Karat Packaging Inc.

Good afternoon and welcome to the Carrot Packaging second quarter 2021 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Roger Pondell. Please go ahead.

Good afternoon, everyone, and welcome to Carrot Packaging's 2021 second quarter earnings call. I'm Roger Pondell with Pondell Wilkinson, Carrot Packaging's investor relations firm. It is my pleasure momentarily to introduce the company's Chief Executive Officer, Alan Yu, and its Chief Financial Officer, Anne Sabahat. Before I turn the call over to Alan, I want to remind all listeners that today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to numerous conditions, many of which are beyond the company's control, including those set forth in the risk factor section of the company's IPO registration statement, as filed with the Securities and Exchange Commission, and copies of which are available on the SEC's website at www.sec.gov, along with other company filings made with the SEC from time to time. Actual results could differ materially from these forward-looking statements, and current packaging undertakes no obligation to update any forward-looking statements except as required by law. Please also note that during this call, we will be discussing adjusted EBITDA and adjusted EBITDA margin, which are non-GAAP financial measures as defined by SEC Regulation G. A reconciliation of non-GAAP financial measures to the most directly comparable gap measures is included in today's press release, which is now posted on the company's website. And with that, I will turn the call over to CEO Alan Yu. Alan?

Thank you, Roger. Good afternoon, everyone. We're pleased to be here with all of you today. Our business continued to grow at a robust pace. Earlier today, we reported solid second quarter financial results that reflect strong demands and the company's prowess and its nimbleness as a leading supplier of customized solutions for a diverse and expanding customer base. In addition, increasing adaptation of environmentally friendly products and solutions continue to drive demands for the food service industry, and particularly for carrier packaging. For the second quarter, net sales were ahead of the expectation, increasing 12% year over with strong performance in our national, online, and distribution channel, excluding the personal protective equipment products that we primarily sold in the second quarter last year during the height of the COVID-19 pandemic. Our rate of comparative sales growth for the second quarter on our core business was nearly 70%. Online sales rose 22% year over year in the second quarter. and we continue to shift our sales mixes toward this high margin channels. Sales through national and distributor channels also increased at a double digit pace. Retail sales were lower year over year in the most recent second quarter, primarily due to PPE sales in the prior period. Close margin in this fiscal 2021 second quarter declined year over year, primarily due to increases in freight and material costs, as well as a comparison to the high margin PPE product that we sold last year. As Ann will explain shortly in more detail, we sold a significant number of PPE products in last year's second quarters. These products carry high margin, closely to 50%, which is higher than margins on our traditional products. Ocean freight rates have risen the highest rate we've ever seen and we expect this rate to remain at high level until early next year to respond to the current and anticipated increases in freight rate and to protect our margin we instituted multiple price increases in the second quarter as a result gross margin increased 110 basis points sequentially over the 2021 first quarter despite higher free costs we continue to take action to pass on higher costs in July with the largest price increase in our company's history. Our positive momentum has continued into the third quarter with a secular tailwind we're seeing in the restaurant opening, consumer spending and services, and adaptation of environmentally friendly products helping to drive the demand and support of our business. We're also seeing high demand for our beverage line of higher margin bubble tea supplies, which is adding to our growth and profitability. As a result, we're currently targeting net sale to be in the range of 100 million to 102 million in the 2021 third quarter. Moreover, growth in high margin online sales and the actions we've taken to pass on higher free costs has given us confidence in our ability to improve our gross margin in the third quarter relative to the first half of 2021 at the same time we are also are driving greater efficiency in our operation we're better leveraging our cost base at our largest facility in texas while increase also increasing output we are also recently expanding our network through the acquisition of a warehouse building and the addition of a distribution facility in South Carolina. We want to leave adequate time for questions, so I will stop here and turn the calls over to Ann to discuss our first quarter result in detail. Ann?