Securities the the Litigation beyond at most website

the Alan? in by press Alan Yu. as measures included non-GAAP now website. defined materially per release, statements, to the Please also could any call, as CEO, most GAAP non-GAAP with of adjusted measures which adjusted law. by results EBITDA obligation call adjusted And will the and financial turn directly required on today's discussing A forward-looking that are earnings statements, margin these comparable posted during update be no is undertakes differ reconciliation company's SEC diluted we note this to Actual share, EBITDA, Packaging that, Regulation which except Karat over from G. the measures I will financial and is forward-looking to

Alan Yu

afternoon, Roger. everyone. Good you, Thank

approximately revenue with strong over sustained are X% third expectation a increased the margin. in quarter, deliver and We Sales year prior in volume to period. line with meaningful improvement our proud

eco-friendly products anticipated. by of pricing quarter prior our in continued year along third approximately XX% the Although again This category and revenue charges and shipping as was total with total improve. logistics Sales represented service grew comparison lower year-over-year revenue the unfavorable over sales. of impacted from quarter to XX%

cost achieved elevated industry-wide net income quarter, an the Even increase For from gross with scaling the million. sustain and costs XX% versus to year. the which Sales of approximately environment, year margin. lower year, third the freight manufactured $X.X net able quarter to we're product gross to last margin compared and from total products operation of back manufacturing benefit the quarter, we our XX% were XX% ocean prior savings continued significant third deflationary quarter from of in in sales strategy labor generated in a last

gross at U.S. expect strong higher to our dollar. initiatives level the We a remain and our continued of because margin

initiatives and Now demand We XX% to objective focusing having We're long see will and asset-light our to enhance customer add locations sales. into the concentrate margin quarter XXXX strengths, competitive we at to implement expansion XXXX, of our and total more U.S. a our continue be product runway import on products revenue we'll other given further to fourth heading development to approximately of also on manufactured in XX% to growth. and distributions. fill new of for

to expanded fill contribute distribution expected and geographic in rates. are centers, our we sales to became to fully and September, which enhance with national Houston penetration Together Our Chicago operational to market recent the Coast, force, new new the soon square shares regions. double the Midwest in distribution center, foot distribution a our expect East with size and moving of market Northeast center. XXX,XXX new Washington state to growing the are We

improve support select AI operating deploying satellite warehouses well to looking sales technologies we're as in XXXX our new as regions to of part as to Additionally, strategic online further smaller in plan, growth efficiencies. growth open

the for Texas third These Based quarter, in on the center, improved and were region geographic Midwest East a with improvements XX%, Northeast X% quarter our the state. XX%, by reflecting which throughout by restaurant increased the conditioning prior the the weaker offset and sector region year compared sales California, sales from declined year-over-year. Coast from distribution softer

initiatives in The $X.XX evidenced increase cash commitment as strong successful execution returning by future Board week, as of flow and and our an is sheet quarterly sustained well per announced cash share. from earlier reflects shareholders. in $X.XX its position. the share this Board's Accordingly, strategic per authorized our operating also to to dividend value confidence our to payment Karat's action The Directors liquidity we long-term balance of as

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

Jian Guo

the and shipping revenue. as Thank year quarter, $XXX.X which logistics XXXX for X.X% lower Sales services X% well million quarter, comparison everyone. third in to increased prior afternoon, year prior Alan, decreased over expected, good offset from quarter. sales pricing million the and Net unfavorable the volume year-over-year as $XXX by as you, was

year-over-year national by the channel XXXX, ocean half to unfavorable quarter. the to costs prior customers. retail material a our decreased from Sales multiple X.X%. sales largest to year reflects The regional X.X% to proactively impact and on comparison Sales of channel passed decreased for XXXX pricing primarily X.X%. sales off-line the distributors, ramp-up third implemented channel, quarter, up raw expected we the freight reductions and as lower and late XX.X%, the price chains our to were was comparison the as XXXX first and around by By from channel, savings

encouraged are eco-friendly including growth starting East to Midwest. volume Coast, Northeast the we're penetrate, geographic business and the by in that in regions as the our the and growth by momentum products We as our well of strong

in points U.S. million the XXXX $XX.X prior Despite quarter increased the comparison, the X.X% year XX.X% dollar for XXXX Xrd gross and third unfavorable amounted quarter the net from operations, a net year. prior XXXX quarter XXX profit Gross the efforts margin to compared with quarter. of quarter. third last pricing XX% the margin million to year sales the Gross in increased $XX.X year-over-year XX.X% benefited freight for sales from to basis in to ocean strong in manufacturing from significant XX.X% of scale our decline rates, which continued back

were The sales quarter. prior expenses Operating the compared net the or of was secondary XXXX in incurred the the current completed million quarter. transaction XX.X% in year Xrd quarter quarter operating with $XX.X or $XXX,XXX $XX.X million sales included costs connection XX.X% in with which offering, net in of during expenses approximately

from Other was and offset headcount, partially reduced in to increases costs warehouse expenses operating online operating to but expenses increased growth, footprint. expense warehouse The transportation workforce expansion of savings we expenses sales higher expansion shipping in our as by rental rates. in production and the increase higher due marketing support included lower

quarter. the rose year for margin quarter. X.X% income Xrd Net income attributable XXXX in the the diluted quarter Xrd to Xrd the in XXXX $X.XX Net rose quarter Net million $X.XX advanced for quarter. income share prior $X.X $X.X or year the in in Karat from prior to from per $X.X to XXXX to million diluted quarter share X.X% $X.X the per prior or year from million XX.X% million

prior Adjusted the of EBITDA, share in $X.XX per share quarter. prior from Adjusted XXXX non-GAAP margin in to quarter. from $X.XX the in net the $XX.X year XX.X% from sales prior million quarter. the diluted for million Adjusted to per share common earnings year EBITDA XX.X% per measure, year $XX.X rose Xrd rose quarter a increased to

a X million third cash after at of the of we million operating even with quarter capital, end XXXX, working liquidity, $XX.X of XXXX, year. paid Turning to quarter months the million up net $XXX first of activities from million $XX the total dividends the finished from during in with the in of $XX.X of

of another million XX, of had As million in $XX.X we $XX.X investments. financial short-term September XXXX, liquidity with

close quarter with I will fourth now outlook. our

for our X% year-over-year to in the environment. our be net forecast sales including X% current fourth restaurant the quarter to up competitive revising California, are based conditions on We approximately

growth volume pricing to unfavorable of XX% We by comparison. expect year-over-year XX%, offset partially robust

gross the for with XXXX the XX% projection projection XXXX Our Xth at quarter consistent. costs approximately remaining to remains and current freight the ocean quarter XX% into of margin first fairly for

and the earlier, region. East Coast, Alan Northeast As market our penetration we're expanding into Midwest mentioned

Alan As call questions, and to well, back pipeline the to growth answer to happy sales enhance strong be to our are I operator. now our our turn I'll your and initiatives expected the performance. and continue will

Operator

will this take will first we time, At Merkel our Ryan which from with Instructions] come question, [Operator Blair. William

Ryan Merkel

us. why a Maybe, about and fourth Alan, It for you lowering can you Just are that the bit quarter? last little sounds quarter down revenue there? guys than priced thought just you talk California unpack maybe more like

Alan Yu

growing XX% in restaurant California, just People California In seeing dining seeing They California only not used The are coming the the pretty revision right our has volume-wise, going up. in right even is why is restaurants, not seeing XX% condition, it much closing is XPM. don't to there's area restaurant our X%, restaurants, not the restaurant third we're the overall is as California for we're But we're been reducing, California growth well. they're And now, at at and to see looking talked in in be Coast And term. pack chains more. East bad. owner. in restaurant and in there. drop the takeouts doing it's crime nighttime. upward early. And out dropping. it the out quarter, don't foot focusing volume, restaurants Actually, used And not sales The competitiveness. see They down. I environment do that's California But more we're has traffic. safe just but Crime to -- increasing. West now. we also volume people price earlier, don't we're X:XX right seeing We so people see -- It's growing. good. the any It's to conditions that the was Yes. mentioned near We been after very of p.m. shutting to after independent -- down. now, was

Ryan Merkel

it. Got

thought Did be like price surprise consistent that the with XX% quarter. Or Okay. And quarter? it that you down in is you? fourth what roughly will last looks

Alan Yu

come what down. bit because third quarter. -- in everything is is actually freight the consistent a This we little saw Ocean been has coming with has up

down we our saw for third gross ocean little went So freight back decline went of up because margin again. a bit couple and months then quarter, a

that margin So normalized. gross our quarter, the fourth back we're coming seeing

Ryan Merkel

Got it.

What what's you're in there just you warehouses. including Okay. talk benefit are doing the going be? and be that lastly, going the the Maybe to to AI just about

Alan Yu

the California. seeing work And staffing. service, technology to has warehousing as do our to the utilize well staff finish POs, are or simple customer orders, -- the each that are purchasing sales AI orders repetitive using efficiency. works like placing -- monitor as sales placing gone or in complete redundancies, Well, we're work, We to reduce want generating to we especially AI want overall is we to up payroll that more throughout what U.S., want

we've So at is purchasing service. workload. service, currently account far, customer already to payable accounting our of department AI -- by our our least And what XX% are we're technology. increase handled simplify online do tested customer workload the our of XX% trying reduce

So staff that increase even or -- the staff existing run with now. have actually with we can right our . staff, -- we existing revenue lesser that

Operator

question will Hoffman next with Michael from come Our Stifel.

Michael Hoffman

you just or mix, a or regional the Southeast? so areas know little give what Northwest lot you appreciate I Could a Northeast bit? major don't of Texas, California versus we at but revenues share other is just percent detail like of

Alan Yu

overall California out. you right validate would you is XX% of say, would that? I approximately, -- can Jian, -- We now carved actually that is that revenue.

Jian Guo

yes. over, little a It's that's but right. right, about roughly that's Yes,

Michael Hoffman

then And Is that biggest Midwest of region how it? then Northeast. and the be think next area, about Okay. we Texas sort would the

Alan Yu

That's correct.

Michael Hoffman

And XX what but guidance out yet, of just I'm not I right. have you're want consider. I figure out when to into you know -- about All then 'XX, I what Okay. giving taking think to sort

and wins been this of think think in customer been all of material Houston I the to pressures the year -- this State? part or like that adding do of latter pricing expansion line or Can help capacity the part early you of for either opportunity how or through freight based over that? the next year. What California So have on year how part wallet versus the rolling in existing shift Washington things in based expansion -- of into top effect last the about raw on new there's 'XX? us What's in inventory, Chicago with my of latter about changes mix this rollover

Alan Yu

increasing accounts we're added revenue XXXX, Coast converting I Yes. have focusing our We new believe, And forward to quarter, more we now as I looking last pipeline we moving East distributors because adding that and That's in over as of what Midwest regional fourth -- do say what around wise these or we're chains pipeline last the of perhaps terms are we the new well supermarket we in these for -- several feel and believe chain. XXXX. in -- Jian, chain would approximately. and that on do I seeing new distributors -- also XX And in XX XXXX we're quarter. quarter in distributors terms

So increasing revenue I would believe -- -- an revenues. we our up guide in do see we terms our on Jian? do the XXXX, of upside we that

Jian Guo

We haven't. call. XXXX growth answer great, provide do XXXX. of the typically see opportunities we revenue But that our in point, top some fourth terms We Michael, XXXX to in will Alan's your guidance in to quarter line question,

you're distributor as channel, on as chain we aware, new on in month. the well. seeing is business pipelines channel roughly touched getting of business And very in distributor our an biggest we the then like each our XX increase well our are already channel, in are which as of close some as Alan know expanded I So

providing be XXXX update we'll next quarter. So an on revenue guidance our

Michael Hoffman

trying all number to have out Fair as I've I'm build Yes. there. to and a opposed and much silly. neighborhood not got something right to I'm put enough, to guidance -- I to as just sure want get the a in I make we model, as truly

is enjoyed that weakness that thinking there's growth I'm growth getting over. anything the without range? hearing you've you've organic low is enough a low way a single-digit-ish right it -- California in opportunities chains what new -- business overcomes distributors' So business my new had digits got rolling hard -- think Sort you've between that of the to And in so it? about mid-single then into like

Alan Yu

thing. adding the revenue items Michael, our be you we several are increase organically products. going that XXXX. not we'll for just adding also, new new to It's we're accounts. mentioned one be missed And There that next will that

Michael Hoffman

good But low place digits without single to if too a is we're start of mid aggressive. being conservative, getting sort to

Alan Yu

conservative, is yes. That

Michael Hoffman

then And good margin Okay. you've year. a had gross very

in original [ XX%, then You took to presume back higher [ XX% from to XX%. XX% the 'XX? back gross margin that the little history, bit. Is margins low meaningfully settle so a we And I you think than a outlook more right a up way gross XX%, ] settle But to ]. like about

Alan Yu

gross we're are we goal. ]. We right If XX% now, can't [ is correct. we're margin XX% working you're around guide. stay -- That to is to guide but That that hoping -- our our

Michael Hoffman

then All your right. allocation And you of clearly capital dividend. as have demonstrated part the

meaningful we dividend think from increase nicely, this growth this stepped quite up go-forward model So a about year. $X.XX growth a how But should do been in a . about it. dividend to You've think the I how basis? point? has on How this

Alan Yu

we what here's Well, see.

of fourth expenditure. asset year, very, lot this 'XX, seeing toward in will This In XXXX, We very well. a light very CapEx -- going terms 'XX, spend be In 'XX seeing X quarter very year, CapEx little we're low on actually as the expenditure or XXXX. investment. a probably CapEx 'XX, of of XXXX, we money year we're

more have now -- actually They're is lot their growing. looking their I in and business were market dividend past to condition at it's actually price. for will warehouse, increasing own to at were the but just opportunity allowing that satellite with save, smaller part. looking on they on out in that been So dividend growing to And a -- we a of top on year, they say. XXXX, we also money any semiannual business can't location mentioned that a warehouse because very people also that believe special the we basically. more all strategic organic looking would growth sell not business next and or think acquisition the reasonable has for more And we not terms likely that I additionally XXXX. the up can also of because warehouses, or to business. a in in on acquiring and sell possibly looking they discussed growth, in sell But That will of not not and looking we're businesses open small be as right will while that necessarily our are this the and for to XXXX, we add We there warehouses, acquisition as consolidate to annually well they wise, also struggling, past, every are the year, earlier that be our business take --

Operator

next Ryan Capital. Meyers Street will with Our question Lake come from

Ryan Meyers

do think you've environment of And a do like First that feel bit? it XXXX? last you stabilized one through little how for quarters seen here about you couple the me, in pricing enough the

Alan Yu

going We're very thing is wise. every seeing across the California California. for we're the everything going competitive But forward. -- or we're going been how in a up, to is of is pricing industry. up, in labor, stabilize increase delivery to increase right terms has pricing is out going now, see price that board, to of up, prices going that X gas going up. California, decrease And terms labor going price Warehouse except going in plays labor see the up going

have lot seeing see happened XXXX. we're quarter stabilize, far, for the wait what XXXX. to to so of see A but in changes at first -- So, we'll it

Ryan Meyers

obviously, new sales during you of Got reps. the announced the expansion it. Makes then sense. And quarter, guys X

that talk about a gone? Just you've wondering bit has how the can productivity ramp-up that if little you there, seen

Alan Yu

placing every this the Yes. are every reps gaining our packed new month And increasing heavily right converting and And about meaningful the Midwest fully we're past, And that's toward gained why Coast, distribution new warehouse But account now, single-digit right and year, packed now. that like these East inventory we're seeing around the to targeting those -- up say, board quarters start right adding mainly I are month. double-digit we're of, distributor in in coming X sectors, first low which earlier sales orders. basically only mentioned on distribution, let's and now. we

warehouse looking the the to gross scale we're our to that back open another back to looking in scaling more not current We're new area, method a or is increase maintain we're California. manufacturing in So of in California. that major U.S. looking revenue in Also X

in As our produced currently, manufacturing releases, facility earnings were overall by of in that we the mentioned our earlier U.S. XX% the revenue

to is to produce Our margin. just our U.S. maybe goal to from will increase gross That overall XX% revenue or XX% XX% XX%

Operator

And Jake will Truist question here our next . come with from Bartlett Securities.

Jake Bartlett

to on I pricing. just question the build want the last about

You've ago. menu decelerating last pricing quarters seen lap you a as the few year to lower of the start over kind even prices

And chain is, is your of more -- are it how stabilizing? price? compete in as risk point I continues the I supply how -- pricing where a so much that, has better a 'XX Alan, confident eased maybe easily you reaching mean just do that guess question you, you're Is competitors can that on see and

Alan Yu

here's we other [indiscernible] because do our Well, move see. domestic actually quicker. against historically, we like out like an in year, this in better faster, manufacturers In manufacturers always competitive actually we're where the U.S. past environment what we the there

this environment, actually accounts. versus than doing more new accounts losing So -- we're gaining new price competitive

in more So customers, accounts, terms take out year increasing no positive that's are we see -- network that versus this sales more that we have our new thing able force to as we're space. we're of why a next

no capacity. have We

increase to in business turning was do start So a That's right we growth right strong in very that pipeline our the inventories XXXX. their full already also service of about we're have opening the to terms of positiveness accounts and in customers. where that list start going new over. And on We so and see new that up now, pipeline. warehouses, now, we're building is

Jake Bartlett

less probably is And ocean -- from should other right costs the And this freight shipping freight low Great. costs then very having of manufacturing. to about I'm kind this that go Obviously, land. very trying are does have gross or kind through And now. where are low you'll Okay. up, that. of a question benefit or but costs margins parse

boost manufacturing But how were what versus about to we So margins? do X a kind I that you does kind a from And XX% of moving there it, the XX% or much how heard year teens gross kind low get does longer-term specifically, of, mix, how to alone mid-XX% on call of support maybe much target. talking ago? or

Alan Yu

due and saw has we we second year, California. to saw especially quarter back year, that increase costly, that, fact in manufacturing saw scaled -- and reduced our California manufacturing and actually gross we very been What quarter second quarter significantly, the was that first in margin mainly this we we and basis the And and this we of back And least points output went of from more around boosted points. in X our alone back California. a scaling terms -- by margin boost in now just to monthly -- Hawaii units. in that Texas XX,XXX X, units production also and XXX,XXX at we're basis scaling part X even

So it's from U.S. lower versus we're overseas here. continue more that cost increase to manufacturer. where the importing Cost product

just this So facility manufacturing this -- we're other we and started and seeing facility. the back scaling in quarter, that

So going to that going margin for realized will really years. the of is our XXXX. quarter see where I that remaining first we on after said the to lie of gross benefit first And XXXX see quarter the we're the of in where that's fully

Jake Bartlett

it. Got

build is Okay. on right quarter-to-quarter big this that right operating the in of a in out Is There whether costs is to G&A of Great. And is the Just wouldn't level that Or there the recur? the G&A quarter somewhere run to to anything of trying G&A. then close kind in grow just from? to rate the costs from. even abnormal third figure last was $XX pretty on kind level million, that question recurring. -- increase is

Alan Yu

Jian. I'm to question this leave going Jian? to

Jian Guo

let that question. me take Jake, Yes,

did the look include quarter which recur XXXX. this earlier, mentioned offering-related in costs, $XXX,XXX fourth transaction to if about So we ] QX our secondary as -- [ don't does at we of we you number SG&A, expect

and I if between think OpEx, about, the half. -- it's terms structure, our split of cost I we variable half at fixed and look in our we previously about think talked

of leverage that what the percentage the what number think OpEx variable we rate the in I So close take the run we in think quarter I kind think apply of about half and to expect roughly if the of way going fourth we third quarter, incurred you then get SG&A will it's a very the be. portion, quarter to similar you that the to to fourth of

are to to areas leverage we're and look definitely OpEx areas obviously there focusing We continue improve on. into or our that leverage, are

to we bit So hope efficiency coming a of with little do in the fourth quarter.

Operator

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

Alan Yu

operator, and a Thank to and all forward to We we you wonderful thanksgiving. Bye-bye about on progress. future, confident We support. appreciate joining your for you, of appraised you and much. a . look keep thanks Karat's Have evening Thank us our today. great very remain you continued

Operator

The you attending now today's Thank conference for has concluded. presentation.

You lines. may now disconnect your

Karat Packaging (KRT) 9 Nov 232023 Q3 Earnings call transcript