KRT - Earnings call transcript Q3 2024

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Operator

Hello, and thank you for standing by. At this time, I'd like to welcome everyone to the Karat Packaging, Inc.

Third Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I will now turn the conference over to Roger Pondel. Please go ahead, sir.

Roger Pondel

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

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

Alan Yu

afternoon, Thank everyone. Good you, Roger.

up sales of sales we volume approximately with by most quarter up pricing encouraged third our nearly We XX%. our X% Despite channels. performance net in are pressure, growth some and experienced

the online into $X the is a million online which supermarket period. fees positive trial results. After generate expansion successful product in for starting recent mid-October. chain XX% we utensils sampling late from the containers benefited followed chain Our to quarter, shipping by bakery business, category in inclusion achieved Karat's grocery increase the over major prior major current of packaging year shipments to the customer of orders, began grocery initiation and September, customized a another in on platform chain

offering increased single-use in product our in our positively the this and eco-friendly We term. sales efforts in disposable eco-friendly continue for contribute quarter. increase XX.X% will now product and and of compostable of additional will developing to intensifying and now long total sales third are demand sector. Sales products We the X% believe year-over-year represented

on We PET and recycled new marketplace. to with Northwest XX% demand quarter, new strong in launch Midwest, we're to growth our line seeing Coast the end is of development to East cup product more the to rising are we with material. Geographically, eco-friendly the rPET product made This a of rPET than year. fourth that further we compared continue last in experience and line of focusing enhance new the By competitive meet lids edge. expect

with fourth gross quarter the ocean optimize optimizing reduce the from XX.X% volume rate management, XXXX sourcing capabilities. From an reduced quarter. implemented despite in warehouse fourth momentum the Even our versus quarter high we and inventory we focus import domestic into positive controlling inventory we expenses decline in production Additionally, see in and past achieved a to sales, to on market, in the sales able level, our management. we of impact perspective, the the prior quarter, margin be sharp gross of expect stabilizing margin to enhancing the year. the sourcing Heading XX.X% by first to freight and half following of inventory in which quarters. At we year prior compared the is the California, procedure and encouraged biggest and increased inventory in few period are the third

with certain rate remain and ocean reduced a quarter higher Additionally, level. margin at decreased we vendor freight fourth expect in pricing categories, to

implemented measures other certain labor we to measures such Additionally, yield and fourth we recently benefit expect the costs, to quarter. and reduce operating in further

for sheet looking in approved balance outlook, business per greater Karat's Southeast Board share payment the actively to discuss also company long-term $X.XX in are Guo, to our November the an liquidity, as will center strong on of quarter. I quarterly from Chief dividend call $X.XX cash the to in Financial region growth. With in support detail. share distribution over X as Jian and to turn the cash well a results increase company's positive preceding our now Officer, anticipated financial the per Jian? again We operating solid new flow Directors

Jian Guo

you, XXXX million sales Net Thank quarter last $XXX.X the quarter up from million, Alan. X.X% the were year. third $XXX.X same for for

costs. Operating margin $XX.X flat. the half XX.X% the in to sales for increases $XX.X XX.X% the third quarter sales million XXXX quarter in percentage mix, in earlier, to fees channel, income compared expense. were X.X% Operating for $X.X discussed with the production by of coupled expenses XXX third production expenses quarter the favorable a and ocean from first quarter the XXX prior for with and XX.X% machinery compared ended to earlier. platform million the freight earlier. million income Net quarter. benefiting higher marketing higher was profit a import online million freight offset third XXXX versus discussed online included with $XX.X cash of from related were a the Net fees, margin ocean was benefited the expenses ago. of million $XX.X and million online with elevated secondary $XX.X third total of XX.X%, connection share. Adjusted and the X.X% inclusion the expenses expense, Adjusted at goods to or quarter were year during year production XXXX diluted points net quarters. We was come vendor cost million XXXX million contribution generated the shipping higher online Retail third in a $X.X and EBITDA from for also with of XXXX. impact due goods for was share unfavorable Alan inclusion year quarter in attributable repair for million XXXX XXXX XXXX warehouse offset rent partially quarter platform increased included XX.X%, third due quarter. was regional the sales with per to transaction for higher $X third rate, Karat and margin lower and increased million from year. points up million channel inclusion earnings in the working quarter prior year Cost fruition. Sales which quarter in the also from offering last per to operating by a ago, compared $X.X prior quarter transportation with online of diluted compared the was prior the primarily the million common platform sold, in year with year force driven third X.X% quarter with volume from the started primarily investments $X.XX flows million partially third grew year-over-year included margin a duty the cost compared the pricing the to $XX.X by third The sales national fees, costs, the both basis costs with $XX.X increased of XXXX related as pricing imports maintenance. Gross sales XXXX quarter, expense of of quarter quarter. Net quarters expenses nearly offset $X.X increased in $XX.X basis third increase both sold to sales income X.X% Adjusted in million third quarter quarter. Such our million respectively X.X% adjustments net and part and to XXXX in prior online $XXX.X year for quarter. and mentioned with to to to year XXXX for the a decrease third volume, XXXX as along capital of mentioned, in the XX% as the sales benefit chains third quarter. the current our partially XXXX EBITDA in the sold product increased As and distributor of for end essentially increased million fees and in inclusion were comparison. By $XXX.X Gross quarter. the compared platform goods and to $XX.X freight for in compared by XXXX professional ocean $X.XX was costs and of Gross as increased XXXX from in Net prior

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

strategy of shareholders This to is special year Board the regular our $XX committed We growth and top between of return in another long-term approved on we current remain returned just mentioned per Alan balanced the our shareholder dividend As allocation investments. capital to to increase Directors million earlier, share. $X.XX a of in quarterly and dividends.

increase high year We over expect XXXX fourth net quarter the mid sales single to quarter. by digit for the prior to

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

and We And the your are year the be today. Alan happy I'll guidance turn also now our to answer back call I reaffirming will operator. full XXXX to questions.

Operator

Markets. from Lake And your first comes Street [Operator Capital Ryan question Meyers of line with the Instructions]

Ryan Meyers

and just the I understanding you in what Jian, to guidance. follow to wanted a of regard up said good get

to sales number quarter, about guide, I out a if percent. looking high the to of I growth thinking for was But called guys of rate. increase the believe with QX guidance, mid the double-digit implied think, back in So QX sort last an year single-digit full you

understand correctly. be kind that through of it to walk that. sure helpful make want I missing, Just there's anything that If would to I'm

Jian Guo

Yes.

you the thank Yes, Ryan, that's So question. for correct.

the So at quarter do expect sales we single mid growth digit. fourth point, this be to high to

year, recall, year remarks. I million. little a actually to our sales full last prepared also mentioned also $X reaffirming call last year included we are a in QX QX as amount the misclassification of full guidance, an do net over amount you adjustment our We XXXX out, if Ryan, accounting of want

XXXX. So QX a to that was benefit

going QX. still that's to year. we comparison impact, high digit cause expecting apple-to-orange are little bit year-over-year that So in growth see to But single with of a in to mid this

Ryan Meyers

of is And revenue year-over-year. there segment, it sort chain makes regional national sense. kind helpful. call Okay. else like Is looks an just Got Or it. of the strong, but that kind is then that most of business looks volume of and there? It flat about to anything the That pricing? thinking was across would pretty of to just segment out get like be understanding itself

Jian Guo

talking chain You're about the segment?

Ryan Meyers

correct. it's regional chains, for that made new over of line additional quarters, Yes, of you item. but feel a know Because past the handful salespeople kind rolling some of guys emphasis just good have into obviously out products, I whether with or get

Jian Guo

detail Yes, additional can sure. I can start. I'm Alan sure there.

accounts, we propositions some for sure our remain chain to the you value pricing that adjustments. customers. right as I mean what So far as our in that We said, is wanted the Ryan, competitive with of make

our later shipping September, to did quarter. I a we customer, particular we shipping supermarket started prepared in than of also price some past chain previously very the wanted customer we some have last -- we adjustment mentioned we remarks, point in of was in started which the the what little week this to for major anticipated. in a out, as So

chain we with a However, you customer get full else fourth want add? annualized now, we in to segment. Alan, at the are in a quarter the benefit do to and expect volume anything this particular

Alan Yu

Sure.

have Ryan, million, we the you First it million $XX out fourth $X of about $X would quarter, total. question to $XX growth at you -- if take revenue year first so look were all, expected, we added Jian last our from the But mentioned million to been the that million. that if your earlier double-digit as is

if now, said, what Now which apple-to-apple, million we the be were digit $XX in little $X year-over-year. over we Jian a compare XX%, million our And out right compared will double-digit with bit growth to double we're is guiding if were growth to it's that's to real take XX%. what

supermarket Texas Jian what another in a account, just very as of of just started terms in in and national chain chain as we that Now well accounts, to recognizable the you chain started we terms very yes, which company mentioned supermarket -- national additional reputable focusing is it's shipping. we're

that hopeful earlier growth we That working strong fourth the on there additional we'll that chain maybe in quarter seeing are the quarter, terms of goal. And shipping Of our of we're is in first of seeing we're fourth that later online start this quarters. or national that online course, we're are year other sales, sales. is

conference to towards As marketing marketing sales our the we XX% in going I mentioned third advertisement, a fruition be lot call, online to actually because in in terms of in more come growth we're fourth quarter, In promoting invested quarter, quarter. year-over-year, -- which seeing heavily that. the a on fourth rely the we're which earlier already online which we will will more

Ryan Meyers

us is last sense. a makes gets and Yes, commentary Okay. and on spot. of good the year it. from $X Got the in kind guidance that impact million helpful That

Operator

the Jake Truist line Bartlett with comes Next Securities. question of from

Jake Bartlett

one business you then much in account question big hadn't how mentioned well on brought at hadn't really press past obviously -- you've point? seems you've getting X for an is also My be Karat maybe you that this and opportunity. the with to a you call new the how success and it. opportunity this release supermarket what or today. this But first pursued maybe a is into the opportunity this it for But And also -- the new Alan, on the on. business in it on to near is? makes the or is You're focusing It Karat this accounts an term? long makes just of had business? what hadn't be suited just for good Karat My

Alan Yu

is even chain the supermarket cup to the bring and that are now additional will And on $X around the million supermarket focus with revenue annualized volume. the about after SKUs -- use this bit to for with, the $X we projects Well, And drinking million $X.X bakery in and customers, start $X more is would or with working the us $XX past, of by that going higher have the initial $X our initial we chain, have realized around grow annualized million catering can million a it And account. to is should they supermarkets also special an the about number they larger. What be have the projected this towards product and section. another over one same to forecast business, bakery going for currently I little accounts been in our revenue just to the million business. million. is restaurant mean in focus in our But our business, less business. it's

bakeries, bags. delis There's also paper business. from and the it's opportunities get the the we're and supermarket a to supermarket, of lot deli wanting So in the into like paper paper the containers,

always shift the past, into hot the it's the So cup. cold these paper portion focused the are cold the to really been that we haven't the in move cup, things -- the want PET the cup, a cup, past. In that we business cup,

shift than greater into potential a the the and this the opportunities see -- lot we cup doing have is the much what we past business. business, in been as selling that Now higher with we are

Jake Bartlett

going Great. there. the the new beyond? product I'm products to that? 'XX a eco-friendly continued in How Okay. side, big trying in product could the that be are And you're How what to is launching implications adding growth understand the or to to quarter. and on growth see much nice fourth the that for eco-friendly deal the be

Alan Yu

add Well, business. the box takeout to we're corrugated actually starting container

some container to the little chains, into out the have can bakery containers They paper the trying they're and go boxes, corrugated -- bakeries. box switch openings. as bakery to well as stores these plastic takeout corrugated with from were these you plastic board of the away you see and into If container, all

sizes It's it our -- bag some was of lot there's And business by want SOS asked -- so bag. The virgin get rPET us that as the material. In more those how with except bag, of or all looking of want the more we not of as recycled can SOS the just utilize we well shopping that or the of all it's use reduce into. plastic we're things Styrofoam. Paper a material you to they material. we our plastic we've that different use basically, Before been to. Europe, the that the is less bag, chains if are recycled material, use they to plastic recycled were mix to ban of XX% content

to cup material. have still and use more So want to started plastic, start this future, they at companies part want virgin is we have material if us to of content back more we -- company just a functionable, If business is less using That's how which PLA the recycled they -- more XXXX. in that. the to of least

the the the for as now just not corrugated far As food takeout as box business, well. container packaging, it's it's for

Jake Bartlett

how looking quarter. And remain obviously, very maybe this gross years in is to a gross initially question jump were sustainable XX% that on have of maybe running portion years the in you is than obviously, margin the the margins expansion My later. pace is guidance back the What stronger with margins But -- also is? ago, another then XX% of versus fourth strong, for my now continue -- you're and I'll in with X couple My much last ago. Okay. XXXX. then question, the expected question been

long-term term this from what margin think gross long should as for we about So perspective? a the gain? gains, a business of What's sustainable

Alan Yu

quarter, gross our quarter margin As our if earlier our XX% versus last to guidance mentioned our I'm for -- we're mentioned at looking in seeing call, Jian fourth XX.X%. the that we're XX% we just sure not

our high we Online because Well, revenue. We our at the revenues. XXs online to on is which XX% for sustainable? we low overall our growth, overall the the XX% of that in overall more possibly the help of us XXs. it -- sales, generally XX% earlier, has online into this margin. And margin, mentioned boost grow amount So we're sales overall Is believe already to do as low the larger, carry focusing XXs the or we're or online a seeing to margin. revenue. do the still more on we're about -- XX% XXs to and revenue this to going I continue basically to expect That's compared sales, margin revenue profit online is to we're higher

As ocean not well dropping is continue spike the up. we the do year freight, see quarter. ocean going freight seeing as for of the to to it stabilizing. likely that and very We're remaining first It's

will terms margin. cost these increase So our and reducing of also in help our gross

the So terms will which pricing the distribution of generate is we're growth of our volume-wise in on everything for terms higher the online, more We're can we in but us in going the of XX% volume. -- There with is overall that looking doing potentially business. That side selling online distribution sales at in the pressure volume-wise, the volume to offset year-over-year margin is us growing to up side helping volume us. business, of fourth quarter. in

Jake Bartlett

in the the overall the last just expect Sorry, in driving mix with terms of -- the high what's volume quarter volume volume fourth for comment, the very you sales? or be that to distributors from

Alan Yu

XX% be volume to higher. Overall

Jake Bartlett

quarter? fourth the In

Alan Yu

comment, while the quarter, Jake, fourth you the In have phone. I Last yes. on

be past that for basically, future. do double-digit continue XX to months. growth And the we the in double-digit sign a very -- this the we're hopeful goal We a is that going want have growth as to our seeing to not seen

Operator

Brian line Next Stifel. question with the of comes Butler from

Brian Butler

double kind at fourth like as -- it about follow future, kind Could macro of high again? maybe move up digits I tailwind? your where that on being you to that the that more quarter -- think thoughts the on we at of looks markets least be? you like not and some And just more. more 'XX, do until supermarkets momentum, growth? new into is guess, double-digit of the look in growth very Or products. seems a revenue mid-single it really kind with Alan, be the it as improves or gets down then well flattening, How good being mid-single-digit of of digit early of have of can what's California When a kind

Alan Yu

question, $X from take Well, it's fee double-digit to apple, fourth I apple million if from out January was the to If million platform Brian, comparing December. as to online mentioned we're we earlier growth quarter, we -- today's revenue-wise. already the that the answer $X added

And So on right are growth double-digit -- expecting is that's year we why actually, the see growing past the to in goal that we trajectory, this now. back on COVID, the expecting -- growth hopefully, see track based to like our we're of it historically, the digit been right is prior seems expecting in to to our we're double-digit to we're first basically have trajectory And double year-over-year. see quarter -- XXXX a organically.

Brian Butler

And fees. side, should costs the then -- of platform you how on XXXX, the much you're think about And you line top included cost Great. how kind growing operating we when anniversary that? double if digits? fast Okay. the had do that -- again, When grow cost, operating

Alan Yu

for to investment future going more would is are additional advertisement that in call terms of online. of invest. I an sales this We

continue that so business spending they can to our advertisement order to continue recur we're for basis. a growth, in business, paying and online For acquire basically -- on product to acquiring buy recurring -- new

by our currently to this from XX% goal to $XX grow of next increase to million So million is year $XXX our million business, year. basically, $XX

was in going XX to online revenue at on more increase see expenses spend it's But time, for it the expense. same the to faster months. definitely going past our the help We than advertisement us are the

Brian Butler

on kind outlaid spending Can what perspective what there? have has growth? that double-digit support growth, to capital you generating do then type that a of expectations be give color to of on And you kind of Okay. some from

Alan Yu

on of we crazy in bit how do online how growth little that. set a and advertisement. be as expenditure, Basically, capital of budget we much. to not the terms been much spend on higher, pushing won't we're much In a we going but go that We've terms online spending

that So where a we capital for space that's going capital we're space. warehouse part, in that big expand for exception see additional on the the to except why looking to I That we is expansion don't expenditure warehouse are on see additional a region growth. to -- that on support mega definitely where want millions definitely, center It the build in Southeast hand the on the cash to to already. have part. our we be that But support the flow could

Brian Butler

Okay. reported last that of you here? third one, And breach have or might in you my on then update just Do impact have had quarter. stands a that in the be kind the what data future an might where been and

Alan Yu

investigate. -- our more investigation more same into employees, bit and actually that hack of there the were e-mail little no And a terms hired out any breach. time, breach. which a there's investigation, were through of material employee an attachment, they that Initial investigator able see couple no if our We to We'll cautious data on the We part. the continue or following system. -- on we were some in were material came to third-party data were at hacker issue on click there was based it initial a of

very there nominal, amount terms of monetary and non In spent the damages monetary were is very material. damages, no

Operator

closing this remarks. There turn Yu will no [Operator Alan Instructions] time. questions back the I over for are at call to

Alan Yu

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

Operator

participation. for the all meeting. thank you concludes this And We your

now may disconnect. You

Karat Packaging (KRT) 7 Nov 242024 Q3 Earnings call transcript