Karat Packaging Inc.

Good afternoon and welcome to the CARAT Packaging Third Quarter 2021 Earnings Conference Call. All participants will be in 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 with Pondell Wilkinson, Investor Relations for Carrot Packaging. Please go ahead.

Thank you, Andrea, and good afternoon, everyone. Welcome to Carrot Packaging's 2021 Third Quarter Earnings Call. I'm Roger Pondell with Pondell Wilkinson. We're Carrot Packaging's Investor Relations firm. It will be my pleasure momentarily to introduce the company's Chief Executive Officer, Alan Yu, and its Interim Chief Financial Officer, Peter Lee. But before I turn the call over to Alan, I need to remind everyone today that our 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 and in its most recent form, 10Q, as filed with the Securities and Exchange Commission, 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 carrot packaging undertakes no obligation to update any forward-looking statements except as required by law. Please also note that during today's call, management will be discussing adjusted EBITDA and adjusted EBITDA margin, which are non-GAAP financial measures as defined by SEC Regulation G. Any reconciliation of non-GAAP financial measures to the most recently or the most directly comparable GAAP measures is included in today's press release, which is now posted on the company's website. And with that, it's my pleasure to 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 continues to grow at a robust pace. Earlier today, We reported solid third quarter net sales growth that reflect exceptionally strong demand for our product and continued expansion in our customer base. Market trend remains favorable, particularly for the environmentally friendly product and solution that carrot packaging provides. For the third quarter, net sales were in line with the guidance range that we have increased just last month, growing at a pace of 35% year-over-years. Sales in our distributor, online, and national channel were particularly strong, excluding the personal protective equipment products that we sold in the third quarter last year during the height of COVID-19 pandemic. Our rate of comparative sales growth for the third quarter was 43%. Online sales rose 64% year-over-year in the third quarter as we continued to shift our sales mix towards its high-margin channels. Sales through national and distributor channels also increased at a double-digit pace. Our sales were somewhat constrained by inventory shortages resulting from tight labor conditions and port delays in the third quarter. We are managing the labor environment through increased recruiting effort, the use of temporary labor, and targeted overtime, and shifted distributions to other facilities in our supply chain. Gross margin in the fiscal 2021 third quarter declined year-over-year primarily due to the increasing freight costs in which every company is experiencing, ocean freight rate again rose in the third quarter relative to the last year, although they have begun to ease and stabilize recently. Despite the sequential improvement, we expect these rates to remain at the current highest level compared with last year. In addition, world's margin was affected by increased landed costs, which include freight and duty and custom brokerage fee of approximately 1.8 million versus a benefit in the same quarter last year and in preceding 2021 second quarter. These increased fees were capitalized into inventory in the prior quarter, resulting in a higher inventory cost in the third quarter. Subsequently, as the company sold its higher cost inventory, resulting from increased landed costs capitalized from the second quarter, it negatively affected growth margin. The landed cost varies from month to month, especially due to the extreme cost fluctuation of ocean freight this year. We will likely see a benefit for the fourth quarter based on the current inventory being sold that carries a lower landed cost. To respond to the current inflationary pressures and product shortages, and to protect our margins, we instituted multiple price increases in September and again in November without any pushback. As a result, we expect our gross margin to improve sequentially in the fourth quarter. Our positive business momentum is continuing into the fourth quarter with the secular tailwind we've seen this year in consumer spending for services and adoption of environmentally friendly products helping to drive demand and support for our business. We're currently targeting net sales to be in the range of 93 million to 96 million in the 2021 fourth quarter, up about 34% at the midpoint of the range, compared with the same period last year. This sequential decline is consistent with normal seasonality. We expect our sales to result for the full 2021 year in the range of 366 million to 369 million. Growth in High margin online sales and actions we've taken to pass on higher free calls also give us confidence in our ability to improve our gross margin in the fourth quarter. We want to leave adequate time for questions, so I'll stop here and turn the call over to Peter to discuss our third quarter result in detail. Peter?