KRT - Earnings call transcript Q1 2024

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Operator

Thank you for standing by. My name is Kat, and I will be your conference operator today. At this time, I would like to welcome everyone to the Karat Packaging Incorporated First Quarter 2024 Earnings Conference Call. [Operator Instructions]I would now like to turn the call over to Roger Pondel of Investor Relations. Please go ahead.

Roger Pondel

operator. you, Thank and Conference everyone, Karat XXXX Packaging's Good welcome Quarter Call. First afternoon, to Pondel Packaging's I'm PondelWilkinson, with Roger Karat Investor firm. Relations meaning of Chief be I Guo.Before will over Act to and Litigation statements my momentarily Chief Executive remind company's its to Yu; Securities Officer, want the Officer, Reform turn Alan, the forward-looking may It everyone include Financial of Alan that I Private introduce call XXXX. pleasure to the the Jian you to call within today's forward-looking company's set conditions, section website company from at the beyond the available Such and form subject of many with Securities Commission, filings along numerous made to www.sec.gov, Factors with the recent Exchange statements to are control, on are copies XX-K the which are with which time SEC other as time. of Risk forth SEC's the Karat's most those filed including in of forward-looking statements EBITDA, SEC materially per as results required are today's margin Packaging forward-looking which update that adjusted will note these could call, diluted adjusted by and measures undertakes EBITDA differ non-GAAP share, to Regulation during we statements defined be G. Actual except law.Please financial and also discussing obligation Karat adjusted from by earnings as no turn company's the the A call website.And in financial over measures with today's measures it directly is the most reconciliation on Yu. to that, of my included now to is press GAAP comparable the to pleasure posted non-GAAP CEO, release, Alan is which Alan?

Alan Yu

the last but everyone.Sales comparability, that later year call. Net quarter X.X% which items in prior grew will Roger. as impacted period. Good first year, discuss afternoon, about were Jian over Thank for volume certain year-over-year XXXX our you, this included sales the same

by to fruit. the our quarter We starting implemented we initiatives growth last are bear year are as that performance encouraged first

Our grow offering pipelines expand. continue and to business to product continue our new

into net sales items. and rose emphasis our and This our manufactured continue up remain first an growing sales build last inventory priority the as demand a prior new products margin XX% the U.S. were U.S., Combined locked compared for for total year, visibility new XX.X% strength new product year product higher during with expect XX.X% at customers.We XXXX. with light achieved gaining and gross of of Karat also develop with year. innovative a Sales better with margin our share to we first keeping on eco-friendly continued ocean adding quarter strategy are to XX.X% in and rates approximately rate first last in freight meet remain products record the the customers XX.X% represented approximately quarter of We Eco-friendly wallet in through contract with existing accounts.Sales total level. in from the of category imported April our versus and high quarter of over quarter. dollar, asset near to we the gross X%

our asset new Industry optimizing California, in expense base future XXXX reduced. of of California.With income impairment from Arizona $X impacted non-cash away be a warehouse our million by operating Our our City shift the in of right-of-use the lease was QX will for a and to rent

Arizona provide Karat established meaningful Southwest efficiency will fully the in which newly now center is distribution region. Our operational in for

solid to we balance cash look We operating strong marketplace. acquisition and to and penetrate continuing are company's to key liquidity, opportunities center outlook. long-term this grow We strategic Southeast as further well further are for year as the exploring sheet penetrate positive distribution in markets.Additionally, the other the region flow us carry

share in from Board to quarter. Directors cash $X.XX on X Our an payment again share increase per per of authorize dividend preceding the quarterly the in $X.XX May

to share.I will in Jian August greater initial Guo, discuss payment call Our Chief over Jian? Officer, result of our in with year turn last began quarterly per of detail. Financial financial regular dividend $X.XX the an the to policy company now

Jian Guo

XXXX year. $XX.X prior for quarter. and X.X% sales afternoon, volume first quarter everyone.Net over same were quarter last Sales good million, year Alan, million increased compared you, the Thank the for with the $XX.X

year-over-year As sales Alan comparison mentioned is net impacted earlier, by items.

sales of sales in by impact and overall shipped products $X.X recurring to amount and X.X%, delivered were discussed the slightly. financial not to the delivery margin the sales to very channel previously assessed environment million, and distributor were delivered April the million net will of on national March channel up respectively a sales channel XXXX channel, XXXX cost earlier, The to remains chains XXXX.In $X.X was in The Online largest and million prior had is inclusion of of shipped which for of QX our $X.X included not The shipping were goods platform and statements $X.X online revenue By XXXX. of X.X% impact lower still until QX sold the first annual quarter until was issued Our related increased XXXX as revenue as from between Sales for was billion.Additionally, $X.X up X.X%.The future concluded and $X.X online immaterial. understated million the in ago, recognized benefited million quarters. compared with quarterly competitive. impact net challenging was for regional the distributors, for the and first periods, XXXX XXXX and by we and gross products by pricing sales platform to the be quarter. fees not XXXX channel lag the retail and it fee. deferred but year sales related

in certain goods for growth $XX.X for Alan lease XXXX offset certain However, million earlier XX.X% prior the share as driven and operating mentioned offset $X.XX was with this channels, $XX.X current lower to East goods or and favorable first materials to The income City the costs Net a non-GAAP due additional platform $XX.X in versus due in $XX.X online prior year, a higher eco-friendly for attributable foreign into quarter. the year right-of-use Adjusted quarter, goods compared net of partially was year and freight the million, production XX.X% Coast, XX.X% warehouse inclusion goods compared the we the agreement and $XX.X our higher the quarter also quarter growth XX.X% increases of quarter, product costs in was of margin with The share diluted exchange $X.XX as our the in per the income cost X.X% margin transportation by in year.Adjusted for share, quarter. volume million, sold.Net was expenses first non-cash of was in increased diluted quarter the first expenses the the California. first in the shipping earnings workforce year prior products.Cost measure prior penetration in per million, in in XXXX year versus momentum Northeast of XXXX share first million, first and quarter sales, net the last asset was first rate.Gross for by Karat certain in first to in year or profit an in and continued impairment quarter costs quarter, compared year sales, common million EBITDA, $XX.X cost prior income the margin $X.X the $X.X the year XXXX million Earlier or costs the inclusion million EBITDA first million of we XXXX labor $X.XX the leased for decrease compared the quarter.Adjusted quarter. share primarily by driven sales Net in geographic the with of was prior container raw increase the $XX.X XXXX seeing Gross region was XX.X% inclusion import production quarter. by were the quarter.Operating entered X.X% or quarter in sublease the $X.X Such from XXXX partially XXXX first year increase Midwest $X.X $X.XX prior ago. sold compared quarter in and quarter was the million, of higher was warehouses, rates. currency XXXX finished per operating XXXX other costs a primarily per well quarter. in of in an in expansion. and encouraging in are million, compared $XX.X $X.X to were quarter. expenses with with prior was a the fees, as rent diluted with year the Operating in versus million per of compared million XX.X% that of Industry with included in for sold

million XX, March compared capital at $XX.X with another liquidity XXXX.As million million short-term million The of financial XXXX, of first working ended the investments. $XXX.X in we quarter with $XX.X with of end $XXX.X had in

we During our prior the a positive year over expect ahead increase mid-single-digit XXXX of the net first business, outlook quarter sales by made we new quarter, summer inventory quarter. up investment the stock for significant our second peak to to for seasons.With

approximately goal margin XXXX to gross second Our XX%. for the XX% is quarter

For net and range be to and in gross call to to of the your expect the X% a questions XX% to I'll margin to answer operator. full sales and I XXXX the happy now XX%.Alan year, be back will we turn grow XX% to

Operator

of Michael [Operator first Stifel. Instructions] the your from And line question comes Hoffman with

Michael Hoffman

bridge for plan, not I'm about I your us sure it's or by items, the where versus sorry retail, you it's whether disappeared mean, Jian, maybe site right?. Alan, distribution Can voice. national to. my or online, on line own

of round about X $X.X going And the the this where So to you if you about were XX us, shortage? think I fell light it around view what Of We're short? million, gave day million numbers. confidence in next in we somewhere buckets, land where's short. $XXX gives guide that, those

Alan Yu

me $X are referring for or second you quarter quarter? -- the understand -- you referring get let just the to question. million first Are first quarter Michael, short

Michael Hoffman

Yes.

did would of gave us a we you million, math, mid-single-digits, I'm rounding. the view forward it million, did if land you right. which, up at you And about XXX $XX.X So

that comfort your short. on own relative in if the I gives of got we're plan the next forward better segments, does plan? a we've think And $X.X that shortfall that. X come you So what handle And million where to

Alan Yu

normally in they day to product. in were some change even $X revenue million receive recognizing to been for in the we Jian method adapt believe the ship we have revenues customers, to our upon that to XX long decided past revenues product.And deduct earlier every need the there we we for at account has But years, call to that had of auditor as the practice, it. mentioned take accounting XX month, how to Well, actually we us We that date XX, need recognition. years, ship Sure. the they need them when I recognition, if recognize they're asking the revenue they're of receive the last does recognizing understand a new we that it -- saying,

to the the reduce that's $X done we of And -- history. $X So so over years XX basically. we quarter, current million, have from had accounting in something our never million that past

So to and us forward That's practice. this want guide start first million over to million million me lower this in the we first million, that versus quarter actually of to in had we terms were that change we have for recognition.The able practice. $X were account were recognition our the $X I terms they change if of $XXX moving other $X projection that to -- believe of is Jian, met for we in looking revenue the to we $XX we end actually actually approximately million. account would the couldn't quarter

Michael Hoffman

you an How mile? you delivery ought a That last when track unless like are supposed like auditor. unreasonable another Sounds arrives to you're reach. get controlling seems the to

Alan Yu

And -- all of of was kind our delivered auditor. using we of Jian some understand, you because UPS. by lot the when dealt we down taking to the that. a to for, to and with could is are have fighting to, customer define really track one and delivery third-party our for time the the it, try thought bill just tracking because to lading. receive that We that it's were of account perhaps explain the hard Maybe Jian,

So we a program request have to just part. to set accommodate new on that up this

Jian Guo

this Michael, is Hi, Jian.

Let me chime in one. on this

customer, a in we the to to reliable, able kind have sure went immaterial. we and to forward is, remarks, that fair ago.We close we saw, good our XX It mentioned. the make help as activities, typically have the earlier, been So, long be a the from seeing challenge, of look concluded, Even out is shipment, a earlier, you a single to and was we XXXX, is I number.So increased concurred are Basically, that quarter past, April this method the I the something the prepared amount sort that increased process data you I the end.As March to fairly Alan March are revenue delivered appropriately. the estimate And practice last if the reviewing activities to have in lag that end said, to of tracking and that the I quite what we as quarter, idea that accounting deferred few the color that it's bit will delivery for internal when that a tracking. of is about we've the internally don't also actually mentioned of and a days in our of say, know I add previously, time, mentioned just have will years the pretty mentioned the at every for impact that's $X.X account make why, to shipment a activity necessarily point pretty we little compared accurate the amount towards towards we historically, think lag we It's was fast pickup immaterial. evaluated, us see to get million. since in I here shipping auditors reasons a and the revenue same of though in track quarter. as QX, XX, we between my exactly one

that about is %XXX,XXX, earlier, basis talking the Alan quarterly see roughly end, to quarter million So the was compared towards the on $X roughly typically that basically, we number $XXX,XXX.

So was products activity not bit in little in that that shipped, the but a delivered customer. there increased of the have shipments to we yet -- the

you wanted end. little part a the towards seeing just million. increased is momentum for the quarter that So the to are I increased of year-over-year sort of point of the Alan seeing accounted talked $X we're out the activity, bit million comparison. why also this that $X.X a reason also the about

Michael Hoffman

Okay.

just want out this. reset growth prior Now, the accounted and delivery and of it? that of and you you I And of your things sales Did do because the 'XX rate on of the hit to the at adjust same tease like-to-like as same mid-single So number look March have sort you to reality the on treatment number. shipped a is you then accounted to you digit low the look way. couple

Alan Yu

No, first is actually, Michael, like I said, this the time.

Michael Hoffman

did on volume hearing, what Yes, I year get work that. growth. I was prior I'm just good wondering it, the get and almost like basis, is very X% think doing a you of I'm to job if the and I I'm not the you trying put to, said

but from So still I'm inflation demand is okay, going, I'm good. underlying inventory average Maybe some the repricing the in inventory, structural is above good. volume

oddball this good. SKUs accounting got thing. I are So

land mid-single you digit growth. somewhere had You did really to still And low comparison, if between your think I you auditor. ought fire like-to-like to

the freak in was it And should I'm where should but sure blah, of us There what freak there shouldn't get a market tomorrow, be so stock blah. But going. question was. blah, I'm somewhere, out, fine The out. you none not

Alan Yu

Again, basically this it Yes. what I said, like is it I is mean... is.

Michael Hoffman

get is that. I if reside, underlying all this underlying -- demand Yes. good. business business noise This

Alan Yu

this revenue higher, we're think I best basically this say quarter, volume seen months, and we've since is quarter, the were decline the revenue, method. in X have -- -- -- the volume, if fourth the pricing was quarter the is and for the XX I past volume is than It if business, old stronger we seeing had use would is personally, decline, pipeline for that good. I because was underlying we accounting very a growth the quarters, ever. in we Revenue the higher, year-over-year in to first solid also for

I the in So year. quarter this that would best is say a

Michael Hoffman

big But I chugging think Okay. That's model market underlying the hates business message still misses. -- you've who fundamental is along. knows tomorrow got here a it the because what good does

oddball business Have pricing? centers. looking issue. repriced anymore this We're inventory not rate the got above distribution out? the for point. accounting the this issues all at Is And made we by decisions at we've that You've to growth average assure repricing moving the

Alan Yu

Well, we the issue. any also of Yes. at looking sure increase mark looking not freight quarter play repricing not pretty -- next mentioned And that well we're the did actually, for the is but that contract. were year uncertain was major, freight question we're out one -- the ocean ocean how last We freight. it actually the not to significantly played going that ocean out,

our confident XX%. full XX% XX% it in guidance. we're of gross or I terms Originally, more to that's year believe, to raising was why XX% So margin

because Now we that contract with that ocean to as strong we're we're And to up strong dollar. the we a that year the signed we going feel feel XX% freight, have signed of to freight well which support -- ocean with was very confident we the XX% wildcard. strong see as why now very that's

Operator

line Ryan Capital Your next from Markets. question of comes Lake with the Street Meyers

Ryan Meyers

Just kind of follow-up it the want to sure make I I to clearly. last just a question, as understand

quarter, lower So went -- be you priced through the a like lower year. the it for sounds of the inventory headwind to pricing you remainder the so price shouldn't this sorry,

Alan Yu

correct. is That

Ryan Meyers

X% if anything growth then, double-digit in to that is guys related eco-friendly or the just think growth about as the I to you we of for there kind the And eco-friendly out in what has pricing kind call business, that for there. saw the about the treading know been came rate of at quarter. it in Is quarter business well?

Alan Yu

July, products. actually that stricter, more like of We eco-friendly Starting confuse demand every can to and on like compostable today want saw the did state cities or see not they is picking the in they the have composable consumer. of to able green item so products we some see even it. to type in Washington imposing lids, enforcing plastic more up making that Well, a items and it be

the Specifically, domestic can bag, increasing bag. laws from the shopping bag seeing everyone it's price the And non-composable price the new imports that or would that we're that I as lids. for on there's which definitely U.S. raise as overseas paper XX%, the U.S. XX% different PET as as paper say, regular on September.Once all August will starting, tariffs deplete the inventory, their on much is shopping up early go user basically than commerce

So and in Styrofoam into actually demand plastic also new and plastic laws product. other we're people more there's in items. into regular these compostable, a different And higher is composable away states just cities terms regular creating from seeing of moving

So sell would those seeing continue volume to say really that it's Styrofoam, drop I wise. a manufacturer in that really

Ryan Meyers

if of guys to XX% the into come that think then to to line for guidance range? just of the year, about understanding want what a kind X% for to And model end to top higher needs the what or happen hit get good needs we of the you

Alan Yu

or we because we by were that we have mark if today. by pipeline year. to will range. chain mentioned partnership to we're terms the acquisition help what And end some organic with this should hopeful in year, last us as I quarter. have help And to pipeline in much able And XX% have account looking conversation And third gross all this to seeing we're The we we this the different the currently and may actually turning of companies in quarter, year them third that that supermarket. were of be what by partner aggressively the acquisition fourth had are third revenues. reason margin. growth, to are that into that quarter that quarter, the at of is and actually -- that we're with X% -- will us we're or X% that results That of we not saying that didn't also we national we Those as have as with just the year, or have we potentials as Well, end earlier. strong the several and double-digit fourth do our third the

Operator

And with Ryan your of next Blair. line the question comes from Merkel William

Michael Francis

you Francis regarding X% for inclusive on little This last on the is XQ to end M&A. of the Mike And that the follow-up M&A? question that of XX% also gave, was the Ryan. at Was that first, a

Alan Yu

any would that include M&A, be we If of range that be we XX% would XX%. to If X% the the do not XX%, in to range include of in M&A, the yes.

Michael Francis

me, you there? market there a for little anything that? of just around softness? this distribution, Can talked color is then being And Is players the of weaker. sort about Or it little give you happening a more any with the next area

Alan Yu

California, we're West smaller seeing the in only Coast chains seeing we we're been overall environment especially decline in dropping. market California, pop, mom closures. Well, The that, have seeing for sales, that not and restaurant

find to of shutting in it's to a favorite that.We -- hard especially been XX. We're California, And to wage. was seeing single-digit in double-digit that in still the drop going that the I've the laborers restaurant in in One now XX it's versus work kitchen. past California. the April bit better people the that down And for and shutting see California quarters more only find little want because minimum announced years, for restaurants of past hard my they more seeing down we're increase

we're online, in stronger why for potentially in all -- board -- on of all is they're this seeing our and So from as same softness. we're well. the -- as that's where But that a Midwest that. distribution that's account. seeing part well as we're across also Coast, That's competitors seeing and growth the seeing And that East we're a national thing the for focusing strong the growth also chain why a and

Michael Francis

me. last one Okay, for

Is X% like cash of capital like any target term? anything think of sort You or allocation flow again. should we that? longer dividend operating about raised the there Maybe

Alan Yu

flow and strong, because were our still why have is a end And by And, much increasing on we some and position we I cash. Currently, on looking take to more because continued acquisition. we're to that not cash operation every generating quarters. say sitting the we of year, that that. successfully generating put any say our of don't at we're acquisitions income. at -- our course, we're for that's we're we're debt in pretty income actually dividend actually our our increase cash -- deposit we're -- merger that part. flow deplete this If wouldn't we're I still all our in healthy cash -- cash X some cash should complete of would we deplete that cash because of pretty a

We what are definitely to on looking on target hand. hand at acquisition not on exceed cash -- we have

Michael Francis

I It's a replacement bad. you Okay. new hope can find restaurant. too

Operator

That session. our for turn Q&A concludes now Alan conference Yu closing to I over remarks. will the back

Alan Yu

conference everyone, first for earnings we'll you, next again, Bye-bye. talk you joining And Thank thank you quarter much, and XXXX time. Karat very call. to once

Operator

gentlemen, concludes for Thank call. you that and joining. Ladies today's all

disconnect. now may You

Karat Packaging (KRT) 9 May 242024 Q1 Earnings call transcript