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Karat Packaging (KRT)

Participants
Roger Pondel IR, PondelWilkinson
Alan Yu CEO
Jian Guo CFO
Jake Bartlett Truist Securities
Brian Butler Stifel
Paul Dircks William Blair
Michael Hoffman Stifel
Call transcript
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Operator

Good day, and welcome to the Karat Packaging Inc.

First Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Roger Pondel. Please go ahead.

Roger Pondel

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

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

Alan Yu

you of pleased to today. everyone. all be Thank here with Good We're afternoon, you, Roger.

Our first and operational margin execution, quarter again expansion. record demonstrated excellent achieving XXXX results sales strong

categories, Our including some Karat's channels. account, tea positive services. Sales expanded products, online distributors, extent all and newly to boosted sales chain our branded Zone and regional and bubble across particularly Tea national performance supply logistics was retail by broad-based were

to our we many new with existing and gain wallet distribution continue through e-commerce, We wholesale share And direct-to-consumer added customers. customers through channels.

online presence important Our to be continue initiative. an

the the showcase company selling higher to the of product, and addition a XXXX and selling enable plan sites, same cost from efficiencies products and The the is industry. and environmentally leverage. improve in cities and states beginning long-standing empowered grow to our single-use and compostable capitalization. this for first in creating achieved supply continued XXX ban Demand providing Karat's product points their to operational costs, option freight on Karat margin basis expand one-stop products rise, commitment more our convenient to freight to us In to enact platform quarter, margin for benefited year. to and we also gross other into a to year XX.X% foodservice has quarter of sell Styrofoam challenges purveyor increasing demonstrated duty plastics our chain ability Gross the customers. friendly are products. last Despite disposable over and biodegradable shopping regulations as leader

of tableware this XXX The and boxes, About vertical supply will its to is is year space most enhance of currently Longer bagasse, the feet X,XXX and derivative States square domestic China, United XX,XXX in our from. plant, at the for foodservice This XXXX. we become objective bagasse be subsequent product further venture customers. entered which from half we agreement similar our the happy United Karat's will total plates, in is into build As Hawaii. state-of-the-art XXX,XXX products approximately products of to feature chain a capacity, state-of-the-art products leased which mention provide and to automated in in factory the to bagasse future. that integration expanded States square a also or of dominant manufacture and do the on takeout and joint to of Karat's close new the in which earmarked containers bowls, And offerings, produced sugarcane robotic are we where warehouse in in a plant a imported other pulp. a near to manufacturer California the from adding new term, I'm of warehouse imported expected just produce XXX% month, continue minimize is goods of plant as it innovative feet to tons this dependence will Taiwan new compostable quarter,

allow our and us rates fulfillment warehouse much feet This sales to growth. our additional demand. meet expanded increase also South We by and needed room XX,XXX further support Carolina growing space square increasing space continuing will give more to additional us warehouse

we warehouse continued of business and As the operating into believe we our base accelerated expansion XXXX, will efficiencies. proceed continued by further see we growth

the year, over to We to the quarter XX% last currently year. $XXX increasing forecast the guidance quarter the of we up expected growth the of to to be the XXXX full same full of of million $XXX $XXX and million net million, are million. are midpoint XX% for from million XXXX range sales to million year targeting be the million at in last range of XX% XXXX about $XXX with year Accordingly, $XXX $XXX guidance versus range or the up net our in second in to $XXX sales for period

full rate of margin for We XXXX. ocean predict. The for on costs XXXX challenging remains are freight the elevated goal to XX% average. year freight the remainder expect gross remain to currently the year Our XX% to

operating margin We year While currently of some adequate freight freight efficiencies in questions. want possibly the be expect goal and on gross our of expected higher some currency offset our of most to I reiterate ocean impact second quarter average for gains second and the in XX%. duty quarter unfavorable time capitalization tailwind of to the will we absorbed the from and costs to continued first foreign XX% third quarter. XXXX, full leave

So greater will results Guo, over financial with that Jian? to Jian Officer, detail. in the call discuss to our Chief our turn said, I Financial

Jian Guo

you, Thank Alan.

Alan new $XX.X quarterly strong mentioned, same XX% first As million of rising We the in we period delivered XXXX record significant sales a quarter last in increase sales adjusted reported year, in $XXX.X quarter, customers. existing and growth the growth to from million and from another reflecting impressive EBITDA. net

national of the $XX.X currency of expansion XXXX profit first a increased the product XX.X% all the for was increases rose and million to X price to margin greater XXXX The to to last the By quarter offerings, and quarter. result Gross primarily XX% the from second year. margin first of first the largest same XXXX, implemented sales for fueled and in for quarter months bubble product XX.X% our impact. cost to chains new products, fixed improved higher-margin ocean channel suppliers. XXXX strong foreign along sales XX%. grew Gross online and the and favorable by our offset pricing advanced Our penetration Sales quarter. half with leverage, costs. tea growth Sales first strong sales margin for operating freight for contributed distributors, increased was growth. sales and XX% labor Also throughout efficiencies benefiting the gross strong retail products, the XXXX to our XX% regional increased channel, quarter to XX% channel the rose

sales quarter the quarter some the third from QX XX.X% Although increased freight be second first not a higher possibly QX net until in of goods sold in in or freight will as overall, XXXX XXXX. absorbed of the costs costs cost of X.X% of percentage to XXXX,

for of year. expect we the are year XX% goal million, continue as million, margin were Alan compared the first to confident rates prior freight also net net ocean freight our manage XXXX the of $XX.X and remain While we for of elevated deliver sales that the we currently or in gross $XX.X mentioned, for quarter. effectively the quarter the to full with expenses on costs XXXX, sales XX% remainder Operating will

year the year debt as XX% compared outstanding year-over-year. to the first quarter the Provision taxes Other abatement interest comparable more and $XXX,XXX in recognized quarter XXXX, and increases million line for the to quarter expect remained The cost we in prior with the offset compensation the the swap. stock-based the on operating operating million in working cash higher growth leverage receivable rate We XXXX. the in our last an with net some finished production year. efficiencies of seeing working our the from an year season activities our same believe by income difference into quarter the from from quarter quarter. We of are year. the first consistent both income and Net EBITDA compensation. adjusted transportation from compared in shipping million XXX second quarter. Adjusted be XXXX operating first Our was for Packaging XX.X% costs a fair operating share partially per last with versus interest with which million payables on is XXXX change $X.X was of shipping including loans year term Net reflected costs doubled prior XXXX due Karat's basis capital, nondeductible for We Net the the year-over-year, and from execute for the or related capital net $X.XX adjusted of higher improved to decrease quarter for the increase quarter quarter in $X.XX $XX.X activity public $X.XX the to delivered average $X.X tax to XXXX. compared to attributable or of accommodate million its primarily $X.X inventory changes and for in of million first the $XX.X credit million demand same in quarter. from peak last quarter the positioned year. first in prior primarily compared by quarter to higher $X.X decreased of to diluted $X.XX for accounts share $X.X XX% for Inc. record the sales, our completed for earnings quarter XXXX the for first year quarter $X.X per XXXX. $XX.X was points future attributable last million the inclusion first XX% certain million than million offset expenses. $XXX,XXX prior an quarter of buildup and the well first was million of $X.X rate or end accrued April value of share common was per The The of diluted year income quarter for year. strategies. with in more $X.X XXXX million We million Karat Consolidated higher were quarter or XXXX EBITDA Karat first achieved doubled prior diluted in in $X.X cost part higher cash stock-based consolidated $X.X in initial account used income to was $XX.X offering, quarter more to in million, from than to same at the the expense quarters margin Heading by in increase X.X% same quarter provided ago. income interest with

the has and XX, line borrowing manufacturing CapEx XXXX, credit and under in quarter, this questions, now Alan automation. invested the be outstanding back happy $XX.X million million for operator. call of company the principally of will As of to answer first the under XXXX turn availability the line. during and of your We to I'll million I $XX.X $X.X additional March

Operator

Jake the from [Operator question And Truist Securities. from will Bartlett be Instructions] first

Jake Bartlett

And is start sales in for the increased to on on the year. XXXX. question first quarter. guidance Good a congrats great My

as now like what If you than you maybe us of some a It is? seems has accommodate. the been kind main drivers for of increased detail can could while to really the guidance just give stronger demand

strong. it's been like demand So it feels has already

seeing? assumed on I'm is Is that added you more in the whether that guidance. in it there's increased the then can capacity increased it pricing staffing you've wondering, that touch just the And quarter? So you're if also

was X% the pricing, had I through update to there? about think least running I to any was in be going XXXX. Maybe what at X%

Alan Yu

more space, thing in Arizona demand there's More everywhere, we has one California. anticipated the packaging shipping California that Vegas warehousing increase and Well, explosively There's seen more in grew basically and was more thing of Hawaii because Vegas going to that tourists what additional going really we've that Vegas. and than are to be. Las a are same in coming more the Jake. for a that It's Arizona, packaging. we're in Las demand, both are for example, And side we've to Sure, demand strong you state Hawaii. it lot for increase there's actually is coming seen on tourists and to California, the Hawaii into and demand the heard and coming from we tourists adding

Boba Another thing is Tea our supply.

We season revenue in Boba overall growth Tea huge to wise. in a that the growth peak sum first into quarter. our attributed are quarter supply, our a seeing And large that we're in has already demand the of this of entering second

looking but Lastly, really of a [full I it's well. -- course, strong, a more go and seeing there's in the high say growing the categories compostable particularly, as and lines. into categories to growing categories demand would the people are products more in growing. our utensils, eco-friendly bagasse line] is other We're few

mentioned I we our to increased rate fill is that approximately XX% going our are revenue. XX% was rate now. fill automatically. fill It but XX%, automatically to our thing up Another our that increases quarter, actually -- only Last rates

attribute on the I the increase towards price part. guidance that of wouldn't in much So increase

Jake Bartlett

helpful. just release Just help subsequent model and would really duty, was quarter. could piece. you that includes it in there? us help of rest understand how of understand helped guidance us a the quarterly And that in in in quarters? Does first through Maybe hurt could to the helpful. that the the press the that year. gross the how quarter That's might It how progression be help first freight on flow capitalization by moving margins, the -- then Great. mentioned if you was give the just And if much you us

Alan Yu

Jian, question you for I'll answer that Jake. let

Jian Guo

for the Sure. Jake, much you question. so thank

$X in terms the impact for of capitalization in So million. -- the the of dollar approximately the was total from amount QX, about impact

much it freight X.X% of remarks, sold with mentioned percentage of of the in $X brought was shipments million of quarter. ocean season year-over-year. the versus We even were QX, Asia primarily a as quarter, stock second our of goods was cost a at we because quarter, this our of benefit overall, And sales first in up remains, starting inventory anticipation that lot peak up. we with QX, in lot the XX.X%. our last really higher sales, As our we starting the in in from And a year, cost were to

XXXX. for second remaining So the terms the your of to answer quarters of part expectation question in in

freight a to some few. holistically. the of headwind, the to we've the QX, as margin will chunk QX our least with bit we are capitalization little from probably QX, -- in impact capitalization we'll from we we seeing think a year offset said, in in in cost. some to in freight you absorb able the well a impacts, expect ocean So capitalized the favorable name do as if expect negative Even of ocean good just second be will, gross mostly freight XXXX or and we our full QX, partially that at of a the for highlight of ocean quarter That realized terms benefit as factors I for a the about few

efficiency. we to are in see from significant And USD continue into products impact foreign improvement a mix impact, one, just the strong operating of against seeing shift some our some higher-margin really we we well our positive to then So improve as as continue product currency on currencies Asia. to continue of in as fairly

still negative XXXX, reason reiterated quite a impact trending to for average. the deliver margin we of on the seeing that year offsetting are goal expect that's to XX% negative we we factors QX, So towards -- that on the few are basically and XX% why the positive full in expected gross the

Jake Bartlett

JV entering next the that in really you're my helpful. That's question And is into facility. on the Great. then

packaging tons question. the containers. one to whole That's help kind for do could might that more have You facility year some mentioned, you and And the us understand I Alan, year. XXXX? follow-up. in what some quick that next you for benefit Can of a be mean early this in of my sales open and be And that expect

Alan Yu

May and you be the compostable will we paper already received from Sure. many into [indiscernible] We've expect year and plastic cities Styrofoam plastic to the and states packaging be plastics transforming going plastic [step], containers. as of County XXXX Hawaii will already said, is utensils, such -- that starting ban new straws product. X, year Well, takeout XXX% all the all that last as a as single-use same more And Styrofoam out telling of Los plastic single or Angeles and the or to Jersey all as anyone and other of we China that our to are going are and banning we've more the we're away China. JV we move still do year. that investors parts been the But that perhaps is know, from Asia same bagasse too. of the with And And into most coming this is New world, started the Taiwan. what thing. trying products states in possibly did

out automation goal a And system, on Texas see produce is goal bring can have goal. will the side? kind manufacture robotic that domestically. And our side. impact basically it Our of to what can Definitely, our have revenue our And favorable our on we into is it to it yes, of domestically? is impact these if revenue we the would test

don't part the raw venture, the that found to do material, Now which raw is some that the have same of we product to worry All second of bagasse basically a to into another have ocean our of XXX of of be cost location of will in say freight. be to material actually mentioned terms versus the domestically the be also the containers produce we about produce and on able produce freight. actually out of joint can will can part. I our containers joint which -- part product. about first can manufacturing we I worry have control production from we We would We of can contributed ventures. that the that paper out XXX ocean

So that of we're what figuring exactly the XXXX, now. out revenue total still right

Jake Bartlett

Got a more is that that that JV? sales supply certainty of with real think it. Or of then more quickly, driver of is move? costs And of a you

Alan Yu

to suitable and U.S. say new the learning the ability our the in they test -- would sales if the manufacturing driving are ability out equipment, it's for domestic see I also

Operator

[Operator with Instructions] The from Stifel. question is Butler Brian next

Brian Butler

everyone And products. update for expectation environmental the new is Let's that it guidance? and the kind of revenue kind of then kind go facilities just now? of you just what the start that on once of percent of eco where what And in XXXX Can 'XX? up percentage ramped could

Alan Yu

you actually give over the on can part? go and of with I'll Brian goals current future the the company, numbers Jian, that

Jian Guo

Brian, high I sales, Yes, QX. in remains it a terms eco-friendly take that our just in overall, of went percentage teens. products, up as little sure. can the bit total a question. from of It

XX, I said think QX, we high close to teens.

it's just in it for, So that current bit obviously, the up that -- a quarter. less went still terms is range, in little X% of than and

As do of the venture increase eco-friendly recent your the eco-friendly continue percentage regions, the the some with our half there to the about the were -- the of products into trend we as towards joint XXXX. additional XXXX XXXX, especially second throughout in of will starts capacities some we definitely We seeing second preference some of some developments year. of question, also this part it's shift continue side [indiscernible] rest well. XXXX, to we the as the of expect and the production To and towards of the think [indiscernible], in the continued consumers' use JV, end on answer the products of where the cities regulatory think development sort and especially are as on

Alan Yu

XX% goal our is XXXX be the our overall line, And is for our of Brian, goal. green -- is shooting our goal revenue product. to the That product eco-friendly the to ESG,

Brian Butler

product Can products? similar margins? the other Or you is materially your it remind eco-friendly in me, to is pretty higher

Alan Yu

margin than traditional products. our higher [Indiscernible]

Brian Butler

margin. higher is It

Okay.

Alan Yu

is. It

Brian Butler

maybe between on in that's you are that you was And of down each getting next at strong price the offsetting then overall of business question kind kind between saw? the My volume inflation you level growth. price Can a the and break line? growth

Alan Yu

you that Can question? rephrase

Brian Butler

guess just break you I price can very the volume? Well, growth highest between the at level, and down organic

Alan Yu

that in assessment the have -- that hands? you your would Jian,

Jian Guo

take can that I Yes, question.

from revenue approximately So look the the volume would primarily and year-over-year, I come roughly of half growth out pricing when you of from mix. at and say overall that then remaining

terms color XXXX, primarily of as of the is, additional year. add price the a So this pricing, I'll in half -- implemented first little second quarter you're multiple here the the in in aware, bit of increases half also the we second in

we're us giving -- at looking year-over-year benefit really that's the comparison, the So there. when that's

Brian Butler

was XX% So I about had from about if -- so of the in increased that pricing place? the you that correctly, growth heard put

Jian Guo

Correct. A little over XX%.

Brian Butler

XX%. over little A

a the And remainder that up a Okay. inventory either for with flow back how the Or is Does we on an and build, level flat slightly should cash inventory negative? the that end year? think the on about working that of down that's elevated through at side, come or going number to while? remain we capital

Alan Yu

a that's would for of in at or wants -- months product, X I can't -- to get while And strong. elevated product. it to one growth -- we to our be continue customer was inventory the our there a in will be And that months in to have we the it a to XX%. because rate -- fulfillment shortages we now. level remain that been from expect has a want last causing to takes because our And do they think growth can we we and -- U.S., year, lot support product a realize be overseas can X us

increase of we that the our in California place automatically a our definitely And this that that and understanding there's it, if warehousing have have have So place, for reasons product Hawaii, and we one spacing, in to the increased demand sitting we sales. in will warehouse. products our is

in more Texas and growth. to we'll So that. we are in in California actually bringing said, space inventory support grow warehousing looking be With more that for our to

Brian Butler

Okay.

cash this higher that I free is the growth, expectation of to negative to change to inventory support the mean, is going that in with be kind year? flat flow So

Alan Yu

free us be will cash operation. flow more profit say generating the year. would are -- What I with positive from net this

Brian Butler

Okay.

So That's the be -- fair? remain will for in free investment additional inventory, expect cash positive flow even with you to XXXX.

Alan Yu

is That fair.

Brian Butler

-- Okay. on M&A update and then on and for of one kind color the or for environment And last outlook me. Any XXXX XXXX?

Alan Yu

this year, for market. last I seen now M&A market with everyone shift next challenging when would was M&A was the Well, activities be the -- it into I will good booming, doing downward cases. the a company was months. really of X And months I've to up in what lot we've or down, opportunity in And economies think that in will be guess -- to -- which partner of that suitable terms activities there's actually partnership less terms in which well. X [indiscernible] in with us -- in who most to as look a recent the of the market coming seen

there's So I the more months that there's would down ago. -- opportunity that road X say I us, for think was it than

Operator

Blair. the question be Dircks Paul William from next And from will

Paul Dircks

take last ask, first pressures the me, XX So had economy greater the to account I we've hold? how inflationary just wanted that to seen rapid you've is with the customers of conversations over the days, across changed as for one Alan, tone the national XX

Alan Yu

that is they're shortage shortage are paper a a in that still the the our looking on it paper still closely ongoing, to paper necessarily -- account work on is paper most with But there side, XX XX the cup food continuing the Well, be material. And -- else. raw container, domestic paper shortage side. days, concern side, of there's on tray paper is could there -- from there's in something or a side, customers a but not us. there's marketplace, marketplace. to our a And still paper the mostly seeing There -- paper we've plastic on a the is the primarily the of still mean, even a I past supply disruption chain seen are national or

but we work of just that a lot terms which them, to able with do good be changed even can supply idea to secondary, accommodate everyone's sure national in case to during having chain secondary third in backup of make a the in that So would that They talked versus a of not is only of perception chain them, order a vendors closer account. we to seeing no not if still we supplier think to which us there that source disruption right now. be I pandemic the source primary the is it single supplier a want are

Paul Dircks

it. Got

-- the demand national customers, relates and your my that demand differently, said seeing a I impact here as maybe to from carry much as -- So fair an goes not then own reason I'm other it guess of implying no as if not really implies as it standpoint that assessment? those they're be answer a solution for some of looking far we're would to their supply change a a seeing really for from chain you, We're challenges. economic account

Alan Yu

of that much part, a Yes, I haven't increase heard yes. demand on

Paul Dircks

prepared which, require this for online potential does you your step-up to that open one, as shop. the Can planning maybe remarks Okay. a in and the guys were to to a during profile you website you that. your I Switching the growth channel, is two, online And maybe become margin the know, how up of mentioned margin you appreciate channel even one-stop talk highest channel, the the about, this business? more change expenditure? of would

Alan Yu

to we of expand now we basically At One margin sell to Amazon just by our terms any -- -- need other is customers. items. sauce, it offering, [indiscernible] could not we to that a -- the be our we feel see needed our directly in what utilizing a be have been in time, our could been chili sales. We've same carry website, could utilizing Lollicup product sauce, it sauce, being is the flavoring change ourselves, I we store, to be online That don't Well, our our but it could in a to products. thing it we're -- have be sell end own user. our

stream, part out we see with we looking them the So use partnering platforms XX,XXX affiliate can to commission what vendors at that like do sell there. what and that the can else our some We platform, And different shop. as that on to as our revenue a of we base see better to these online we're want they commission as use their clientele as -- product. a can is can customers us utilize offer or one-stop where we earn that's just

Paul Dircks

That's in helpful. these quickly your a up And some that. implemented of to maybe your quickly ideas in online? see should follow expenditure your be to expectation it expect of how on new Or would terms that there I step-up major website? we Is guess,

Alan Yu

to our product on I people, bring an past year, years our mentioned on this the years, is I dollars that as that the of warehouse much in the system we X partners spending earnings find say people how of upgrading what online spend we to we people would has the operational now, in millions our of expenditure system. well. been that would now year like will Right that as manage, platform the we the their is online products, we upgrades on last within I money to to -- our calls, to of be X would management we well spend been see spent because quarter our than more past need as the last -- most to sell expenditure and year and new don't higher say In has spend expense use before. technology, manage,

So people versus the investing. where going this year. that's be website to we're It's

Paul Dircks

one Last helpful. me. for That's

you down see here, rates expect bit. XXXX. the that to to ocean recently But course freight mentioned elevated we're had over remain You rates starting of come a

perhaps So in you later we down, see those affect -- continue is, the my quickly us of come if change the current question can course if this could continue to year? remind Are over P&L? some those the persist from your we rates see to the do we tailwind margin we how see should year

Alan Yu

ocean we past and now, weeks, lockdown thinking yes, well last the mainly remain Right to ocean saw again. of down come due down freight be Sure. year, brief X-week back freight X in I China. elevated see The X-week, it port that the in that, period we X-week, and the said came the we reason has went it for to a the is of expect X

what we're going when rate just port to are the majorly. in reopens, right rate up how not the terms opens -- -- Now -- go now, going we happened again? So see our not is to stand we're changing of the drop we're

raise one see a this margin U.S. coming their perhaps of by of to the it's because to goes ship mention said, continues to paid due I like products the not that how but said, going economy for from might the be are want used that or of helping the to that time, truck and offsetting shipping we you stay by -- would help it's and nearly the been overseas. We down the support But carriers -- in quarter. is actually double. down LTL these same the coming they course, a told the the to lot low third margin the domestic has and $XXX, opens the it's the ship freight going truckload terms still -- want being with to down. And port at quarter, of wait $XXX. by I'm to see in of customers. said, we're Where to second again end was and thing price will it we're with come lack that it have product that if the see ocean now -- the there'll China from open, lot be China I their rate until sure domestic So factories the that raised That rate But freight will at come

not seeing there's market we're lot now. -- the the mode normal changes market So in for still a right in It's a shipping. -- is of

Operator

Michael Stifel. from be next the Hoffman question will from And

Michael Hoffman

Okay.

can the With it's we I cost, how you tell the regards Brian had my from ocean could. freight, is spot some So contracted rate versus asked if a much but your rate? follow-up, a questions, to voice, freight why

Alan Yu

Yes.

we averaged about We our last contracted contracted were $X,XXX. rates rate, have year, which purchased have --

at the we this time double, that about rate year. The than at last because be $XX,XXX. noncontract it, Our about mentioned we more freight is is the that actually the if versus [indiscernible] you look at current year orders -- the contract -- double to to same get year's we're expect our $X,XXX. the able And rate freight from elevated that reasons of ocean is contracted one end high -- the

higher contract still So than the from year. that, even last rate it's with

Michael Hoffman

What percent spot? is of contracted freight total versus

Alan Yu

XX% contracted would the I so of XX%, rate. the versus rate This newly X. say spot year, far, May contracted started year, Last

we'll of on far May So only market our maybe rate. XX%, took we XX% The remaining XX% rates. contracted -- using be of X, our

Michael Hoffman

Okay.

So you tailwind as on can the spot the if of the rate freight lean favorable, get for actually might some you because is trend a that?

Alan Yu

Correct.

Michael Hoffman

capitalizing So freight question the costs. is next about

the capitalizing much dollar freight And to $X Within XQ? how you as time line the full assumed amortize off? a the versus capitalization, guidance, year amount million within have you're that in what's the

Alan Yu

can you question? answer that Jian,

Jian Guo

that if $X was much sales QX. capitalized XX.X% take net your the we my the approximately So in of benefit much was remarks, cost previously we of probably correctly, capitalization question, how benefit how or out million freight can in you first I $X question. of Yes, costs in QX. $XX.X ocean that QX? prepared -- total about as with to But freight capitalized the of answer question Michael, roughly I a I roughly mentioned of the -- we even ocean million got hearing in about million,

as the the expected provide quarter will current -- would the capitalization on the Based QX bit of hit, much we the just And in from just on I -- margin current well. the that's mentioned the capitalization, a third margin, over will, gross to depends on year that purchase of you color if terms of P&L, of third amortize, how that our are second making sort QX. the -- a the will that on over quarter seeing will, estimate as quarter benefit average. freight you quickly the ocean the well we expect the as and we In expect if second the goal this volume impacts favorable we the recognize reiterated of -- wanted from we expectation in quarter. be over that that estimates, absorb full our benefits XX% even on bit second might pretty ocean with XX% There still because majority we previously I the gross the be in quarter. little we there this do for offset are to freight expect some the little probably from to the believe we year negative more impact we'll

products, So the quite a are I continued the of to towards few, we mean favorable foreign the the operating seeing factors. from margin few name higher gains some a currencies, impact continued shift from efficiencies,

Michael Hoffman

Okay.

cycle. of to just of guidance type a being pushing a in expense on the finer which having amortization when is And X- on portion the going -- bit for it. point, difference this is year XX-year full So make timing that is that was little and of think reabsorb I to you're freight that being year, thinking capitalization is full predicated some basically recognized important more not of of capitalized the a context expense

an that's I observation. important that? think I Am So about wrong

Jian Guo

I'm The in... guidance Michael, from full expected freight quarters capitalization the correctly, question impact margin is if from ocean understanding full -- your year on the our gross year with all

Michael Hoffman

Jian, it saying of you little Yes. what in to if X, bit reabsorb But capitalized you're understood I is, in going most you're in X. a XQ, you correctly,

that fully going it the to make you numbers. your you're P&L, absorb within So and still

Jian Guo

the get part. What numbers? I I'm sorry, didn't last

Michael Hoffman

losing sorry, the I'm that's my I'm Yes. voice. point,

margin to not if You've me on margin having what going I'm capitalizing the gross correct guidance hearing you be dependent and for given or expense. gross margin I'm is wrong, that

reabsorbed capitalization XQ in the the over. timing that of You is the full time have by year will

Jian Guo

correct. That's

Michael Hoffman

capitalizing I think for important a by numbers year, point full you're issue? an that's the not timing your of getting is to it's expense an more

Jian Guo

Obviously, that you little was The really was The the bit capitalization will. quarters, We're right. on caused the really driving we the margin capitalization. margin if of right? absolutely not expansion just expansion. between fluctuation the improvement, driven You're touched by a -- making

Michael Hoffman

reported it year, full mean I mean But did you're your number, by but not help number capitalizing expense? and for Yes. having the your X I making X,

Jian Guo

absolutely right. you're Yes,

Michael Hoffman

-- improved I think given you alluded Alan, as dip an And pretty fulfillment meaningfully because the fulfillment fulfillment important has that's fulfillment to rebounded? build, your inventory as comment. XQ that in

Alan Yu

Yes.

be quarter. had second year, entire is say would issue same until quarter quarter will the year and definitely way a Our first better would We major and even fulfillment the is than last last also fulfillment last better, I better. say. all quarter year's I

Michael Hoffman

it lastly, a bring has you but been didn't you, really time. And up labor Okay. challenge this for

labor or have making on a basis? add as like relative better you and staff decisions can adding you're So warehousing what you, about feeling availability

Alan Yu

one I -- think last grow the also. than it's I ship mean and than previous we and people of sure the quarter is that's the looking And help would now. year that labors. us business maybe better situation say making Yes, have labor sufficient better better that is that product year. definitely thing for are better now, I can it's More the would I say beginning for job

Operator

next Jake from Truist question is Securities. from the And Bartlett a question follow-up

Jake Bartlett

about mentioned half the And in essentially was on Great. quarter, the revenue roughly XX% the growth. you that of the Mine XX% pricing. pricing is first

little you've So the a and -- more implemented taken question in of already. kind bit that was 'XX XXXX, throughout

So you growth -- what is of revenue contributing how XX% 'XX? to the pricing is much to XX% in expect that

Alan Yu

I of last the that contributed especially year. price believe XX% had Jian of year, mentioned toward to XX% is we last increase the that end

this particularly course, We're new XX%, back of And seeing raised that are seeing increase. the us because that January of down we price -- price on to the and is that this have we're now source raw our price challenge Are price the is of increases from additional in going that price paper just we the year. yes, we in more benefit November increase October, products XX% there there be is that increase. would is material. using terms the telling is where is paper We the I that say, still road? received

necessarily not but paper there's increase side, more on overall road certain price be the the down product going the the price on products, on still increase. additional to there'll a line, So

Jake Bartlett

the question wasn't. quarter but understood to be just about first the about So clarify, first pricing I to because specifically, it

what average expect whole about you that pricing for on saying XX%, year you're XX% So 'XX? -- is the so of

Alan Yu

XX% will The this growth year growth, is from of we're -- that the of growth saying be that our XX% XX% -- about increase. year-over-year if price

Jake Bartlett

of Okay. ask And was pricing? the in about -- how maybe the just then XX% the quarter, question much revenue what growth first to from

Alan Yu

you do number? have Jian, that

Jian Guo

Yes.

a total of from Jake, on we about, -- the of the second the when the think lot because the year-over-year or this little quarter increase is just growth year-over-year, Alan's total less lot So impact obviously, from last bit quarter we a the revenue And year first -- half to the half were to full mean a going last for XXXX. last roughly we're from little that comparing to the year just increases probably was over I agree just talking we most -- of point, the we're pricing -- XXXX, with implemented maybe -- maybe pricing as comparing the I of about increase. we because year, be add price the was first a as also XX% year-over-year growth, would Alan it's

be a So full as will overall, little pricing comments But would agree into with half I Alan's this year-over-year impact we for the head bit year. of the the second year, less. the from

Jake Bartlett

And I well, -- cost to now, then going too. helpful. I'm That's Great.

And just was for to deposits the kind the the for I maybe in think that and question on if that as And do spend expect And The well. JV? include break does other how CapEx to out property related But CapEx the on paid XXXX? year. investments not, of that equipment. you includes much

Alan Yu

our the down in that year. to get I deposit the XXXX. the the We've that would already year say robots, moving XXXX product our in revenue. to been part that's seeing of be of spend JV, year automated majority the of seen actually to using XX% the this we're because were you of we that and That's will that and we're spent forward pay as in mentioned, X% for I a products last terms spending investment, more as XXXX year in last over still CapEx was goal. in would no that our the paid this such say than And looking of had

Jake Bartlett

Just I in -- the the JV, of does are your you mean, how the work -- JV? JV terms investment in with

Alan Yu

Japan, XX% that And branding manufacturing was JV, for into sold be U.S., the the Karat be plant. approximately be will that be other year is the full on $X phase. the in And we're other goal should in in to could Australia, And the investing this JV. could XX% it clients, other million of later production out be starting other it XXXX. private of -- manufacturers. what produced this label customers could that's That's the will in the quarter production basically, of first year, take around fourth products over

Operator

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

Alan Yu

operator, Thank and with joining our support, Thank your company. a for today. Have speaking you nice thank We you to much. you, very in And us all look appreciate interest I forward day. you again.

Operator

concluded. attending now presentation. for conference has The sir. today's you, Thank thank you And

now may You disconnect.