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Karat Packaging (KRT)

Participants
Roger Pondel Investor Relations
Alan Yu Chief Executive Officer
Ann Sabahat Chief Financial Officer
Michael Hoffman Stifel
Ryan Merkel William Blair
Jake Bartlett Truist
Call transcript
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Operator

Good day and welcome to the Karat Packaging First Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Roger Pondel with PondelWilkinson, Karat Packaging's IR firm, please go ahead.

Roger Pondel

Karat afternoon earnings welcome to call, inaugural call good first Karat be operator, on quarterly XXXX IPO quarter which since you everyone to and Packaging's the April Thank XX. its completed also happens Investor with Packaging's firm. I'm Roger Karat Relations Pondel PondelWilkinson my to will Alan company's Officer, introduce Chief be It and Ann its Sabahat. the Executive Yu; Chief pleasure momentarily Financial Officer,

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

Alan Yu

trading under per to friendly, on IPO And more few call minutes. the our XX. get Karat we pleased our priced restaurants symbol X.XX completing manufacturer we'll traded items NASDAQ on today disposable first a and and let their be national here the primarily financial setting with million set proud related more first company. began We're and distributor United is throughout Well, by States. specialty the of of IPO quarterly helping you, earnings To little KRT publicly the the a in foodservice of wide in talk aspect We as you of environmentally tell Thank hard products at Packaging range Roger. Packaging you April the used this for and and process work shares about point. regional dedication us Karat team to share. I'm $XX company. me a a stage, in about foodservice a the

food ingredients, bags, containers, include specialty lids, take-out and tableware, cups, products and Our products. equipment, straws, gloves related cutlery, beverage

from Earth line resources. sustainably offers products Our renewable made eco-friendly are that Karat focused quality,

design, and is distinguished including development One services. that of customized we offer new and printing, company's solutions, characteristic also product logistics the

performance of for Our business diverse a reflect in products financial expanding solid We and and channels. ability rate base. has our and robust quarter distributors where reported online customer deliver XX%, quality to particularly solutions been at our growing. Net first strong and quarter customized result to sales grew a that the strong

expanding through from to single combination broad overtime increasing acquisition. through product. do providers We incremental customers strategic and to customer source our to with our initiatives that base business aim base, disposal a Our channels existing pursuing set all goal be is includes of sales their this of for deleting of revenues rolling foodservice customers, online a our

our channels, online in quarter was all progress in first winter restaurants second the we XX% March our for that first increase higher the days, Sales cools and a a during the costs. is as in same Texas reflect being the storm far impact these severe in partially margin reopening XXXX quarter driven by country progress The a Our well made period. much in pace continued by these the that in February particularly positive which offset results commands significant have rebounded strongly and of time. grew at negative as areas, freight so robust from XX plant demand of at are in quarter, the increased by across

through our freight up experienced As rates operations, the a and believes the Like that through most ability just levels doubled near-term to as Ocean us at increase have the continue to in the is margins. customers freight next our in as quarter. run companies action winds took pandemic quarter. protect action high in products early a This demand targeted increase also with year. in of than friendly costs year into more significant our costs are expert prior the down, these channels. series well over gives to until environmentally international confidence also second online to demand for costs we pass price our on We these higher quarter increased will continuing first

manufacturing paper Cup to in Pacific use products a with first manufacture other We Pacific among footprint the We straws the in quarter, to distribution Hawaii. our Cup. also and completed acquisition intend facility new of expanding

have acquisition time manufacturing six We to distribution plants, adequate want continuing now leave centers targets. to other questions. We and three for evaluate we're and

here stop Ann to call Ann? So will to I discuss over results quarter turn the first our detail. and in

Ann Sabahat

Thank you, Alan.

distributors, by and gross principally to increased XX% top-line Net expenses, the sales growth. margin strong to our reflect related XX% to in and results sales the million $XX our quarter. quarter. first operating Sales quarter in first offset expansion advanced in XXXX channel grew XX% an increase Our largest growth online

national delivery. Sales As also made our view of fell XX% towards continue because chains to shift you in business know, existing first preference as in as primarily investments Sales channel. part and we've an XX% channel, consumer we this online significant grew customers. retail acceleration shift in online food channel a reflecting to customers retail we ordering quarter by the with in to to expand our

the cost, found $XXX,XXX During tax the the recorded $XX million income gross online. gross margin due freight income positions. to due through the to the points as the first offering public high related grow X% basis particularly $XX interest stores Operating in in swap fees. quarter many year-over-year our declined effective Gross expenses the Alan quarter, rate in channels the quarter. sales in the in from professional despite shipping expansion as for $X to and orders to pressure profit. to Operating We from a to expenses, first increased a last it workforce in million due XX as of XXXX $X million shipping company XX% by margin quarter, quarter. XXXX XXX and a with pandemic, rate higher resulted well profit our in to income expense easier expense first quickly costs. in margin same $X.X first drove gain XXXX to period tax quarter, point a Other decrease interest Sales of higher in online of increased increases retail increased in first costs mentioned. in primarily million loss quarter Operating facility place XXXX a the XX% fair versus compare the year. primarily freight value primarily increase same in reflecting net last to Cost million primarily declined continues offset XX% XX% in of basis partially higher period increased $X.X approximately principally the Provision due higher first quarter, in cost first higher million in increase were to approximately as operating have year. changes that

EBITDA attributable XXXX EBITDA Packaging to to Karat the certain declined year. We swap quarter, Adjusted due used statement. at basis million effective to same Karat entity a Wells, amounted Karat Net interest million the approximate quarter. is $X.X increased XX non-controlling in with declined Packaging million X% working of interest manufacturing Adjusted Consolidated $X.X tax income rates this Inc. income on in net first purchase quarter. non-controlling XX% with decline Net margin in year. quarter income and the compared changes XXXX points million quarter result first positions the construction are period The last quarter. loss attributable Global last New million operating last in capital Packaging $X.XX XX losses primarily attributable $X to year. variable to or XXXX XXXX. reported to in in in $X.X first per $X.XX by Capital to facilities. first associated income than gains to year-over-year, Adjusted compare primarily first by improvements expect Wells, slightly to attributable increased rate EBITDA million points the as and primarily X% our provided consolidated $X.X a to the in adjusted positions swap $X relative was Net Because the same activities Jersey margin in EBITDA per XXXX in basis in manage basis year. XX% diluted in to the to less period or interest our $X held year. first facility in or first increased to our primarily net the cash equipment to their quarter, the interest the period of of income same due attributable share increase interest rate to million of are a XXXX expenditures in Global as share diluted to last

in of provided public As in shares of company on along gross the $XX Alan public to Alan initial back with per of portion closing to Alan? April resulting pay obligations. any the with the remarks. of mentioned, allotment a down the principal of call now use happy price proceeds $XX at over proceeds option approximately of may share. aggregate this we common an you exercise million million That XX often a of X.XX these I'll turn million. completed by have. questions loan company's $XX issuance to our underwriter lead we'll for IPO our answer the the stock The We balance offering of be year,

Alan Yu

Ann. you, Thank

and related growing in manufacturer proposition disposable long well. select to served our our position marketplace. environmentally and food enhance profile distributors competitive serves customers a as tough company traded rapidly only specialty employees as believe and the our has of Our service publicly a We product items value friendly

products nimble As of of our for a Packaging from Karat us advantage has competitors. supplier we differentiate these that range a service industry food wide that tremendous believe

Our solid revenue deliver XXXX first and growth in gross result quarter profit.

month the cost through first end a the we we toward industry as demand nicely up to picked continue pleased pressures, work in expect of demand disruption and and sales ahead. we're Even the our quarters, strong

to to their begin wanted we entire hard Karat us and dedication and exciting an work for diligently of With our Q&A commitment to our Before to goals team all section, is Operator and I and growing for the company, thank personally our that, all call achieving for enhancing time Q&A. This the toward stakeholders. our the I'll operator. excellence. turn our collective value of over work for

Operator

Our Please Instructions] will come [Operator Michael with go from Stifel. Hoffman first ahead. question

Michael Hoffman

public continue on and like fulfill. to and you broadly the up fulfillment the and out earnings the tease your of of first ramped sort Thank of supplier your and network industry order your food sort to and start We very how ability with to to I'd supplier I'd because on the restaurant congratulations of of call. backdrop quality that strength like much, services network. Alan, part, been you've demand meet in your and to able activity understand that company

demand meeting still the is getting super customer high, needs? is the their you're fulfilled, overall even So fulfillment if

Alan Yu

demand up thank in – on chain you we increase And of did drove question. our in so-called month industry for April our this chain and an that's issue. matters. perfect procure added and from our not more accounts And like we came the the Well, of opened were we other of terms the kind also of we off become of got actually our overcome customers, existing economy expecting just that which first sharper distress of supply national up ask in were only who accounts we when of ordering And everyone been us in for when within did well a increase It chain the customers. the assistance we oversee order chain just all are but we working with in we to really supply in the balance national – the been for economy our February. have really helping else. better product to – March chains in to hadn't has world, Michael, more packaging, when opened a overseas a being as sudden, or – discussion entire and saw to and demand existing as a the product would supply all March existing actually If all assistance. a the

our internships, that's our a that doing helping we the something new to supply part. are the which product, existing issue assistance, problem So that have we little out on doing we're best are them with, us to to tour coming our best for customers, customers that but

Michael Hoffman

meet as been as share there's an your customers So continue well to current opportunity [indiscernible]? to gain

Alan Yu

That is correct.

Michael Hoffman

looking price the profile you from what to of alluded cost Okay. material increases modeling to dampening, pathway and a so nature would to so in Are its predominantly standpoint? with pass-through, it's then these a and you freight; that's bad not expense, we thing. And margin be between increases an the raw increase at by and do offset how sort necessarily revenue but from

expenses opposed gaining any you're it? as Just revenue to on offsetting

Alan Yu

I distributors something the to driver and year. our that this out online very that time our it and that we They're at purchase the same year sure focus margin side we want our able the this revenue get Well increasing our we margins offering needs. continue and And to last and through to It's increase meet get their their also of online. supportive for is to are were selling that those local there. focused from product This selling store by sectors through expenses we gaining passing are side where online, the key and margin. we're is that a to make e-commerce customers that see their something are revenue able not and products we'll on product see a also product, would is by

Michael Hoffman

for two real overcome Okay. over that have to XXXX It's tough build the is in PPE very XQ in last XXXX? XQ really XQ versus me. is had XXXX you big that you that Did or comparison

Ann Sabahat

Michael, speaking. this Ann is

Michael Hoffman

Okay.

Ann Sabahat

Michael. a that Michael was great question

to of compared in XX% with we $X.X So XXXX, what PPE at saw XXXX in contribution of we revenue the QX saw $XXX,XXX in million QX year-over-year. XXXX margin of negative to QX compared

we'll to per than year. see not or be the the PPE do less see rest million definitely trend we So continuing, the of $XXX,XXX for less it quarter $X than

So the would be impact minimal. very

Michael Hoffman

Okay.

And you're also you but tougher compare have so comparisons. a XQ, in those offsetting you've demonstrated in that XQ

a million Your offset expectation really be in almost XXXX. would you in strong; XQ PPE did to of to $XX XQ

you'll because of demand the side? your that So anticipation offset

Ann Sabahat

correct. is That

Michael Hoffman

Okay. of aggregate revenues how think EBITDA given going Will for how you of ranges been about, you've sense And increases are level some us the should we to price fall? XQ give doing?

Ann Sabahat

you can the want it sure Michael question? that just to So, please address I I point? clarify to make

Michael Hoffman

Yes. it I well. probably didn't ask very

strong in think out of of come labor, demand through is you've going Okay. some and that so, driven your because overcoming things to the there's XXXX? and going what EBITDA so such pricing for level PPE How XQ our about earnings like going are we interest is are do some how to price how would pushing been – increases products. look to frame EBITDA freight, you sales depend, there's What from to then and offset XXXX and XQ is and sales

Ann Sabahat

That is a question, Michael. great

share with QX, QX. address in So bit QX I'll to a little

without we PPE. our XX.X% So Without grown revenue PPE have we have XX% in QX, grown year-over-year including year-over-year.

continue of XXXX, that see continue will growth exceeding excluding to XX% will to PPE. be in our that we So QX

organic of growing XXXX. we're what So basically seeing we're This our QX XX%. growth above for is our PPE going

Michael Hoffman

very is you Thank on first much. the quarter. Okay. Translation

Ann Sabahat

you. Thank

Operator

Blair. Merkel come ahead. go question Our William next from will Ryan with Please

Ryan Merkel

the thanks questions. Hey, for taking

to you First I the with you was off, I big costs the cover second in expect Alan, your do importantly, was know quarter? mentioned and then How was you impressed quarter? this with freight but mentioned freight margins, gross sales, an freight And price online offset. increases also headwind

Alan Yu

And last in we January, XXXX. In compared we we almost year increased March. the a increase pricing and [indiscernible] quarter did freight increase did Ryan. see or XX% Yes, significantly to more what back in first actually a freight had nearly was, February

freight increases different we are looking to April, also numerous May we of line. increase proactively and freight the do looking much on So to price And the our that did to marking and June see offset how has segment just increased second – because continued in costs. the product terms in freight prices in quarter of are price continue in carefully to very we up

Ryan Merkel

Okay.

chase maybe freight. you're like in a a on bit still sounds it So of

or if in quarter, So it's is will that freight at point, headwind this second unclear fair? neutral the a be more

Alan Yu

Obviously, the are second of so second right be quarter, in at we now. or it quarter far freight stabilized should point the in month neutralized the

Ryan Merkel

it. Got Okay.

to sales what the Okay. drivers the to is e-com else sense. to dig and more, And then in due going are? that I online the are the on? wanted Restaurants But a bit makes Ann what some pandemic, reopening. shift mentioned of

were I new products. think increasing spend marketing on planning adding you your

what Just is that? driving else

Alan Yu

sharp in when are ours, same we've packages like restaurants disposal convenience that try marketplace. any other in online where in don't increase convenience and chain struggling supplies. cup seems napkins keeping to at keeping run terms demand of Well, more more are placing all that store domestic of a seen national And material a and struggling opening because of is of – competitor the out the account or the stores, stores people they times. just we are this sure because national accounts, up capacity. going The just doing in of raw the even order chain they're seen make or some manufacturer straws individual other terms and it they or can there's the Not whatever see the we've competitors to demand online possibly just importers

So just now. used to dine-in, continue. ordering that that's will to more ordering stick into find take-out and likely see we will when more it take-out see we where more And see with to trend than and like they can restaurant people going people are people product online, that order online we most rather people going use are a see we product as

Ryan Merkel

the And do retail that? next weakness, lastly expect you just what's to that turn quarter? And Okay. around driving channel

Alan Yu

more retail next and lacking open the U.S. to in you that We to a labor. around to west coast, We've are unable store the go retail shortage in the more many completely as do due labor see heard that in up. opening stores turn is are There anywhere of quarter that also a and major

are reopened states restaurant that So off that. assistance, are need open help some the they a to up, owners with it And do becoming hopefully get their will to – see businesses. restaurant having federal staff the better, overcome challenge getting we easing the to

Ryan Merkel

Great. pass Thanks, it Alan. Nice quarter. on. I'll

Alan Yu

Thank you, Ryan.

Operator

[Operator Jake will Instructions] Truist. from Bartlett question Please come Our next with go ahead.

Jake Bartlett

the taking mix specifically of mix you, is is product doing really recovering am the to product My for and quickly. was question probably I that how the how call. the products. to been was whether cup wondering the as mix congrats What earnings how shifting? go, Thanks well business, Alan question off-premise – has first on as cup first Great. – the business was

Alan Yu

but up, reopening [indiscernible] we're first and least, we restaurants cups business. cup has because quarter, come dropped like most are the are the opening you, slowly, cup seeing Jake. opening that the business back at really the businesses with of Thank sharply cup during saw the – the the Well, pandemic,

take-out side, has the the well the are has allowing terms cup seen customer cup and dine-in, the using sharply, restaurants the it soft more and the side demand fountains, consumers on in especially really have whereas up as heating on food weather so more the demands but more cups use when opening is their of increased. a we take-out in steady on really of grown So on side, fast as to are chains drink

that's the of pushing on shortages things side. So, the supply cup that's the in one

Ann Sabahat

about little couplets, jackets, a the clarify Jake, million cup XX% the in but holders revenue of let in cups cup $XX total of products related more, that came XXXX, supplement revenue for last all question of from year. and or slightly and still combination and about related perhaps X% bit at of QX down cup QX me that approximately of

XXXX. However, compared staying steady of to QX

million containers, take-out take-out did of of terms In XXXX the QX of hinged $XX in XXXX, grew or containers containers, million $X and of we QX revenue XX% of $X.X QX XXXX. up in basically that see million to the in the from

our trend we been of Jake, mix. terms So seen, of product have that's the some that in

about $XX last we other products The food to trend XXXX, million in syrups grew to in in product QX Jake. our QX of and a of see is thing boba and QX – both mix up that our of year, terms million in that from $XX

Jake Bartlett

given to the of That's the shortages helpful. were that really my for from and is on across near-term what manufactured manufacturing. And increase your And manufacturing given kind of sales you is the percentage time part and Great. ability yourself? it How that And is to takes you – Asia. that question here? come manufactured out your do help next expect that – now you first the shortage of freight in your

Ann Sabahat

is question. that great Jake a

to continue roughly that we we import and to our manufacture. sales mix between of the between versus manufacturing to XX% that our see the XX% so, goods we And goods be from

our and way SKUs terms facility. in be view we Texas manufacture at to capability And customers our is products that flexible having manufacturing supplement, number so a our availability, Chino we limited do but to resource have of our the of we ourselves to that

and XX% we continue that goods come our revenue so come goods we to from from XX% about to our import from to still our And do overseas. continue see of will goods, manufacturing

Jake Bartlett

you. thank Okay,

Alan Yu

this the of just to product do cost freights our Jake, as XXX% are well. we increase imports. run sure that focusing And will manufacturing just make on And we of out to to yes, add reduce looking rather our customers than also not for that existing

like our domestically – manufacturers is with and it. says, we're Ann are going revenue also our growing basically, So

Jake Bartlett

sense. about sales decline it. That got I retail got then it, the area. a Got makes And and the question

earlier And think that in increase you I some sales that that online due of shift through of retail buying part margin of how retail wondering I'm less. there And much one very profiles the in that as channel. channel. I the the Alan, the shifting the customers for that to contribution believe into online used were just maybe is and then was mentioned to of be margin is different the online retail script, or

So the are they now opting to convenience through pay more of just for ordering channel? the online

Ann Sabahat

is So, question. great Jake, that another

of by in So dollar our terms by of for negative we a online million $X.X Q-over-Q we decrease online, XX%. increased million – saw retail, or XX%; terms $X.X saw amount or we of in

So in shift that online. is from retail to essence there

In be continue our margin the of see close to our to online that contribution contribution XX%. to terms margin, highest of we

a that And there we a to margin the and definitely amount continue shift fact that expansion channels. also so, online see in terms is we to see in to our terms dollar of our contribution online of

Alan Yu

ask your to we – sure get me let that see Yes, question. customers right just online to make willing now. they pay are Jake, product with more the to answer a

Jake Bartlett

Yes.

Ann Sabahat

Yes.

Jake Bartlett

two or those Okay. or benefit? offset margins be a also margins price to relative the and a few gross – you've the more, XXXX? impact I but And cost that. you question higher increases have profits of on things gross drag freight gross resin taking the just Do you're believe view and to in a then, is you How last the that XXXX net expect just do to do although mentioned the I

Ann Sabahat

we expansion Jake, going able to it's maintain to be – we're in XXXX. that So, gross continue to margin see the

freight materials our well effectively as our see costs in we In February, be drag. passed to duty customers. the increases our did targeted have increased we and So, to on raw as a January that and

gross we March, in and strongly March. very saw XX% in our in March margin above rebounded However,

And about that we're quarters. trend so, the very the seeing into we're excited that next few fact

And so, margin able maintain to are definitely expansion. our we

Jake Bartlett

but hogging What the X%, more first was on I it was have the in stop percentage Earth. then think I'll question in fourth sales I I was Earth – sales the And quarter XXXX? Karat about Karat Okay. the X%. of XXXX the call, mix was actually and in of quarter believe was one

Ann Sabahat

– slightly great eco-friendly of eco-friendly a XX% QX QX last of comprised below for products XXXX another to So Jake, total XX%. in of roughly our was revenue year, question compared which

QX have XXXX XX%. of from So about roughly eco-friendly to products compared increased slightly

line, our it roughly terms of for about In XXXX, QX comprised about X%, of XX%, but eco-friendly in X.X% us products was eco-friendly Jake. roughly

Jake Bartlett

you Thank very much. Great.

Ann Sabahat

Absolutely.

Alan Yu

Thank you, Jake.

Operator

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

Alan Yu

for you us call. and your in and joining today you thanks again We speaking for to second Thank soon forward everyone to support operator and with interest company. our look our on quarter

Operator

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

may You disconnect. now