Karat Packaging Inc. Q4 FY2024 earnings call

• Ended 2024 with strong Q4: sales volume grew 14% and net sales grew 6.3% YOY. Gross margin improved to 39.2% vs. 35.7% prior year.
• Prioritizing supply chain resilience, reducing reliance on China to ~20%, sourcing from Taiwan and other regions with favorable trade conditions.
• Implemented pricing increases in certain categories effective March and April 2025.
• California market stabilized and growing modestly; Midwest showing strong growth; Texas market growing big time.
• Signed new 187,000 sq ft distribution center in Chino, CA, to be operational by May 2025, doubling distribution capability in California.
• Reevaluating operating processes, investing in automation and AI to enhance productivity.
• Exploring sales opportunities in supermarket sector, expanding sales team focused on this sector.
• Board approved increase in quarterly cash dividend to $0.45 per share.

For the 2024 fourth quarter, net sales were $101.6 million, up 6.3% from $95.6 million in the prior year quarter (excluding a $4.8 million benefit from online platform fees). Volume grew 13.9%. Pricing was unfavorable by $5.4 million YOY. Gross margin was 39.2% in Q4 2024 vs. 35.7% in the prior year period. Eco-Friendly product sales in the fourth quarter increased 11% year over year and represented 34.5% of total sales.

• Q1 2025 net sales expected to increase 6%-8% YOY.
• Q1 2025 gross margin goal 37%-39%, adjusted EBITDA margin 9%-11%.
• Full-year 2025 revenue expected to grow 9%-11%, gross margin 36%-38%, adjusted EBITDA margin low to mid-double digits.

• Tariff uncertainties posing potential impact on margin.
• Ocean freight rates and trade conditions being beyond the company's control.

Q: Ryan Meyers asks about first quarter revenue growth guidance and acceleration of growth.

A: Alan Yu talks about California market stabilization, Texas and Midwest growth, preparing for tariffs by ramping inventory.

Q: Jake Bartlett asks about revenue growth drivers, pricing, tariffs on Canada/Mexico, freight costs.

A: Alan Yu discusses volume growth, price increases, tariffs as tailwind, freight costs coming down.

Q: Brian Butler asks about segments, vendor consolidation, cash flow, capital spending.

A: Alan Yu talks about distribution channel growth, supermarket opportunities, capital expenditure on trucks.

Q: Michael Francis asks about geographies with most opportunity, gross margin decline, operating expenses.

A: Alan Yu highlights Midwest and Texas, gross margin decline due to tariff uncertainty, operating expenses coming down