Karat Packaging Inc.

Good day and welcome to the Carrot Packaging Inc. fourth quarter and full year 2022 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 a touchtone phone. 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, Investor Relations. Please go ahead.

Thank you, Operator. Good afternoon, everyone, and welcome to Carrot Packaging's 2022 fourth quarter earnings call. I'm Roger Pondell with Pondell Wilkinson, Carrot Packaging's Investor Relations firm. It will be my pleasure momentarily to introduce the company's Chief Executive Officer, Alan Yu. and its Chief Financial Officer, John Guo. Before I turn the call over to Alan, I want to remind our 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 the company's most recent Form 10-K, 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 Carrot Packaging undertakes no obligation to update any any forward-looking statements except as required by law. Please also note that during today's call, we will be discussing adjusted EBITDA, adjusted EBITDA margin, and adjusted diluted earnings per share, which are non-GAAP financial measures as defined by SEC Regulation G. A reconciliation of the most comparable GAAP measures to the non-GAAP financial measures is included in today's press release which is now posted on the company's website. And with that, I'll turn the call over to CEO Alan Yu. Alan.

Thank you, Roger. And hello, everyone. We were able to grow our top line during the fourth quarter of 2022 against a very strong prior year quarter. Despite an overall challenging deflationary environment in our industry and multiple price reduction that we've implemented. Additionally, Thanks to our continued margin improvement of effort, we achieved record full-year gross margin of 31.2%, despite a negative out-of-period inventory write-off of approximately $900,000 and generated a record full-year operating cash flow of $29.5 million. With the stabilization of ocean freight costs and the supply chain issues caused by the pandemic now essentially behind us, We are focusing on operating costs, containment, and eliminating inventory redundancies built during the supply chain disruption period. During the fourth quarter, we added a number of contracts with new national and regional chain accounts, and we expanded product offering to existing customers. We are expecting these new agreements to materialize and add to our top line starting mid-2023. and we are continuing the strong momentum in building our pipelines. In the near term, revenue for the 2023 first quarter will likely to be down about 10% compared with our prior year period. We are anticipating revenue to pick up again toward the end of second quarter. For the full 2023, we are expecting revenue growth to be at the high single digit year over year. As a reminder, Year-over-year comparison were impacted by pricing for inventory sold during most of the first half of 2022, which was near peak level. Also, order volumes during that time period last year were unusually high due to supply shortages. We continue to see solid growth in our environmentally friendly products. This category grew 24% in the fourth quarter over the prior year quarters, and demand remains strong into 2023. Our joint venture in Taiwan, building a state-of-the-art bagasse factory for manufacturing 100% compostable food service products, is progressing well. We are continuing to receive orders and many inquiries that could fill capacity quite quickly, which would be a good problem to have. However, construction of the plant is behind schedule because of the power supply issue, which now has been resolved. We currently expect initial shipment to begin in the second quarter. We are implementing a number of growth strategies in 2023 that we are confident will provide solid long-term returns. Among them, we're improving our fill rate and inventory management and modifying our model to be more asset light by scaling back manufacturing production in California while expanding import products which carry higher margins. To accommodate future growth, we are working on increasing our distribution space. In February, we signed a new lease for the approximately 52,000 square foot distribution facility in Chicago and expect to move in by end of April. We are also getting close to sign the lease for another distribution facility similar in size in Houston. Additionally, we are working on expanding our existing warehouses by adding approximately 50% of new rack space. As part of this initiative, we are targeting geographical expansion in the East Coast and Midwest regions. To do so, we are increasing the size of our sales team by approximately 35%. Lastly, we are in the process of upgrading our e-commerce platform and expanding online support teams. As well, we are excited to begin offering online sales in Canada and Hawaii. We expect to again generate strong operating cash flow and continue to scale back our CapEx this year, which will give the company flexibility to consider returning excess capital to our shareholders as we continue to look for strategic growth opportunities. I will now turn the call over to Jan Kao, our Chief Financial Officer. to discuss our financial results in greater detail. Jan?