Karat Packaging Inc.

Good afternoon, and welcome to the Carrot Packaging, Inc. Third Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. And should you need any assistance, please signal a conference specialist by pressing the star key followed by zero. After today's remarks, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. And to withdraw a question, please press star, then two. Please also note that this event is being recorded today. 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, and welcome to Carrot Packaging's 2023 third quarter conference call. I'm Roger Pondell with Pondell Wilkinson, Carrot Packaging's Investor Relations firm, and it will be my pleasure momentarily to to introduce the company's Chief Executive Officer, Alan Mew, and its Chief Financial Officer, Jan Goh. 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 meeting 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 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 forward-looking statements except as required by law. Please also note that during this 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 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 will turn the call over to CEO Alan Yu. Alan?

Thank you, Roger. Good afternoon, everyone. We are proud to deliver a strong third quarter with revenue in line with our expectation and sustained meaningful improvement in margin. Sales volume increased approximately 7% over the prior year period. Although total revenue was again impacted by unfavorable year-over-year pricing comparison, along with lower revenue from logistics service and shipping charges as anticipated. Sales of our eco-friendly product continue to improve. This category grew 15% in the third quarter over the prior year quarter and represented approximately 33% of total sales. For the quarter, we achieved a 49% increase in net income from the prior year quarter and were able to sustain an elevated gross margin. Even with the industry-wide deflationary environment, gross margin in the third quarter continued to benefit from our strategy of scaling back manufacturing operation and significant lower ocean freight costs versus last year. Sales from manufactured product in the third quarter were 22% of total net sales, compared to approximately 27% last year, which generated labor product cost savings of $1.1 million. We expect our gross margin to remain at a higher level because of our initiatives and the continued strong U.S. dollar. Now, into the fourth quarter of 2023 and heading into 2024, we will continue to implement asset life initiatives in our other U.S. locations. and will concentrate more on import and distribution. We see a long runway for margin expansion given our objectives of having manufactured products to be at approximately 10 to 15% of total sales. We're also focusing on new product development to further enhance our competitive strength, fill customer demand, and add to revenue growth. Our new Chicago and Houston distribution centers, which became fully operational in September, are expected to contribute to new geographic market penetration and to enhance our fill rates. Together with the recent expanded national sales force, we are growing market shares in the East Coast, Northeast, and Midwest regions. We soon expect to double the size of our Washington State Distribution Center with the move into a new 100,000 square foot distribution center. Additionally, as part of our strategic growth plan, we're looking to open smaller satellite warehouses in 2024 in select regions to support online sales growth, as well as deploying new AI technologies to further improve operating efficiencies. Based on geographic sales from our distribution center for the third quarter compared with the prior year quarter, the East Coast Northeast region increased 41% and the Midwest and Texas region improved 7% year over year. These improvements were offset by softer sales from California which declined by 16%, reflecting a weaker conditioning in the restaurant sector throughout the state. The successful execution of our strategic initiative is also evidenced by our sustained strong operating cash flow as well as liquidity and balance sheet position. Accordingly, as we announced earlier this week, our board of directors authorized an increase in the quarterly cash dividend payment to 20 cents per share from 10 cents per share. The board's action reflects its confidence in CARES' long-term future and commitment to returning value to shareholders. I will now turn the call over to Jan Gao, our Chief Financial Officer, to discuss the company financial result in greater detail. Jan?