Karat Packaging Inc.

Good day, and welcome to the Carrot Packaging, Inc. first quarter 2023 earnings conference call. Today, all participants will be in a listen-only mode. Should you need assistance during today's call, please signal for a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. If you would like to ask a question, you may press star, then one on your telephone keypad. If you would like to withdraw your question, please press star, then two. Please note that today's event is being recorded. I would now like to turn the conference over to Roger Pondell, Investor Relations. Please go ahead, sir.

Thank you, Operator, and good afternoon, everyone. Welcome to Carrot Packaging's 2023 First 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, Jan Guo. 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 most recently formed 10-K, 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, 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 directly comparable gap measures to the non-gap financial measures is included in today's press release, which is now posted on the company's website. And with that, it is my pleasure to turn the call over to CEO Alan Yu. Alan?

Thank you, Roger. Good afternoon, everyone. Our first quarter performance reflected a strong execution of our 2023 business strategy. We were able to achieve a record gross margin of 39.8% and record adjusted EBITDA results since the company's IPO in 2021. Despite the industry-wide deflationary environment and multiple price reduction that we implemented, moving ahead with our growth strategy on improving inventory management and fill rate, we recently signed a lease for an 83,000 square feet distribution center in Houston. following the addition of a Chicago warehouse earlier this year. Our plans for geographic expansion on the East Coast and the Midwest region are progressing well. With the recent expansion of the sales team and additional marketing activity, together with the new contracts that were signed during the fourth quarter last year, we are expecting revenues to pick up again during the second half of this year. As a reminder, Revenue for the first half of 2023 is expected to be lower than the same period last year when pricing for inventory sold was at the peak level. In addition, order volumes during that time period last year were unusually high due to supply shortages. We continue to execute our asset-light business plan and are now scaling back manufacturing production in California. while increasing import items, focusing on higher margin product, during the past few months, we have significantly enlarged our sourcing network in Asia, giving us greater flexibility without additional overhead. To meet our growing demand for eco-friendly and compostable products, this category grew 17% in the first quarter over the prior year quarter. And demand remains strong. Our 2023 growth goals for the eco-friendly product category is to be around 35% of total sales. Due to multiple construction and regulatory approval delays in Taiwan and our recent strategy to shift toward imports and diversifying eco-friendly product sourcing, we decided to sell a portion of the joint venture Bagasse Factory to Keri Global Group. We are expecting the transaction to close within a three-month period or soon thereafter. with the selling price equal to our initial investment of about $6 million plus 5% interest. Lastly, we made a significant upgrade to our e-commerce platform and expanded our online support team. Sales to Canada and Hawaii are underway and proceeding well. We are now seeing some of the benefits of our online efforts with the business going in a positive direction. We again generated strong operating cash flows during the first quarter and continue to project positive cash flow throughout 2023, which is allowing CARE to generate excess capital and seek new opportunity. Accordingly, as announced on Tuesday, our board of directors declare another special dividend of 35 cents per common share. I will now turn the call over to Jan Gao, our Chief Financial Officer, to discuss the company's financial results in greater detail. Jan?