Karat Packaging Inc. (NASDAQ:KRT) Q4 2023 Results Conference Call March 14, 2024 5:00 PM ET

Company Participants

Roger Pondel - Investor Relations

Alan Yu - Chief Executive Officer

Jian Guo - Chief Financial Officer

Conference Call Participants

Jake Bartlett - Truist Securities

Michael Hoffman - Stifel

Ryan Meyers - Lake Street Capital Markets

Operator

Good afternoon. And welcome to the Karat Packaging Fourth Quarter and Full Year 2023 Earnings Conference Call [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Roger Pondel, Investor Relations. Please go ahead.

Roger Pondel

Thank you, operator. Good afternoon, everyone. And welcome to Karat Packaging's 2023 Fourth Quarter and Full Year Conference Call. I'm Roger Pondel with PondelWilkinson, Karat Packaging's Investor Relations firm. It will be my pleasure momentarily to introduce the company's Chief Executive Officer, Alan Yu; and Chief Financial Officer, Jian Guo. Before I turn the call over to Alan, I want to remind all of 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 Factors section of the company's most recent Form 10-K as filed with the Securities and Exchange Commission, copies of which are available on the SEC's Web site 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 Karat Packaging undertakes no obligation to update any forward-looking statements, except as required by law. Please also note that during the 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 Web site. And with that, I will turn the call over to CEO, Alan Yu. Alan?

Alan Yu

Thank you, Roger. Good afternoon, everyone. Sales volume for our 2023 fourth quarter grew 7% over the prior year period. Although revenue was again impacted by unfavorable year-over-year pricing comparison and by startup delays from several new national and regional chain accounts, we estimated approximately $2 million to $3 million in revenue from new accounts which pushed into 2024. We are starting to work on orders from these new accounts now. As part of our strategic initiatives, we continue to scale back US manufacturing during the fourth quarter, which further enhanced gross margin to a near record high of 35.7%. Sales from manufactured products in the fourth quarter were 16% of total net sales compared with approximately 27% last year. We expect our gross margin to remain at a higher level because of our initiatives and the continued strong US dollar. Sales of our eco-friendly product grew 11% in the fourth quarter over the prior year period. This category represented approximately 33% of total sales, which exceeded our expectation versus 31% last year. We are continuing to develop new and innovative eco-friendly products to meet increasing customer demand and expand our customer base. In 2023, we opened new distribution center in Chicago and Houston and doubled the size of our Washington State distribution center with the move into a new 100,000 square feet facilities. These new distribution centers are fully operational and contributing nicely to geographic and market penetration.