Karat Packaging Inc. — Call Transcript 2026

Well, good afternoon, everyone. Thank you for joining us today for the Karat Packaging Fireside Chat. I'm Michael Lu, a managing director with Wells Fargo here. We're very fortunate to have Alan Yu, the Chairman, CEO, and Co-founder of Karat Packaging here with us. Really appreciate you, first of all, taking the time to share all the exciting things that are happening at the company. Obviously, a lot of growth happening at Karat. Four consecutive quarters of growth now, double-digit growth, very exciting. I guess really without further ado, I want to just really dive into it. Especially for folks who are new to the Karat story, I wanted to just see if you could maybe provide a snapshot of the company, where we are, overview of the products, the customers, and really kind of start with that. Great. Thank you, Michael. Thank you for inviting me to this Fireside Chat. Well, first of all, Karat Packaging, we specialize in all the food service packaging out in the marketplace. If you dine out and you go to any of these fast food restaurant, most likely on your daily basis, you'll be using our product. Like for instance, if you go to In-N-Out Burger, we sell them their straws, their portion cup, their cups, and other items if they're short. If you go to Chipotle, we sell them portion cup, paper straws, and some other items. If you go to Chili's, basically, we sell them 70% of the packaging good, from paper shopping bag, to the food containers, to the takeout containers, to the portion cup, to their back of the house grease trap tray, modified tray. If you go to Texas Roadhouse, Chick-fil-A, if you go to Jack in the Box, you name it. Basically, we sell over 150 QSR chains out in the U.S. Basically, our volume is pretty big in terms of in the food service sector. Now, we also sell through online channel. Online channel has been one of our biggest growth area. A lot of companies, people don't realize that how lucrative, how profitable this online business is, and also, less cost, less operation-wise. 18% of overall revenue derive from our online sales. Last year, we did about $75 million online sales. This year, we're looking to hit over $100 million in revenue online sales. We are targeting $130 million-$150 million online sales. The number is growing faster and faster, and the amount of customer we can reach is just unimaginable. Yeah. Very good. The company has been around for over 25 years now, right? Yes. Obviously, it's evolved quite a bit over the years, and you guys have stayed very nimble. Maybe could you speak a little bit to Karat's kind of competitive differentiation, right? Whether it's the products, the global sourcing, the customer relationships. What's really supported the kind of defensible moat of the business over all these cycles and over the years? We see our competitor in the marketplace. They're either a distributor or a manufacturer that does some of the imports. For the manufacturer that does some of the imports, they're still in the old school mentality that they only have one channel of sales, which is selling to distribution. Okay? They have limited growth capacity. If they don't invest more CapEx into their equipment, they can't grow. We see that that segment is growing either negative in the past two years or low single digit. That's how our competitors are doing. Distribution-wise, that's different. They don't have any CapEx expenditures, so less leverage and lower leverage on that, and they can grow faster. But still, they're growing single digit as well. Margin, I would say that if you're an importer distributor, your margin will be higher than the manufacturer on that part. For Karat, our advantage is we do everything. We sell to a small channel restaurant down the street. We can sell to a gas station. They're online. We have a bubble tea supply that we also carry. That's $40 million plus revenue from our overall revenue source. Karat has a higher profit margin, which none of our competitors does. That was one of our bread and butter when we first started the business, and we continue to grow on that as well. For the segment, we have manufacturer. It's very small manufacturing. Right now, manufacturer generates 9% of our overall revenue. We stopped investing in CapEx on manufacturing equipment in 2022. Ever since 2022, after we stopped expenditure on CapEx on manufacturing equipments, we were able to issue dividend, reserve a lot of our cash, and pay back to our shareholder. As well increase our gross margin from a low 20-ish to the high 30s margin profile. These are some of the advantage that we have versus our competitor. Also our competitor grow at single digit mainly by acquisition. We grow organically for the past 25 years, except for one small acquisition out of Hawaii that we spent $1 million back in 2020, and that was it. Yeah. The organic growth has certainly been impressive. Maybe talking a little bit more about kind of supply chain. The sector as a whole has obviously seen a lot of disruption, right? Tariffs, weakened consumer, restaurant softness, right? Supply chain volatility overall. I guess, how have these periods of disruption, and you've kind of seen it all, Alan, how have they actually worked to kind of Karat's advantage in terms of new customer acquisitions and winning new business? Well, because Karat is nimble, and that's one of our strength. We feel that we grow better during a bad economy, during a supply chain disruption. One of the things that is helping us, like for instance, 2020 was one of our best year ever because of the COVID. People were shut down, hard to get product from overseas. You can't open your restaurant without having a face mask for your employee. We imported face masks, air cargo. We were able to help a lot of our clients who are non-client, future potential clients, with their face mask need. In 2022, there was a major supply chain issue with the ocean freight, has gone up over $15,000 from $3,000 on per container. That time, we actually gained a lot of new business as well, and our revenue was the highest ever. Then after the supply chain disruption ended in 2024, 2023, 2024, our revenue dropped a little bit because we had to lower the price that was inflated back in 2022. Now last year, 2025, we saw a tailwind for the tariff hitting because the tariff actually helped us. We were not heavily in debt. We can afford to pay up the high tariff versus a lot of smaller importers that were competing against us, they were out of business. They couldn't afford to import product for themself. There was a lot of tariff involved and because of that, also the U.S. Customs has been examining more containers, and each time they hold the container for examination, it costs the importer a lot of money, which the small importer can't afford. That helped us a little bit. Now this year, the increase in the oil prices, the spike, also help us a little bit, somewhat because we have the capability to buy in bulk. We have the capability to diversify our vendors that we source our product from. Our cost increase was minimum compared to some of our competitors on that part. Every time we see a supply chain disruption, a spike in prices, a bad economy, our business do better. Our company does better in that sense. It's very impressive. I guess talking more about winning new business and commercial momentum, looking at your sales pipeline, really what are the biggest drivers of growth that give you guys confidence? You guys have guided kind of a low teens annual growth rate on top line. What are these biggest drivers? I think you alluded to some of it earlier, online, product innovation, and just overall nimbleness, right? Really how much of that is volume versus price? Our pipeline is built based on two things. One is our existing wallet share. How can we grow with our existing wallet share? We are continually doing that right now. Like you mentioned earlier, are there any more business opportunity with the existing chain that we're doing? Yes, there are. There is. Also new potential clients that basically have not started doing business with us. A lot of time it takes us over a year to convert them. Testing, testing, confirmation, the artwork design, everything, initial ramp-up period. They take time. We feel that we have those booked. New SKU is one of the key to our growth driver. This year we're focusing on paper shopping bag, SOS bag, grease bag, bread bag, all type of bag business and paper board business. A lot of bakeries, instead of using plastic containers, they want to use paper board now. We're focusing on that segment as well. Also that segment has a higher margin versus the traditional plastic and paper boxes on that part. These are the segment that we're seeing that we're growing. In region, we're growing in Chicago, here in this area. So far our warehouse was set up about two years ago. Today versus last year-over-year growth comparison, it's over 100% growth. We're adding more trucks in this area. We're looking to expand our existing warehouse, double the size. We're looking to see if we can sublease another warehouse or add another warehouse nearby our current existing location. Also we can make it more delivery in this area. This is a very area that we see an expansion potential. We're looking to add another warehouse in Orlando, Florida. That's our fourth largest online channel area sales. That's where our customers are. We're looking to do that so the customer can receive their product the next day versus three days after. That's one of the key to our success is making sure the customer can get their product immediate, quickly, faster when they order it versus later. Very good. You alluded to it just now around kind of sales growth. You guys have picked up a lot of new national chain wins recently. Maybe walk us a little bit more through kind of typically how long it takes to convert this from initial contact to kind of the first orders and really maybe more importantly, how does Karat really kind of grow these longer terms and strategic partnerships? Really how do you guys kind of build that kind of share of wallet and kind of really kind of get into that share of wallet more? Well, in a normal environment, it would take about two years to convert a national chain account. In an environment that is very hostile or very competitive environment like today, where there's so many issues on pricing, on supply chain, it may be just three month to convert a national chain account. They expedite it, speed up the process. They skip all these protocols just because they want to get the product in. Like for instance, McDonald's, they said normally it would take two years to get a vendor into our system, right now because some of the shortage, we might be able to get in our foot in the door very quickly. Are there any recent examples, kind of anecdotes basically, of new customer wins where you've grown the relationship in kind of similar manner to the McDonald's kind of anecdote? Are there recent chains or any examples you may want to kind of speak to and highlight? For like what? For any sort of new customer wins, right? To kind of demonstrate the expansion, like once you kind of get in and kind of land the account to grow that, have there been recent successes you want to kind of highlight? Yeah, there's a lot. Like for instance, Chili's was one of them. We first got into Chili's by selling them the food container. There's two, four, actually three SKU, about seven years ago. From there on, we sold them the takeout container nine by nine, because our competitor didn't want to do it, or was taking too long to do it. The competitor was telling them it takes 12 months to ramp up. We told them four months, so we got the business. From there on, adding new SKU, been much faster. That's one Chili's example. For Panda Express, same thing. We started with them with bubble tea supply. From there on, when there's a shortage, the owner says to the buyers that, "Hey, why don't you check out Lollicup, see if they have the product?" It's every time that we can come up in product solution faster than our competitor, we immediately get our foot in the door. That's one of the key thing. Karat Packaging, we're nimble and fast. We can move fast, we can bring things fast, we're making decision quick. Our sourcing team, keys to our success is we have a great sourcing team that move fast as well. Fantastic. Yeah, I think the integrated kind of production and the ability to design and customize all these really rapidly obviously kind of helps with that acquisition process and that ramp-up time as well. Correct. Yes. You alluded to earlier as well on the online growth piece, obviously a big driver of growth for the overall business. I think it's slated to go to $100 million by end of this year. What are really kind of some of the drivers of that 30+%? I mean, it's obviously a big number. Is it new customer acquisition, new partnerships? Is it really, as you mentioned earlier, pushing more volume to existing wallet I guess. What are the various levers there? There are a few drivers to our online growth right now that we're seeing. One is adding additional platform, bringing our product into different platform. Like for example, Sysco, last year they just started the sysco.com, made it available to all their customers. They can order our product through sysco.com. We first started last year with just $50,000 revenue a month. Now we're doing $700,000 a month, which is about $8.4 million a year, and it's still growing. How we grow from there, we initially started with just 15 SKUs, and then right now I think we have over 2,000 SKU out of 8,000 SKU on the sysco.com website. Once we load up more SKUs, our revenue will grow faster. Second, for online growth, we used to sell online with one cases to two cases to the customers, single cases. Now we've enabled customer to buy full pallet, 20 cases-40 cases with volume discount. We're seeing more and more customer not buying one case, two case, they're buying 20 or 40 cases, which is taking up a lot of our inventory immediately. That's causing shortages for the short term. We're ramping up our inventory in some of the warehouses right now. Instead of having them carry just not enough inventory, but we're carrying more inventory. We're seeing that within the next few weeks later, once our inventory restock, our revenue can grow even more with the online. That then comes at a higher margin as well. Very, yes. Maybe talking a little bit more about margins. Your gross margin guidance for the year kind of 34%-36%. Despite some of the kind of rising cost elements you talked about earlier, oil input costs, how do you feel comfortable supporting that level of margin? Could there be incremental upside even, right? As you kind of think about the year ahead. Sure. Prior to the tariff, initiation of the tariff, our margin was around high 30s. When the tariff hit, our margin dropped to the mid-30s. With the tariff refund on the way, we see that adding that back to the past 12 months, we see that the past 12 months regaining back to the high 30s. In our second quarter, our last quarter guidance, we mentioned that our expectation was $26 million to be refunded to our company. Now that the tariff is down from 20% to 10%, we feel that we can confidently say that we should be able to accelerate and advance our current margins more. We feel that there's more room to expand our current margin versus how we guided it. That's certainly a very strong margin profile relative to the sector. Maybe a little bit more on supply chain, right? You talked about it a little bit earlier, but the evolution of your sourcing strategy. How have you really adapted over the years, right? This company had a lot of manufacturing earlier, over time it's shifted. I think you mentioned 9% manufacturing now, largely an import distribution business. Really how have you adapted and really what is your process, if you could speak to it, to help onboard new suppliers, really efficiently, right? While ensuring product quality, availability and consistency for your customers. Initially when we first started getting new vendor is a lot of these vendors, they don't have the exact same product that we need. What we have to do is we may have to purchase the equipment for them, train them, having our staff go over there and train them to run the business, run the equipment for us. That way, we can ensure the quality and the spec are the same. That's how we started initially. As they grew, they continued to evolve, they excelled in that segment. They can actually buy more equipment themselves, support us in terms of our growth. Adding new vendors, same thing. We sold recently a couple of our equipment to a Latin American manufacturer, they just started supplying our product about last month. This was good because when we sold them the equipment, we didn't realize there was a war going on. The raw materials were going to skyrocket, and that manufacturer can actually stock up, load it up, pre-load it, actually the lower cost, the raw material reason. We're able to receive product at a lower cost. That's one of the things that we're able to keep our costs lower than our competitors is diversifying manufacturer vendors. When you have different vendors competing for our business with a higher volume business like ours, we can negotiate better pricing versus our competitor. Where is the manufacturing footprint now? I know there was a lot of China exposure before. How has that evolved and what does it look like? What does the map look like now? If it was seven, eight years ago, China was 55% of all of our imports. Today, China is only less than 9% of our overall import. We shifted our imports from China to Taiwan, Indonesia, Malaysia, Vietnam, and now Latin America. We were thinking of Turkey, but with this war going on, we scrapped the idea of Middle East. Too much issue going on over there. I know that some of our competitors are still buying from Middle East. They're getting screwed right now. They can't get their product out. The container cost is over ridiculous. It's a good thing that we kind of diversify our risk. Right now, we have over 145 vendors that's supplying our product. There's not a single concentration of vendors. Very good. Switching gears a little bit, this question gets asked a lot these days, but I guess, thinking about AI and technology, and really long-term productivity, how is Karat Packaging utilizing AI in your back office to support your growth and really to drive long-term productivity gains as we think about SG&A and some of the operating leverage you guys might get? Well, one of the biggest costs for all companies is labor cost. Labor cost is one operational expense that everyone is looking to see if they can reduce. Our company basically had over 1,000 employees four years ago. Today, we're looking at less than 650 headcounts. We are reducing headcount by utilizing automation, paperless work, more data in the cloud, and of course, I've asked all of our team to look into AI to reduce work from anywhere from accounting to purchasing to customer service. For instance, our online team. We have over 7,000 orders a day. Before, we had to hire four or five people to handle customer service calls, over thousands of calls a day. Right now, 99% of our customer service online call questions are answered by AI. We have much less work to do right now with the assist of AI. That's very good to hear. You guys are implementing it and integrating it into your business already. Maybe taking a step back a little bit, how do you, Alan Yu, think about, or I guess, what metrics do you look at from the broader sector? The feedback from your clients in the foodservice sector, what metrics do you look at to monitor the health and the growth aspect and really where to invest? Obviously, investing in AI was a major investment, but how do you think about metrics and broader industry trends as you make these strategic decisions? Well, we do listen to market intel. A customer tells us, "Hey, this item, Alan Yu, you guys don't carry it. Would you consider bringing that item?" Then we would ask our sales rep to check in the market. Is there a demand for this product? Is there someone willing to make a commitment if we were to bring in this item? Who would do? How much commitment can we get? If we have people committing to a certain item, a certain quantity on the new item, we'll definitely bring it in because we can bring it not only for that customer, we can also bring it for other customers. Just like for example, one item that we recently brought in, it's a multi-fiber grease saver for the back of the house. After you've deep-fried chicken or french fry, you bring the product up, you have a multi-fiber tray to absorb the grease first, then you put it into the takeout containers. We didn't have that item before. It was not because it's Chili's that they needed that. There's really no one else having that product. We brought it in, and we made it available for other customers as well as online. That's one best way to bring in new SKUs, where a demand, not just blindly bringing some item in and maybe we can't sell it. Yeah. Got it. Well, as we conclude, I guess, looking two, three years out, what does success look like for Karat Packaging? What would you like investors to understand about the long-term opportunity that you don't feel like is reflected in the value of the business today? Well, Karat in the past year, prior to 2020, when we were still a smaller company, our revenue was growing 25% plus year-over-year. We double our revenue every three, four years. Right now, I think that we're in the path to also double our revenue organically in three to four years. If we have any new acquisition, that might speed up the revenue growth. At the same time, other companies grew by acquisition, but also they took on heavily leverage and also reduced their profit margin, which reduces their ability to make profit, and then their stock price suffers. Our goal is not to do that. Our goal is making sure that if we have any merger acquisition, it will not hurt our current trajectory, our current EPS or EBITDA. It will only help us have a better synergy to grow even faster and better on that part. That's where I see in the next three to five years. Very likely, we will grow double digits and maintain a current margin. That's our goal. Our EBITDA, increase our EBITDA on that part. Very good. It sounds like you guys want to remain disciplined in how you approach M&A, and the basis for it is now this very solid foundation for you, for which you guys can now execute M&A more so in the next three to five years. Yes, we're very conservative. That's why right now our dividend is paying out more than 6%, and we're pretty confident we can maintain that level. We want to continue that as well. Oh, very good. Well, that wraps up all the questions I had for you. Look, we really appreciate your time. Thank you, Michael. The audience. We'll probably have to give you guys a little bit of your time back, which I'm sure folks don't mind.

Speaker 2: Well, good afternoon, everyone. Thank you for joining us today for the Karat Packaging Fireside Chat. I'm Michael Lu, a managing director with Wells Fargo here. We're very fortunate to have Alan Yu, the Chairman, CEO, and Co-founder of Karat Packaging here with us. Really appreciate you, first of all, taking the time to share all the exciting things that are happening at the company. Obviously, a lot of growth happening at Karat. Four consecutive quarters of growth now, double-digit growth, very exciting. I guess really without further ado, I want to just really dive into it. Especially for folks who are new to the Karat story, I wanted to just see if you could maybe provide a snapshot of the company, where we are, overview of the products, the customers, and really kind of start with that. Well, good afternoon, everyone. well good afternoon everyone Thank you for joining us today for the Karat Packaging Fireside Chat. thank you for joining us today for the karat packaging fireside chat I'm Michael Lu, a managing director with Wells Fargo here. i'm michael lu a managing director with wells fargo here We're very fortunate to have Alan Yu, the Chairman, CEO, and Co-founder of Karat Packaging here with us. we're very fortunate to have alan yu the chairman ceo and co-founder of karat packaging here with us Really appreciate you, first of all, taking the time to share all the exciting things that are happening at the company. really appreciate you first of all taking the time to share all the exciting things that are happening at the company Obviously, a lot of growth happening at Karat. obviously a lot of growth happening at karat Four consecutive quarters of growth now, double-digit growth, very exciting. four consecutive quarters of growth now double-digit growth very exciting I guess really without further ado, I want to just really dive into it. i guess really without further ado i want to just really dive into it Especially for folks who are new to the Karat story, I wanted to just see if you could maybe provide a snapshot of the company, where we are, overview of the products, the customers, and really kind of start with that. especially for folks who are new to the karat story i wanted to just see if you could maybe provide a snapshot of the company where we are overview of the products the customers and really kind of start with that

Speaker 1: Great. Thank you, Michael. Thank you for inviting me to this Fireside Chat. Well, first of all, Karat Packaging, we specialize in all the food service packaging out in the marketplace. If you dine out and you go to any of these fast food restaurant, most likely on your daily basis, you'll be using our product. Like for instance, if you go to In-N-Out Burger, we sell them their straws, their portion cup, their cups, and other items if they're short. If you go to Chipotle, we sell them portion cup, paper straws, and some other items. If you go to Chili's, basically, we sell them 70% of the packaging good, from paper shopping bag, to the food containers, to the takeout containers, to the portion cup, to their back of the house grease trap tray, modified tray. Great. great Thank you, Michael. thank you michael Thank you for inviting me to this Fireside Chat. thank you for inviting me to this fireside chat Well, first of all, Karat Packaging, we specialize in all the food service packaging out in the marketplace. well first of all karat packaging we specialize in all the food service packaging out in the marketplace If you dine out and you go to any of these fast food restaurant, most likely on your daily basis, you'll be using our product. if you dine out and you go to any of these fast food restaurant most likely on your daily basis you'll be using our product Like for instance, if you go to In-N-Out Burger, we sell them their straws, their portion cup, their cups, and other items if they're short. like for instance if you go to in-n-out burger we sell them their straws their portion cup their cups and other items if they're short If you go to Chipotle, we sell them portion cup, paper straws, and some other items. if you go to chipotle we sell them portion cup paper straws and some other items If you go to Chili's, basically, we sell them 70% of the packaging good, from paper shopping bag, to the food containers, to the takeout containers, to the portion cup, to their back of the house grease trap tray, modified tray. if you go to chili's basically we sell them 70% of the packaging good from paper shopping bag to the food containers to the takeout containers to the portion cup to their back of the house grease trap tray modified tray If you go to Texas Roadhouse, Chick-fil-A, if you go to Jack in the Box, you name it. Basically, we sell over 150 QSR chains out in the U.S. Basically, our volume is pretty big in terms of in the food service sector. Now, we also sell through online channel. Online channel has been one of our biggest growth area. A lot of companies, people don't realize that how lucrative, how profitable this online business is, and also, less cost, less operation-wise. 18% of overall revenue derive from our online sales. Last year, we did about $75 million online sales. This year, we're looking to hit over $100 million in revenue online sales. We are targeting $130 million-$150 million online sales. The number is growing faster and faster, and the amount of customer we can reach is just unimaginable. Yeah. If you go to Texas Roadhouse, Chick-fil-A, if you go to Jack in the Box, you name it. if you go to texas roadhouse chick-fil-a if you go to jack in the box you name it Basically, we sell over 150 QSR chains out in the U.S. basically we sell over 150 qsr chains out in the u.s Basically, our volume is pretty big in terms of in the food service sector. basically our volume is pretty big in terms of in the food service sector Now, we also sell through online channel. now we also sell through online channel Online channel has been one of our biggest growth area. online channel has been one of our biggest growth area A lot of companies, people don't realize that how lucrative, how profitable this online business is, and also, less cost, less operation-wise. 18% of overall revenue derive from our online sales. a lot of companies people don't realize that how lucrative how profitable this online business is and also less cost less operation-wise 18% of overall revenue derive from our online sales Last year, we did about $75 million online sales. last year we did about $75 million online sales This year, we're looking to hit over $100 million in revenue online sales. this year we're looking to hit over $100 million in revenue online sales We are targeting $130 million-$150 million online sales. we are targeting $130 million-$150 million online sales The number is growing faster and faster, and the amount of customer we can reach is just unimaginable. the number is growing faster and faster and the amount of customer we can reach is just unimaginable Yeah. yeah

Speaker 2: Very good. The company has been around for over 25 years now, right? Very good. very good The company has been around for over 25 years now, right? the company has been around for over 25 years now right

Speaker 1: Yes. Yes. yes

Speaker 2: Obviously, it's evolved quite a bit over the years, and you guys have stayed very nimble. Maybe could you speak a little bit to Karat's kind of competitive differentiation, right? Whether it's the products, the global sourcing, the customer relationships. What's really supported the kind of defensible moat of the business over all these cycles and over the years? Obviously, it's evolved quite a bit over the years, and you guys have stayed very nimble. obviously it's evolved quite a bit over the years and you guys have stayed very nimble Maybe could you speak a little bit to Karat's kind of competitive differentiation, right? maybe could you speak a little bit to karat's kind of competitive differentiation right Whether it's the products, the global sourcing, the customer relationships. whether it's the products the global sourcing the customer relationships What's really supported the kind of defensible moat of the business over all these cycles and over the years? what's really supported the kind of defensible moat of the business over all these cycles and over the years

Speaker 1: We see our competitor in the marketplace. They're either a distributor or a manufacturer that does some of the imports. For the manufacturer that does some of the imports, they're still in the old school mentality that they only have one channel of sales, which is selling to distribution. Okay? They have limited growth capacity. If they don't invest more CapEx into their equipment, they can't grow. We see that that segment is growing either negative in the past two years or low single digit. That's how our competitors are doing. Distribution-wise, that's different. They don't have any CapEx expenditures, so less leverage and lower leverage on that, and they can grow faster. But still, they're growing single digit as well. Margin, I would say that if you're an importer distributor, your margin will be higher than the manufacturer on that part. We see our competitor in the marketplace. we see our competitor in the marketplace They're either a distributor or a manufacturer that does some of the imports. they're either a distributor or a manufacturer that does some of the imports For the manufacturer that does some of the imports, they're still in the old school mentality that they only have one channel of sales, which is selling to distribution. for the manufacturer that does some of the imports they're still in the old school mentality that they only have one channel of sales which is selling to distribution Okay? okay They have limited growth capacity. they have limited growth capacity If they don't invest more CapEx into their equipment, they can't grow. if they don't invest more capex into their equipment they can't grow We see that that segment is growing either negative in the past two years or low single digit. we see that that segment is growing either negative in the past two years or low single digit That's how our competitors are doing. that's how our competitors are doing Distribution-wise, that's different. distribution-wise that's different They don't have any CapEx expenditures, so less leverage and lower leverage on that, and they can grow faster. they don't have any capex expenditures so less leverage and lower leverage on that and they can grow faster But still, they're growing single digit as well. but still they're growing single digit as well Margin, I would say that if you're an importer distributor, your margin will be higher than the manufacturer on that part. margin i would say that if you're an importer distributor your margin will be higher than the manufacturer on that part For Karat, our advantage is we do everything. We sell to a small channel restaurant down the street. We can sell to a gas station. They're online. We have a bubble tea supply that we also carry. That's $40 million plus revenue from our overall revenue source. Karat has a higher profit margin, which none of our competitors does. That was one of our bread and butter when we first started the business, and we continue to grow on that as well. For the segment, we have manufacturer. It's very small manufacturing. Right now, manufacturer generates 9% of our overall revenue. We stopped investing in CapEx on manufacturing equipment in 2022. Ever since 2022, after we stopped expenditure on CapEx on manufacturing equipments, we were able to issue dividend, reserve a lot of our cash, and pay back to our shareholder. For Karat, our advantage is we do everything. for karat our advantage is we do everything We sell to a small channel restaurant down the street. we sell to a small channel restaurant down the street We can sell to a gas station. we can sell to a gas station They're online. they're online We have a bubble tea supply that we also carry. we have a bubble tea supply that we also carry That's $40 million plus revenue from our overall revenue source. that's $40 million plus revenue from our overall revenue source Karat has a higher profit margin, which none of our competitors does. karat has a higher profit margin which none of our competitors does That was one of our bread and butter when we first started the business, and we continue to grow on that as well. that was one of our bread and butter when we first started the business and we continue to grow on that as well For the segment, we have manufacturer. for the segment we have manufacturer It's very small manufacturing. it's very small manufacturing Right now, manufacturer generates 9% of our overall revenue. right now manufacturer generates 9% of our overall revenue We stopped investing in CapEx on manufacturing equipment in 2022. we stopped investing in capex on manufacturing equipment in 2022 Ever since 2022, after we stopped expenditure on CapEx on manufacturing equipments, we were able to issue dividend, reserve a lot of our cash, and pay back to our shareholder. ever since 2022 after we stopped expenditure on capex on manufacturing equipments we were able to issue dividend reserve a lot of our cash and pay back to our shareholder As well increase our gross margin from a low 20-ish to the high 30s margin profile. These are some of the advantage that we have versus our competitor. Also our competitor grow at single digit mainly by acquisition. We grow organically for the past 25 years, except for one small acquisition out of Hawaii that we spent $1 million back in 2020, and that was it. As well increase our gross margin from a low 20-ish to the high 30s margin profile. as well increase our gross margin from a low 20-ish to the high 30s margin profile These are some of the advantage that we have versus our competitor. these are some of the advantage that we have versus our competitor Also our competitor grow at single digit mainly by acquisition. also our competitor grow at single digit mainly by acquisition We grow organically for the past 25 years, except for one small acquisition out of Hawaii that we spent $1 million back in 2020, and that was it. we grow organically for the past 25 years except for one small acquisition out of hawaii that we spent $1 million back in 2020 and that was it

Speaker 2: Yeah. The organic growth has certainly been impressive. Maybe talking a little bit more about kind of supply chain. The sector as a whole has obviously seen a lot of disruption, right? Tariffs, weakened consumer, restaurant softness, right? Supply chain volatility overall. I guess, how have these periods of disruption, and you've kind of seen it all, Alan, how have they actually worked to kind of Karat's advantage in terms of new customer acquisitions and winning new business? Yeah. yeah The organic growth has certainly been impressive. the organic growth has certainly been impressive Maybe talking a little bit more about kind of supply chain. maybe talking a little bit more about kind of supply chain The sector as a whole has obviously seen a lot of disruption, right? the sector as a whole has obviously seen a lot of disruption right Tariffs, weakened consumer, restaurant softness, right? tariffs weakened consumer restaurant softness right Supply chain volatility overall. supply chain volatility overall I guess, how have these periods of disruption, and you've kind of seen it all, Alan, how have they actually worked to kind of Karat's advantage in terms of new customer acquisitions and winning new business? i guess how have these periods of disruption and you've kind of seen it all alan how have they actually worked to kind of karat's advantage in terms of new customer acquisitions and winning new business

Speaker 1: Well, because Karat is nimble, and that's one of our strength. We feel that we grow better during a bad economy, during a supply chain disruption. One of the things that is helping us, like for instance, 2020 was one of our best year ever because of the COVID. People were shut down, hard to get product from overseas. You can't open your restaurant without having a face mask for your employee. We imported face masks, air cargo. We were able to help a lot of our clients who are non-client, future potential clients, with their face mask need. In 2022, there was a major supply chain issue with the ocean freight, has gone up over $15,000 from $3,000 on per container. That time, we actually gained a lot of new business as well, and our revenue was the highest ever. Well, because Karat is nimble, and that's one of our strength. well because karat is nimble and that's one of our strength We feel that we grow better during a bad economy, during a supply chain disruption. One of the things that is helping us, like for instance, 2020 was one of our best year ever because of the COVID. we feel that we grow better during a bad economy during a supply chain disruption. one of the things that is helping us like for instance 2020 was one of our best year ever because of the covid People were shut down, hard to get product from overseas. people were shut down hard to get product from overseas You can't open your restaurant without having a face mask for your employee. you can't open your restaurant without having a face mask for your employee We imported face masks, air cargo. we imported face masks air cargo We were able to help a lot of our clients who are non-client, future potential clients, with their face mask need. we were able to help a lot of our clients who are non-client future potential clients with their face mask need In 2022, there was a major supply chain issue with the ocean freight, has gone up over $15,000 from $3,000 on per container. in 2022 there was a major supply chain issue with the ocean freight has gone up over $15,000 from $3,000 on per container That time, we actually gained a lot of new business as well, and our revenue was the highest ever. that time we actually gained a lot of new business as well and our revenue was the highest ever Then after the supply chain disruption ended in 2024, 2023, 2024, our revenue dropped a little bit because we had to lower the price that was inflated back in 2022. Now last year, 2025, we saw a tailwind for the tariff hitting because the tariff actually helped us. We were not heavily in debt. We can afford to pay up the high tariff versus a lot of smaller importers that were competing against us, they were out of business. Then after the supply chain disruption ended in 2024, 2023, 2024, our revenue dropped a little bit because we had to lower the price that was inflated back in 2022. then after the supply chain disruption ended in 2024 2023 2024 our revenue dropped a little bit because we had to lower the price that was inflated back in 2022 Now last year, 2025, we saw a tailwind for the tariff hitting because the tariff actually helped us. now last year 2025 we saw a tailwind for the tariff hitting because the tariff actually helped us We were not heavily in debt. we were not heavily in debt We can afford to pay up the high tariff versus a lot of smaller importers that were competing against us, they were out of business. we can afford to pay up the high tariff versus a lot of smaller importers that were competing against us they were out of business They couldn't afford to import product for themself. There was a lot of tariff involved and because of that, also the U.S. Customs has been examining more containers, and each time they hold the container for examination, it costs the importer a lot of money, which the small importer can't afford. That helped us a little bit. Now this year, the increase in the oil prices, the spike, also help us a little bit, somewhat because we have the capability to buy in bulk. We have the capability to diversify our vendors that we source our product from. Our cost increase was minimum compared to some of our competitors on that part. Every time we see a supply chain disruption, a spike in prices, a bad economy, our business do better. Our company does better in that sense. They couldn't afford to import product for themself. they couldn't afford to import product for themself There was a lot of tariff involved and because of that, also the U.S. there was a lot of tariff involved and because of that also the u.s Customs has been examining more containers, and each time they hold the container for examination, it costs the importer a lot of money, which the small importer can't afford. customs has been examining more containers and each time they hold the container for examination it costs the importer a lot of money which the small importer can't afford That helped us a little bit. that helped us a little bit Now this year, the increase in the oil prices, the spike, also help us a little bit, somewhat because we have the capability to buy in bulk. now this year the increase in the oil prices the spike also help us a little bit somewhat because we have the capability to buy in bulk We have the capability to diversify our vendors that we source our product from. we have the capability to diversify our vendors that we source our product from Our cost increase was minimum compared to some of our competitors on that part. our cost increase was minimum compared to some of our competitors on that part Every time we see a supply chain disruption, a spike in prices, a bad economy, our business do better. every time we see a supply chain disruption a spike in prices a bad economy our business do better Our company does better in that sense. our company does better in that sense

Speaker 2: It's very impressive. I guess talking more about winning new business and commercial momentum, looking at your sales pipeline, really what are the biggest drivers of growth that give you guys confidence? You guys have guided kind of a low teens annual growth rate on top line. What are these biggest drivers? I think you alluded to some of it earlier, online, product innovation, and just overall nimbleness, right? Really how much of that is volume versus price? It's very impressive. it's very impressive I guess talking more about winning new business and commercial momentum, looking at your sales pipeline, really what are the biggest drivers of growth that give you guys confidence? i guess talking more about winning new business and commercial momentum looking at your sales pipeline really what are the biggest drivers of growth that give you guys confidence You guys have guided kind of a low teens annual growth rate on top line. you guys have guided kind of a low teens annual growth rate on top line What are these biggest drivers? what are these biggest drivers I think you alluded to some of it earlier, online, product innovation, and just overall nimbleness, right? i think you alluded to some of it earlier online product innovation and just overall nimbleness right Really how much of that is volume versus price? really how much of that is volume versus price

Speaker 1: Our pipeline is built based on two things. One is our existing wallet share. How can we grow with our existing wallet share? We are continually doing that right now. Like you mentioned earlier, are there any more business opportunity with the existing chain that we're doing? Yes, there are. There is. Also new potential clients that basically have not started doing business with us. A lot of time it takes us over a year to convert them. Testing, testing, confirmation, the artwork design, everything, initial ramp-up period. They take time. We feel that we have those booked. New SKU is one of the key to our growth driver. This year we're focusing on paper shopping bag, SOS bag, grease bag, bread bag, all type of bag business and paper board business. A lot of bakeries, instead of using plastic containers, they want to use paper board now. Our pipeline is built based on two things. our pipeline is built based on two things One is our existing wallet share. one is our existing wallet share How can we grow with our existing wallet share? how can we grow with our existing wallet share We are continually doing that right now. we are continually doing that right now Like you mentioned earlier, are there any more business opportunity with the existing chain that we're doing? like you mentioned earlier are there any more business opportunity with the existing chain that we're doing Yes, there are. yes there are There is. there is Also new potential clients that basically have not started doing business with us. also new potential clients that basically have not started doing business with us A lot of time it takes us over a year to convert them. a lot of time it takes us over a year to convert them Testing, testing, confirmation, the artwork design, everything, initial ramp-up period. testing testing confirmation the artwork design everything initial ramp-up period They take time. they take time We feel that we have those booked. we feel that we have those booked New SKU is one of the key to our growth driver. new sku is one of the key to our growth driver This year we're focusing on paper shopping bag, SOS bag, grease bag, bread bag, all type of bag business and paper board business. this year we're focusing on paper shopping bag sos bag grease bag bread bag all type of bag business and paper board business A lot of bakeries, instead of using plastic containers, they want to use paper board now. a lot of bakeries instead of using plastic containers they want to use paper board now We're focusing on that segment as well. Also that segment has a higher margin versus the traditional plastic and paper boxes on that part. These are the segment that we're seeing that we're growing. In region, we're growing in Chicago, here in this area. So far our warehouse was set up about two years ago. Today versus last year-over-year growth comparison, it's over 100% growth. We're adding more trucks in this area. We're looking to expand our existing warehouse, double the size. We're looking to see if we can sublease another warehouse or add another warehouse nearby our current existing location. Also we can make it more delivery in this area. This is a very area that we see an expansion potential. We're looking to add another warehouse in Orlando, Florida. That's our fourth largest online channel area sales. That's where our customers are. We're focusing on that segment as well. we're focusing on that segment as well Also that segment has a higher margin versus the traditional plastic and paper boxes on that part. also that segment has a higher margin versus the traditional plastic and paper boxes on that part These are the segment that we're seeing that we're growing. these are the segment that we're seeing that we're growing In region, we're growing in Chicago, here in this area. in region we're growing in chicago here in this area So far our warehouse was set up about two years ago. so far our warehouse was set up about two years ago Today versus last year-over-year growth comparison, it's over 100% growth. today versus last year-over-year growth comparison it's over 100% growth We're adding more trucks in this area. we're adding more trucks in this area We're looking to expand our existing warehouse, double the size. we're looking to expand our existing warehouse double the size We're looking to see if we can sublease another warehouse or add another warehouse nearby our current existing location. we're looking to see if we can sublease another warehouse or add another warehouse nearby our current existing location Also we can make it more delivery in this area. also we can make it more delivery in this area This is a very area that we see an expansion potential. this is a very area that we see an expansion potential We're looking to add another warehouse in Orlando, Florida. we're looking to add another warehouse in orlando florida That's our fourth largest online channel area sales. that's our fourth largest online channel area sales That's where our customers are. that's where our customers are We're looking to do that so the customer can receive their product the next day versus three days after. That's one of the key to our success is making sure the customer can get their product immediate, quickly, faster when they order it versus later. We're looking to do that so the customer can receive their product the next day versus three days after. we're looking to do that so the customer can receive their product the next day versus three days after That's one of the key to our success is making sure the customer can get their product immediate, quickly, faster when they order it versus later. that's one of the key to our success is making sure the customer can get their product immediate quickly faster when they order it versus later

Speaker 2: Very good. You alluded to it just now around kind of sales growth. You guys have picked up a lot of new national chain wins recently. Maybe walk us a little bit more through kind of typically how long it takes to convert this from initial contact to kind of the first orders and really maybe more importantly, how does Karat really kind of grow these longer terms and strategic partnerships? Really how do you guys kind of build that kind of share of wallet and kind of really kind of get into that share of wallet more? Very good. very good You alluded to it just now around kind of sales growth. you alluded to it just now around kind of sales growth You guys have picked up a lot of new national chain wins recently. you guys have picked up a lot of new national chain wins recently Maybe walk us a little bit more through kind of typically how long it takes to convert this from initial contact to kind of the first orders and really maybe more importantly, how does Karat really kind of grow these longer terms and strategic partnerships? maybe walk us a little bit more through kind of typically how long it takes to convert this from initial contact to kind of the first orders and really maybe more importantly how does karat really kind of grow these longer terms and strategic partnerships Really how do you guys kind of build that kind of share of wallet and kind of really kind of get into that share of wallet more? really how do you guys kind of build that kind of share of wallet and kind of really kind of get into that share of wallet more

Speaker 1: Well, in a normal environment, it would take about two years to convert a national chain account. In an environment that is very hostile or very competitive environment like today, where there's so many issues on pricing, on supply chain, it may be just three month to convert a national chain account. They expedite it, speed up the process. They skip all these protocols just because they want to get the product in. Well, in a normal environment, it would take about two years to convert a national chain account. well in a normal environment it would take about two years to convert a national chain account In an environment that is very hostile or very competitive environment like today, where there's so many issues on pricing, on supply chain, it may be just three month to convert a national chain account. in an environment that is very hostile or very competitive environment like today where there's so many issues on pricing on supply chain it may be just three month to convert a national chain account They expedite it, speed up the process. they expedite it speed up the process They skip all these protocols just because they want to get the product in. they skip all these protocols just because they want to get the product in Like for instance, McDonald's, they said normally it would take two years to get a vendor into our system, right now because some of the shortage, we might be able to get in our foot in the door very quickly. Like for instance, McDonald's, they said normally it would take two years to get a vendor into our system, right now because some of the shortage, we might be able to get in our foot in the door very quickly. like for instance mcdonald's they said normally it would take two years to get a vendor into our system right now because some of the shortage we might be able to get in our foot in the door very quickly

Speaker 2: Are there any recent examples, kind of anecdotes basically, of new customer wins where you've grown the relationship in kind of similar manner to the McDonald's kind of anecdote? Are there recent chains or any examples you may want to kind of speak to and highlight? Are there any recent examples, kind of anecdotes basically, of new customer wins where you've grown the relationship in kind of similar manner to the McDonald's kind of anecdote? are there any recent examples kind of anecdotes basically of new customer wins where you've grown the relationship in kind of similar manner to the mcdonald's kind of anecdote Are there recent chains or any examples you may want to kind of speak to and highlight? are there recent chains or any examples you may want to kind of speak to and highlight

Speaker 1: For like what? For like what? for like what

Speaker 2: For any sort of new customer wins, right? To kind of demonstrate the expansion, like once you kind of get in and kind of land the account to grow that, have there been recent successes you want to kind of highlight? For any sort of new customer wins, right? for any sort of new customer wins right To kind of demonstrate the expansion, like once you kind of get in and kind of land the account to grow that, have there been recent successes you want to kind of highlight? to kind of demonstrate the expansion like once you kind of get in and kind of land the account to grow that have there been recent successes you want to kind of highlight

Speaker 1: Yeah, there's a lot. Like for instance, Chili's was one of them. Yeah, there's a lot. yeah there's a lot Like for instance, Chili's was one of them. like for instance chili's was one of them We first got into Chili's by selling them the food container. There's two, four, actually three SKU, about seven years ago. From there on, we sold them the takeout container nine by nine, because our competitor didn't want to do it, or was taking too long to do it. The competitor was telling them it takes 12 months to ramp up. We told them four months, so we got the business. From there on, adding new SKU, been much faster. That's one Chili's example. For Panda Express, same thing. We started with them with bubble tea supply. We first got into Chili's by selling them the food container. we first got into chili's by selling them the food container There's two, four, actually three SKU, about seven years ago. there's two four actually three sku about seven years ago From there on, we sold them the takeout container nine by nine, because our competitor didn't want to do it, or was taking too long to do it. from there on we sold them the takeout container nine by nine because our competitor didn't want to do it or was taking too long to do it The competitor was telling them it takes 12 months to ramp up. the competitor was telling them it takes 12 months to ramp up We told them four months, so we got the business. we told them four months so we got the business From there on, adding new SKU, been much faster. from there on adding new sku been much faster That's one Chili's example. that's one chili's example For Panda Express, same thing. for panda express same thing We started with them with bubble tea supply. we started with them with bubble tea supply From there on, when there's a shortage, the owner says to the buyers that, "Hey, why don't you check out Lollicup, see if they have the product?" It's every time that we can come up in product solution faster than our competitor, we immediately get our foot in the door. That's one of the key thing. Karat Packaging, we're nimble and fast. We can move fast, we can bring things fast, we're making decision quick. Our sourcing team, keys to our success is we have a great sourcing team that move fast as well. From there on, when there's a shortage, the owner says to the buyers that, "Hey, why don't you check out Lollicup, see if they have the product?" It's every time that we can come up in product solution faster than our competitor, we immediately get our foot in the door. from there on when there's a shortage the owner says to the buyers that "hey why don't you check out lollicup see if they have the product?" it's every time that we can come up in product solution faster than our competitor we immediately get our foot in the door That's one of the key thing. that's one of the key thing Karat Packaging, we're nimble and fast. karat packaging we're nimble and fast We can move fast, we can bring things fast, we're making decision quick. we can move fast we can bring things fast we're making decision quick Our sourcing team, keys to our success is we have a great sourcing team that move fast as well. our sourcing team keys to our success is we have a great sourcing team that move fast as well

Speaker 2: Fantastic. Yeah, I think the integrated kind of production and the ability to design and customize all these really rapidly obviously kind of helps with that acquisition process and that ramp-up time as well. Fantastic. fantastic Yeah, I think the integrated kind of production and the ability to design and customize all these really rapidly obviously kind of helps with that acquisition process and that ramp-up time as well. yeah i think the integrated kind of production and the ability to design and customize all these really rapidly obviously kind of helps with that acquisition process and that ramp-up time as well

Speaker 1: Correct. Yes. Correct. correct Yes. yes

Speaker 2: You alluded to earlier as well on the online growth piece, obviously a big driver of growth for the overall business. I think it's slated to go to $100 million by end of this year. What are really kind of some of the drivers of that 30+%? I mean, it's obviously a big number. Is it new customer acquisition, new partnerships? Is it really, as you mentioned earlier, pushing more volume to existing wallet I guess. What are the various levers there? You alluded to earlier as well on the online growth piece, obviously a big driver of growth for the overall business. you alluded to earlier as well on the online growth piece obviously a big driver of growth for the overall business I think it's slated to go to $100 million by end of this year. i think it's slated to go to $100 million by end of this year What are really kind of some of the drivers of that 30+%? what are really kind of some of the drivers of that 30+% I mean, it's obviously a big number. i mean it's obviously a big number Is it new customer acquisition, new partnerships? is it new customer acquisition new partnerships Is it really, as you mentioned earlier, pushing more volume to existing wallet I guess. is it really as you mentioned earlier pushing more volume to existing wallet i guess What are the various levers there? what are the various levers there

Speaker 1: There are a few drivers to our online growth right now that we're seeing. One is adding additional platform, bringing our product into different platform. Like for example, Sysco, last year they just started the sysco.com, made it available to all their customers. They can order our product through sysco.com. We first started last year with just $50,000 revenue a month. Now we're doing $700,000 a month, which is about $8.4 million a year, and it's still growing. How we grow from there, we initially started with just 15 SKUs, and then right now I think we have over 2,000 SKU out of 8,000 SKU on the sysco.com website. Once we load up more SKUs, our revenue will grow faster. Second, for online growth, we used to sell online with one cases to two cases to the customers, single cases. There are a few drivers to our online growth right now that we're seeing. there are a few drivers to our online growth right now that we're seeing One is adding additional platform, bringing our product into different platform. one is adding additional platform bringing our product into different platform Like for example, Sysco, last year they just started the sysco.com, made it available to all their customers. like for example sysco last year they just started the sysco.com made it available to all their customers They can order our product through sysco.com. they can order our product through sysco.com We first started last year with just $50,000 revenue a month. we first started last year with just $50,000 revenue a month Now we're doing $700,000 a month, which is about $8.4 million a year, and it's still growing. now we're doing $700,000 a month which is about $8.4 million a year and it's still growing How we grow from there, we initially started with just 15 SKUs, and then right now I think we have over 2,000 SKU out of 8,000 SKU on the sysco.com website. how we grow from there we initially started with just 15 skus and then right now i think we have over 2,000 sku out of 8,000 sku on the sysco.com website Once we load up more SKUs, our revenue will grow faster. once we load up more skus our revenue will grow faster Second, for online growth, we used to sell online with one cases to two cases to the customers, single cases. second for online growth we used to sell online with one cases to two cases to the customers single cases Now we've enabled customer to buy full pallet, 20 cases-40 cases with volume discount. We're seeing more and more customer not buying one case, two case, they're buying 20 or 40 cases, which is taking up a lot of our inventory immediately. That's causing shortages for the short term. We're ramping up our inventory in some of the warehouses right now. Instead of having them carry just not enough inventory, but we're carrying more inventory. We're seeing that within the next few weeks later, once our inventory restock, our revenue can grow even more with the online. Now we've enabled customer to buy full pallet, 20 cases- 40 cases with volume discount. now we've enabled customer to buy full pallet 20 cases- 40 cases with volume discount We're seeing more and more customer not buying one case, two case, they're buying 20 or 40 cases, which is taking up a lot of our inventory immediately. we're seeing more and more customer not buying one case two case they're buying 20 or 40 cases which is taking up a lot of our inventory immediately That's causing shortages for the short term. that's causing shortages for the short term We're ramping up our inventory in some of the warehouses right now. we're ramping up our inventory in some of the warehouses right now Instead of having them carry just not enough inventory, but we're carrying more inventory. instead of having them carry just not enough inventory but we're carrying more inventory We're seeing that within the next few weeks later, once our inventory restock, our revenue can grow even more with the online. we're seeing that within the next few weeks later once our inventory restock our revenue can grow even more with the online

Speaker 2: That then comes at a higher margin as well. That then comes at a higher margin as well. that then comes at a higher margin as well

Speaker 1: Very, yes. Very, yes. very yes

Speaker 2: Maybe talking a little bit more about margins. Your gross margin guidance for the year kind of 34%-36%. Despite some of the kind of rising cost elements you talked about earlier, oil input costs, how do you feel comfortable supporting that level of margin? Could there be incremental upside even, right? As you kind of think about the year ahead. Maybe talking a little bit more about margins. maybe talking a little bit more about margins Your gross margin guidance for the year kind of 34%-36%. your gross margin guidance for the year kind of 34%-36% Despite some of the kind of rising cost elements you talked about earlier, oil input costs, how do you feel comfortable supporting that level of margin? despite some of the kind of rising cost elements you talked about earlier oil input costs how do you feel comfortable supporting that level of margin Could there be incremental upside even, right? could there be incremental upside even right As you kind of think about the year ahead. as you kind of think about the year ahead

Speaker 1: Sure. Prior to the tariff, initiation of the tariff, our margin was around high 30s. When the tariff hit, our margin dropped to the mid-30s. With the tariff refund on the way, we see that adding that back to the past 12 months, we see that the past 12 months regaining back to the high 30s. In our second quarter, our last quarter guidance, we mentioned that our expectation was $26 million to be refunded to our company. Now that the tariff is down from 20% to 10%, we feel that we can confidently say that we should be able to accelerate and advance our current margins more. We feel that there's more room to expand our current margin versus how we guided it. Sure. sure Prior to the tariff, initiation of the tariff, our margin was around high 30s. prior to the tariff initiation of the tariff our margin was around high 30s When the tariff hit, our margin dropped to the mid-30s. when the tariff hit our margin dropped to the mid-30s With the tariff refund on the way, we see that adding that back to the past 12 months, we see that the past 12 months regaining back to the high 30s. with the tariff refund on the way we see that adding that back to the past 12 months we see that the past 12 months regaining back to the high 30s In our second quarter, our last quarter guidance, we mentioned that our expectation was $26 million to be refunded to our company. in our second quarter our last quarter guidance we mentioned that our expectation was $26 million to be refunded to our company Now that the tariff is down from 20% to 10%, we feel that we can confidently say that we should be able to accelerate and advance our current margins more. now that the tariff is down from 20% to 10% we feel that we can confidently say that we should be able to accelerate and advance our current margins more We feel that there's more room to expand our current margin versus how we guided it. we feel that there's more room to expand our current margin versus how we guided it

Speaker 2: That's certainly a very strong margin profile relative to the sector. Maybe a little bit more on supply chain, right? You talked about it a little bit earlier, but the evolution of your sourcing strategy. How have you really adapted over the years, right? This company had a lot of manufacturing earlier, over time it's shifted. I think you mentioned 9% manufacturing now, largely an import distribution business. Really how have you adapted and really what is your process, if you could speak to it, to help onboard new suppliers, really efficiently, right? While ensuring product quality, availability and consistency for your customers. That's certainly a very strong margin profile relative to the sector. that's certainly a very strong margin profile relative to the sector Maybe a little bit more on supply chain, right? maybe a little bit more on supply chain right You talked about it a little bit earlier, but the evolution of your sourcing strategy. you talked about it a little bit earlier but the evolution of your sourcing strategy How have you really adapted over the years, right? how have you really adapted over the years right This company had a lot of manufacturing earlier, over time it's shifted. this company had a lot of manufacturing earlier over time it's shifted I think you mentioned 9% manufacturing now, largely an import distribution business. i think you mentioned 9% manufacturing now largely an import distribution business Really how have you adapted and really what is your process, if you could speak to it, to help onboard new suppliers, really efficiently, right? really how have you adapted and really what is your process if you could speak to it to help onboard new suppliers really efficiently right While ensuring product quality, availability and consistency for your customers. while ensuring product quality availability and consistency for your customers

Speaker 1: Initially when we first started getting new vendor is a lot of these vendors, they don't have the exact same product that we need. What we have to do is we may have to purchase the equipment for them, train them, having our staff go over there and train them to run the business, run the equipment for us. That way, we can ensure the quality and the spec are the same. That's how we started initially. As they grew, they continued to evolve, they excelled in that segment. They can actually buy more equipment themselves, support us in terms of our growth. Adding new vendors, same thing. We sold recently a couple of our equipment to a Latin American manufacturer, they just started supplying our product about last month. Initially when we first started getting new vendor is a lot of these vendors, they don't have the exact same product that we need. initially when we first started getting new vendor is a lot of these vendors they don't have the exact same product that we need What we have to do is we may have to purchase the equipment for them, train them, having our staff go over there and train them to run the business, run the equipment for us. what we have to do is we may have to purchase the equipment for them train them having our staff go over there and train them to run the business run the equipment for us That way, we can ensure the quality and the spec are the same. that way we can ensure the quality and the spec are the same That's how we started initially. that's how we started initially As they grew, they continued to evolve, they excelled in that segment. as they grew they continued to evolve they excelled in that segment They can actually buy more equipment themselves, support us in terms of our growth. they can actually buy more equipment themselves support us in terms of our growth Adding new vendors, same thing. adding new vendors same thing We sold recently a couple of our equipment to a Latin American manufacturer, they just started supplying our product about last month. we sold recently a couple of our equipment to a latin american manufacturer they just started supplying our product about last month This was good because when we sold them the equipment, we didn't realize there was a war going on. The raw materials were going to skyrocket, and that manufacturer can actually stock up, load it up, pre-load it, actually the lower cost, the raw material reason. We're able to receive product at a lower cost. This was good because when we sold them the equipment, we didn't realize there was a war going on. this was good because when we sold them the equipment we didn't realize there was a war going on The raw materials were going to skyrocket, and that manufacturer can actually stock up, load it up, pre-load it, actually the lower cost, the raw material reason. the raw materials were going to skyrocket and that manufacturer can actually stock up load it up pre-load it actually the lower cost the raw material reason We're able to receive product at a lower cost. we're able to receive product at a lower cost That's one of the things that we're able to keep our costs lower than our competitors is diversifying manufacturer vendors. When you have different vendors competing for our business with a higher volume business like ours, we can negotiate better pricing versus our competitor. That's one of the things that we're able to keep our costs lower than our competitors is diversifying manufacturer vendors. that's one of the things that we're able to keep our costs lower than our competitors is diversifying manufacturer vendors When you have different vendors competing for our business with a higher volume business like ours, we can negotiate better pricing versus our competitor. when you have different vendors competing for our business with a higher volume business like ours we can negotiate better pricing versus our competitor

Speaker 2: Where is the manufacturing footprint now? I know there was a lot of China exposure before. How has that evolved and what does it look like? What does the map look like now? Where is the manufacturing footprint now? where is the manufacturing footprint now I know there was a lot of China exposure before. i know there was a lot of china exposure before How has that evolved and what does it look like? how has that evolved and what does it look like What does the map look like now? what does the map look like now

Speaker 1: If it was seven, eight years ago, China was 55% of all of our imports. Today, China is only less than 9% of our overall import. We shifted our imports from China to Taiwan, Indonesia, Malaysia, Vietnam, and now Latin America. We were thinking of Turkey, but with this war going on, we scrapped the idea of Middle East. Too much issue going on over there. I know that some of our competitors are still buying from Middle East. They're getting screwed right now. They can't get their product out. The container cost is over ridiculous. It's a good thing that we kind of diversify our risk. Right now, we have over 145 vendors that's supplying our product. There's not a single concentration of vendors. If it was seven, eight years ago, China was 55% of all of our imports. if it was seven eight years ago china was 55% of all of our imports Today, China is only less than 9% of our overall import. today china is only less than 9% of our overall import We shifted our imports from China to Taiwan, Indonesia, Malaysia, Vietnam, and now Latin America. we shifted our imports from china to taiwan indonesia malaysia vietnam and now latin america We were thinking of Turkey, but with this war going on, we scrapped the idea of Middle East. we were thinking of turkey but with this war going on we scrapped the idea of middle east Too much issue going on over there. too much issue going on over there I know that some of our competitors are still buying from Middle East. i know that some of our competitors are still buying from middle east They're getting screwed right now. they're getting screwed right now They can't get their product out. they can't get their product out The container cost is over ridiculous. the container cost is over ridiculous It's a good thing that we kind of diversify our risk. it's a good thing that we kind of diversify our risk Right now, we have over 145 vendors that's supplying our product. right now we have over 145 vendors that's supplying our product There's not a single concentration of vendors. there's not a single concentration of vendors

Speaker 2: Very good. Switching gears a little bit, this question gets asked a lot these days, but I guess, thinking about AI and technology, and really long-term productivity, how is Karat Packaging utilizing AI in your back office to support your growth and really to drive long-term productivity gains as we think about SG&A and some of the operating leverage you guys might get? Very good. very good Switching gears a little bit, this question gets asked a lot these days, but I guess, thinking about AI and technology, and really long-term productivity, how is Karat Packaging utilizing AI in your back office to support your growth and really to drive long-term productivity gains as we think about SG&A and some of the operating leverage you guys might get? switching gears a little bit this question gets asked a lot these days but i guess thinking about ai and technology and really long-term productivity how is karat packaging utilizing ai in your back office to support your growth and really to drive long-term productivity gains as we think about sg&a and some of the operating leverage you guys might get

Speaker 1: Well, one of the biggest costs for all companies is labor cost. Labor cost is one operational expense that everyone is looking to see if they can reduce. Our company basically had over 1,000 employees four years ago. Today, we're looking at less than 650 headcounts. We are reducing headcount by utilizing automation, paperless work, more data in the cloud, and of course, I've asked all of our team to look into AI to reduce work from anywhere from accounting to purchasing to customer service. For instance, our online team. We have over 7,000 orders a day. Before, we had to hire four or five people to handle customer service calls, over thousands of calls a day. Right now, 99% of our customer service online call questions are answered by AI. We have much less work to do right now with the assist of AI. Well, one of the biggest costs for all companies is labor cost. well one of the biggest costs for all companies is labor cost Labor cost is one operational expense that everyone is looking to see if they can reduce. labor cost is one operational expense that everyone is looking to see if they can reduce Our company basically had over 1,000 employees four years ago. our company basically had over 1,000 employees four years ago Today, we're looking at less than 650 headcounts. today we're looking at less than 650 headcounts We are reducing headcount by utilizing automation, paperless work, more data in the cloud, and of course, I've asked all of our team to look into AI to reduce work from anywhere from accounting to purchasing to customer service. we are reducing headcount by utilizing automation paperless work more data in the cloud and of course i've asked all of our team to look into ai to reduce work from anywhere from accounting to purchasing to customer service For instance, our online team. for instance our online team We have over 7,000 orders a day. we have over 7,000 orders a day Before, we had to hire four or five people to handle customer service calls, over thousands of calls a day. before we had to hire four or five people to handle customer service calls over thousands of calls a day Right now, 99% of our customer service online call questions are answered by AI. right now 99% of our customer service online call questions are answered by ai We have much less work to do right now with the assist of AI. we have much less work to do right now with the assist of ai

Speaker 2: That's very good to hear. You guys are implementing it and integrating it into your business already. Maybe taking a step back a little bit, how do you, Alan Yu, think about, or I guess, what metrics do you look at from the broader sector? The feedback from your clients in the foodservice sector, what metrics do you look at to monitor the health and the growth aspect and really where to invest? Obviously, investing in AI was a major investment, but how do you think about metrics and broader industry trends as you make these strategic decisions? That's very good to hear. that's very good to hear You guys are implementing it and integrating it into your business already. you guys are implementing it and integrating it into your business already Maybe taking a step back a little bit, how do you, Alan Yu, think about, or I guess, what metrics do you look at from the broader sector? maybe taking a step back a little bit how do you alan yu think about or i guess what metrics do you look at from the broader sector The feedback from your clients in the foodservice sector, what metrics do you look at to monitor the health and the growth aspect and really where to invest? the feedback from your clients in the foodservice sector what metrics do you look at to monitor the health and the growth aspect and really where to invest Obviously, investing in AI was a major investment, but how do you think about metrics and broader industry trends as you make these strategic decisions? obviously investing in ai was a major investment but how do you think about metrics and broader industry trends as you make these strategic decisions

Speaker 1: Well, we do listen to market intel. A customer tells us, "Hey, this item, Alan Yu, you guys don't carry it. Would you consider bringing that item?" Then we would ask our sales rep to check in the market. Is there a demand for this product? Is there someone willing to make a commitment if we were to bring in this item? Who would do? How much commitment can we get? If we have people committing to a certain item, a certain quantity on the new item, we'll definitely bring it in because we can bring it not only for that customer, we can also bring it for other customers. Just like for example, one item that we recently brought in, it's a multi-fiber grease saver for the back of the house. Well, we do listen to market intel. well we do listen to market intel A customer tells us, "Hey, this item, Alan Yu, you guys don't carry it. a customer tells us "hey this item alan yu you guys don't carry it Would you consider bringing that item?" Then we would ask our sales rep to check in the market. would you consider bringing that item?" then we would ask our sales rep to check in the market Is there a demand for this product? is there a demand for this product Is there someone willing to make a commitment if we were to bring in this item? is there someone willing to make a commitment if we were to bring in this item Who would do? who would do How much commitment can we get? how much commitment can we get If we have people committing to a certain item, a certain quantity on the new item, we'll definitely bring it in because we can bring it not only for that customer, we can also bring it for other customers. if we have people committing to a certain item a certain quantity on the new item we'll definitely bring it in because we can bring it not only for that customer we can also bring it for other customers Just like for example, one item that we recently brought in, it's a multi-fiber grease saver for the back of the house. just like for example one item that we recently brought in it's a multi-fiber grease saver for the back of the house After you've deep-fried chicken or french fry, you bring the product up, you have a multi-fiber tray to absorb the grease first, then you put it into the takeout containers. We didn't have that item before. It was not because it's Chili's that they needed that. There's really no one else having that product. We brought it in, and we made it available for other customers as well as online. That's one best way to bring in new SKUs, where a demand, not just blindly bringing some item in and maybe we can't sell it. Yeah. After you've deep-fried chicken or french fry, you bring the product up, you have a multi-fiber tray to absorb the grease first, then you put it into the takeout containers. after you've deep-fried chicken or french fry you bring the product up you have a multi-fiber tray to absorb the grease first then you put it into the takeout containers We didn't have that item before. we didn't have that item before It was not because it's Chili's that they needed that. it was not because it's chili's that they needed that There's really no one else having that product. there's really no one else having that product We brought it in, and we made it available for other customers as well as online. we brought it in and we made it available for other customers as well as online That's one best way to bring in new SKUs, where a demand, not just blindly bringing some item in and maybe we can't sell it. that's one best way to bring in new skus where a demand not just blindly bringing some item in and maybe we can't sell it Yeah. yeah

Speaker 2: Got it. Well, as we conclude, I guess, looking two, three years out, what does success look like for Karat Packaging? What would you like investors to understand about the long-term opportunity that you don't feel like is reflected in the value of the business today? Got it. got it Well, as we conclude, I guess, looking two, three years out, what does success look like for Karat Packaging? well as we conclude i guess looking two three years out what does success look like for karat packaging What would you like investors to understand about the long-term opportunity that you don't feel like is reflected in the value of the business today? what would you like investors to understand about the long-term opportunity that you don't feel like is reflected in the value of the business today

Speaker 1: Well, Karat in the past year, prior to 2020, when we were still a smaller company, our revenue was growing 25% plus year-over-year. We double our revenue every three, four years. Right now, I think that we're in the path to also double our revenue organically in three to four years. If we have any new acquisition, that might speed up the revenue growth. At the same time, other companies grew by acquisition, but also they took on heavily leverage and also reduced their profit margin, which reduces their ability to make profit, and then their stock price suffers. Our goal is not to do that. Our goal is making sure that if we have any merger acquisition, it will not hurt our current trajectory, our current EPS or EBITDA. It will only help us have a better synergy to grow even faster and better on that part. Well, Karat in the past year, prior to 2020, when we were still a smaller company, our revenue was growing 25% plus year-over-year. well karat in the past year prior to 2020 when we were still a smaller company our revenue was growing 25% plus year-over-year We double our revenue every three, four years. we double our revenue every three four years Right now, I think that we're in the path to also double our revenue organically in three to four years. right now i think that we're in the path to also double our revenue organically in three to four years If we have any new acquisition, that might speed up the revenue growth. if we have any new acquisition that might speed up the revenue growth At the same time, other companies grew by acquisition, but also they took on heavily leverage and also reduced their profit margin, which reduces their ability to make profit, and then their stock price suffers. at the same time other companies grew by acquisition but also they took on heavily leverage and also reduced their profit margin which reduces their ability to make profit and then their stock price suffers Our goal is not to do that. our goal is not to do that Our goal is making sure that if we have any merger acquisition, it will not hurt our current trajectory, our current EPS or EBITDA. our goal is making sure that if we have any merger acquisition it will not hurt our current trajectory our current eps or ebitda It will only help us have a better synergy to grow even faster and better on that part. it will only help us have a better synergy to grow even faster and better on that part That's where I see in the next three to five years. Very likely, we will grow double digits and maintain a current margin. That's our goal. Our EBITDA, increase our EBITDA on that part. That's where I see in the next three to five years. that's where i see in the next three to five years Very likely, we will grow double digits and maintain a current margin. very likely we will grow double digits and maintain a current margin That's our goal. that's our goal Our EBITDA, increase our EBITDA on that part. our ebitda increase our ebitda on that part

Speaker 2: Very good. It sounds like you guys want to remain disciplined in how you approach M&A, and the basis for it is now this very solid foundation for you, for which you guys can now execute M&A more so in the next three to five years. Very good. very good It sounds like you guys want to remain disciplined in how you approach M&A, and the basis for it is now this very solid foundation for you, for which you guys can now execute M&A more so in the next three to five years. it sounds like you guys want to remain disciplined in how you approach m&a and the basis for it is now this very solid foundation for you for which you guys can now execute m&a more so in the next three to five years

Speaker 1: Yes, we're very conservative. That's why right now our dividend is paying out more than 6%, and we're pretty confident we can maintain that level. Yes, we're very conservative. yes we're very conservative That's why right now our dividend is paying out more than 6%, and we're pretty confident we can maintain that level. that's why right now our dividend is paying out more than 6% and we're pretty confident we can maintain that level We want to continue that as well. We want to continue that as well. we want to continue that as well

Speaker 2: Oh, very good. Well, that wraps up all the questions I had for you. Look, we really appreciate your time. Oh, very good. oh very good Well, that wraps up all the questions I had for you. well that wraps up all the questions i had for you Look, we really appreciate your time. look we really appreciate your time

Speaker 1: Thank you, Michael. Thank you, Michael. thank you michael

Speaker 2: The audience. We'll probably have to give you guys a little bit of your time back, which I'm sure folks don't mind. The audience. the audience We'll probably have to give you guys a little bit of your time back, which I'm sure folks don't mind. we'll probably have to give you guys a little bit of your time back which i'm sure folks don't mind