Q1 2026 Karat Packaging Inc Earnings Call

May 7, 2026

Operator: Thank you for standing by. My name is Perla, and I will be your conference operator today. At this time, I would like to welcome everyone to the Karat Packaging Q1 2026 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by 1 on your telephone keypad. If you would like to withdraw your question, please press star 1 again. Thank you. I would now like to hand the conference over to Roger Pondel. Please go ahead.

Speaker #2: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press a star followed by the number 1 on your telephone keypad.

Speaker #2: If you would like to read your question, please press a star one again. Thank you. I would now like to hand the conference over to Roger Pondel.

Speaker #2: Please go ahead. Thank you, operator. Good afternoon, everyone, and welcome to Karat Packaging's 2026 First Quarter conference call. I'm Roger Pondel with Pondel Wilkinson, Karat Packaging's investor relations firm.

Roger Pondel: Thank you, operator. Good afternoon, everyone, and welcome to Karat Packaging's 2026 Q1 conference call. I'm Roger Pondel with PondelWilkinson Inc., Karat Packaging's investor relations firm. It will be my pleasure momentarily to introduce the company's Chief Executive Officer, Alan Yu, and its Chief Financial Officer, Jian Guo. Before I turn the call over to Alan, I want to remind our listeners that today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Speaker #2: It will be my pleasure momentarily to introduce the company's chief executive officer, Alan Yu, and its chief financial officer, Jan Guo. But before I turn the call over to Alan, I want to remind our listeners that today's call may include forward-looking statements within the meaning of the private securities 1995.

Speaker #2: Such forward-looking statements are subject to numerous conditions, many of which are beyond the company's control, including those set forth in the Risk Factors section of the company's most recent Form 10-K, as filed with the Securities and Exchange Commission, copies of which are available on the SEC's website at www.sec.gov.

Roger Pondel: Such forward-looking statements are subject to numerous conditions, many of which are beyond the company's control, including those set forth in the Risk Factors section of the company's most recent Form 10-K as filed with the Securities and Exchange Commission and copies of which are available on the SEC's website at www.sec.gov, along with other company filings made with the SEC from time to time. Actual results could differ materially from these forward-looking statements, Karat Packaging undertakes no obligation to update any forward-looking statements except as required by law. Please also note that during today's call, we will be discussing adjusted EBITDA, adjusted EBITDA margin, adjusted diluted earnings per share, and free cash flow, all of which are non-GAAP financial measures as defined by SEC Regulation G.

Speaker #2: Along with other company filings made with the SEC from time to time. Actual results could differ materially from these forward-looking statements, and Karat Packaging undertakes no obligation to update any forward-looking statements except as required by law.

Speaker #2: Please also note that during today's call, we will be discussing adjusted EBITDA, adjusted EBITDA margin, adjusted diluted earnings per share, and free cash flow.

Speaker #2: All of which are non-GAAP financial measures as defined by SEC regulation G. A reconciliation of the most directly comparable GAAP measures to the non-GAAP financial measures is included in today's press release which is now posted on the company's website.

Roger Pondel: A reconciliation of the most directly comparable GAAP measures to the non-GAAP financial measures is included in today's press release, which is now posted on the company's website. With that, I will turn the call over to CEO, Alan Yu. Alan.

Speaker #2: And with that, I will turn the call over to CEO Alan Yu. Alan?

Speaker #3: Thank you, Roger. Good afternoon, everyone. We began 2026 with a robust first quarter. Year-over-year sales increased almost 13% with momentum building throughout the quarter.

Alan Yu: Thank you, Roger. Good afternoon, everyone. We began 2026 with a robust Q1. Year-over-year sales increased almost 13% with momentum building throughout the quarter. Our performance during the quarter accelerated significantly, starting with moderate weather-impacted growth in January to growth exceeding 20% in March, which included some pull-forward of orders. The acceleration reflected improving demand, strong execution across the organization, and continued gain in the market share. Notably, our online sales, which are typically at a higher contribution margin, returned to robust growth this quarter after we pivoted to grow and fulfill our own online sales on our company storefronts and third-party platforms. Compared to the prior year quarter, online sales increased almost 10% to $19.5 million in Q1 2026 from $17.8 million in the prior year quarter.

Speaker #3: Our performance during the quarter accelerated significantly. Starting with moderate weather impacted growth in January, to growth exceeding 20% in March, which included some pull-forward up orders.

Speaker #3: The acceleration reflected improving demand strong execution across the organization and continued gain in the market share. Notably, our online sales which are typically at a higher contribution margin returned to robust growth this quarter after we pivoted to grow and fulfill our own online sales on our company's storefront and third-party platforms.

Speaker #3: Compared to the prior year quarter, online sales increased almost 10% to $19.5 million in the first quarter of 2026 from $17.8 million in the prior year quarter.

Speaker #3: With momentum building steadily throughout the first quarter, achieving 19% year-over-year growth in March 2026. Gross margin remained resilient at 35.5% despite the continued impact of higher tariffs.

Alan Yu: With momentum building steadily throughout Q1, achieving 19% year-over-year growth in March 2026. Gross margin remained resilient at 35.5% despite the continued impact of higher tariffs. This performance demonstrates the effectiveness of our diversified sourcing strategy and was further supported by a favorable product mix and pricing. As we look ahead, we are closely managing a dynamic cost environment. Given the sharp increase in oil prices and the resulting impact on product costs, we are implementing price increases on select plastic items beginning in the middle of this month. While certain source product costs are rising, we expect tariff savings under current trade policy to begin reducing cost of goods sold this month. These savings should partially offset inflationary pressure, together with our pricing action, we expect to support gross margin stability.

Speaker #3: This performance demonstrated the effectiveness of our diversified sourcing strategy and was further supported by a favorable product mix and pricing. As we look ahead, we are closely managing a dynamic cost environment given the sharp increase in oil prices and the resulting impact on product costs.

Speaker #3: We are implementing price increases on select plastic items beginning in the middle of this month. While certain source product costs are rising, we expect tariff saving under current trade policy to begin reducing cost of goods sold this month.

Speaker #3: These savings should partially offset inflationary pressure and together with our pricing action we expect to support gross margin stability. Importantly, we are well positioned to continue gaining market share amid ongoing risen supply challenges.

Alan Yu: Importantly, we are well-positioned to continue gaining market share amid ongoing risen supply challenges. Our strong inventory position and disciplined supply chain execution give us confidence in our ability to consistently serve customers and meet demand. Turning to innovation and sustainability. Our paper bag product category continues to expand steadily, driving a year-over-year increase in eco-friendly product sales of 16.9% in Q1. We also successfully closed another national chain account for paper bags during this Q1, further strengthening our leadership position and reinforcing our long-term strategy in sustainable packaging solutions. Our sourcing diversification initiative continues to deliver tangible benefits. We have proactively rebalanced import volumes across geographies in response to evolving tariff structures, strengthening our cost competitiveness and consistent product availability.

Speaker #3: Our strong inventory position and disciplined supply chain execution give us confidence in our ability to consistently serve customers and meet demand. Turning to innovation and sustainability, our paperback product category continues to expand steadily.

Speaker #3: Driving a year-over-year increase in eco-friendly product sales of 16.9% in the first quarter. We also successfully closed another national chain account for paperback during this quarter.

Speaker #3: Further strengthening our leadership position and reinforcing our long-term strategy in sustainable packaging solutions. Our sourcing's diversification initiative continues to deliver tangible benefits. We have proactively rebalanced import volumes across geographies in response to evolving tariff structures.

Speaker #3: Strengthening our cost competitiveness and consistent product availability. In this quarter, we increased domestic purchase to 18% compared to 14% in the prior year quarter.

Alan Yu: In this quarter, we increased domestic purchase to 18% compared to 14% in the prior year quarter, and increased sourcing from Malaysia and Vietnam to an aggregate of 17% from 12% in the prior year quarter. At the same time, we reduced purchase from Taiwan in the current quarter to 46% compared to 54% in the prior year quarter, and reduced sourcing from China to 11% compared to 18% in the prior year quarter. Additionally, we expanded our sourcing footprint by adding a new supplier in South America, which further reduces geographic risk and enhance supply chain flexibility. We remain focused on providing responsive customer service and disciplined execution, which are a hallmark of Karat Packaging while advancing Karat's operational efficiencies.

Speaker #3: An increased sourcing from Malaysia and Vietnam to an aggregate of 17% from 12% in the prior year quarter. At the same time, we reduced purchase from Taiwan in the current quarter to 46% compared to 54% in the prior year quarter.

Speaker #3: And reduced sourcing from China to 11% compared to 18% in the prior year quarter. Additionally, we expanded our sourcing footprint by adding a new supplier in South America which further reduces geographic risk and enhanced supply chain flexibility.

Speaker #3: We remain focused on providing responsive customer service and disciplined execution. Which are a hallmark of Karat Packaging while advancing Karat's operational efficiencies these efforts are reflected in better operating cost leverage which decreased to 28.3% in the first quarter of 2026 from 31.8% in the prior year quarter.

Alan Yu: These efforts are reflected in better operating cost leverage, which decreased to 28.3% in Q1 2026 from 31.8% in the prior year quarter. In summary, we deliver a strong start to the year, maintain margin resilience in a challenging environment, and continue to invest in growth areas that align with our customer demand and long-term industry trend. I will now turn the call over to Jian Guo, our Chief Financial Officer, to discuss the company financial results in greater detail. Jian?

Speaker #3: In summary, we deliver a strong start to the year, maintain margin resilience in a challenging environment, and continue to invest in growth area that align with our customer demand and long-term industry trend.

Speaker #3: I will now turn the call over to Jian Guo, our Chief Financial Officer, to discuss the company financial result in greater detail. Jian?

Speaker #4: Thank you, Alan. I'll begin with a summary of our Q1 performance. Followed by an update on our guidance. Net sales for the 2026 first quarter increased to 116.9 million dollars up 12.9% from 103.6 million dollars in the prior year quarter.

Jian Guo: Thank you, Alan. I'll begin with a summary of our Q1 performance, followed by an update on our guidance. Net sales for the 2026 Q1 increased to $116.9 million, up 12.9% from $103.6 million in the prior year Q1. The increase primarily reflected $12.1 million in volume and mix, and a $2.0 million favorable impact from pricing. Sales to chain accounts and distributors, our biggest sales channel, were up by 15.1% in the 2026 Q1. Online sales, as Alan discussed earlier, rose almost 10% over the prior year Q1, and sales to the retail channel declined 12% from the 2025 Q1.

Speaker #4: The increase primarily reflected 12.1 million dollars in volume and mix and a 2.0 million dollars favorable impact from pricing. Sales to chain accounts and distributors our biggest sales channel were up by 15.1% in the 2026 first quarter.

Speaker #4: Online sales as Alan discussed earlier rose almost 10% over the prior year quarter. And sales to the retail channel declined 12% from the 2025 first quarter.

Speaker #4: Cost of goods sold for the 2026 first quarter increased 20% to 75.4 million dollars from 62.9 million dollars in the prior year quarter. The increase was driven primarily by sales growth and higher import costs of 7.3 million dollars primarily as a result of higher import duty and tariffs which increased from 3.4 million dollars for the three-months ended March 31st 2025 to 10.5 million dollars for the three-months ended March 31st 2026.

Jian Guo: Cost of goods sold for the 2026 Q1 increased 20% to $75.4 million from $62.9 million in the prior year quarter. The increase was driven primarily by sales growth and higher import costs of $7.3 million, primarily as a result of higher import duty and tariffs, which increased from $3.4 million for the three months that ended 31 March 2025 to $10.5 million for the three months that ended 31 March 2026. Gross profit for the 2026 Q1 increased to $41.5 million from $40.8 million in the prior year quarter. Gross margin for the 2026 Q1 was 35.5% compared with 39.3% a year ago.

Speaker #4: Gross profit for the 2026 first quarter increased to 41.5 million dollars from 40.8 million dollars in the prior year quarter. Gross margin for the 2026 first quarter was 35.5% compared with 39.3% a year ago.

Speaker #4: The year-over-year decline in gross margin reflects the expected impact from higher import costs which increased to 13.8% of net sales from 8.6% in the prior year quarter as well as elevated inventory adjustments as a percentage of net sales.

Jian Guo: The year-over-year decline in gross margin reflects the expected impact from higher import costs, which increased to 13.8% of net sales from 8.6% in the prior year quarter, as well as elevated inventory adjustments as a percentage of net sales. These impacts were partially offset by lower product costs as a percentage of net sales. Operating expenses in Q1 2026 increased to $33.1 million from $32.9 million last year. The increase was primarily driven by higher rent expense of $0.6 million associated with the opening of the company's new Chino distribution center in March 2025, along with a $0.6 million increase in salaries and benefits.

Speaker #4: This impacts were partially offset by lower product costs as a percentage of net sales. Operating expenses in the 2026 first quarter increased to 33.1 million dollars from 32.9 million dollars last year.

Speaker #4: The increase was primarily driven by higher rent expense of 0.6 million dollars associated with the opening of the company's new chino distribution center in March 2025.

Speaker #4: Along with a 0.6 million dollars increase in salaries and benefits. This increases were partially offset by a 0.7 million dollars reduction in online platform fees resulting from a shift away from third-party fulfillment of online orders as well as a 0.4 million dollars decrease in shipping and transportation costs due to lower online shipping rates.

Jian Guo: These increases were partially offset by a $0.7 million reduction in online platform fees resulting from a shift away from third-party fulfillment of online orders, as well as a $0.4 million decrease in shipping and transportation costs due to lower online shipping rates. Operating income in the 2026 Q1 increased 8.2% to $8.5 million from $7.8 million in the prior year quarter. Total other income net decreased to $0.9 million for the 2026 Q1 from $1.1 million in the prior year quarter. Net income for the 2026 Q1 increased 4.8% to $7.1 million from $6.8 million for the prior year quarter.

Speaker #4: Operating income in the 2026 first quarter increased 8.2% to 8.5 million dollars from 7.8 million dollars in the prior year quarter. Total other income net decreased to 0.9 million dollars for the 2026 first quarter from 1.1 million dollars in the prior year quarter.

Speaker #4: Net income for the 2026 first quarter increased 4.8% to 7.1 million dollars from 6.8 million dollars for the prior year quarter. Net income margin was 6.1% in the 2026 first quarter compared with 6.6% last year.

Jian Guo: Net income margin was 6.1% in the 2026 Q1, compared with 6.6% last year. Net income attributable to Karat for the 2026 Q1 increased 5.2% to $6.7 million, or $0.34 per diluted share, from $6.4 million or $0.32 per diluted share in the prior year quarter. adjusted EBITDA for the 2026 Q1 rose to $12.5 million from $11.9 million for the prior year quarter. adjusted EBITDA margin was 10.7% compared with 11.5% for the 2025 Q1. adjusted diluted earnings per common share increased to $0.34 for the 2026 Q1 from $0.33 per share in the comparable prior year period.

Speaker #4: Net income attributable to Karat for the 2026 first quarter increased 5.2% to 6.7 million dollars or 34 cents per diluted share from 6.4 million dollars or 32 cents per diluted share in the prior year quarter.

Speaker #4: Adjusted EBITDA for the 2026 first quarter rose to 12.5 million dollars from 11.9 million dollars for the prior year quarter. Adjusted EBITDA margin was 10.7% compared with 11.5% for the 2025 first quarter.

Speaker #4: Adjusted diluted earnings per common share increased to 34 cents for the 2026 first quarter from 33 cents per share in the comparable prior year period.

Speaker #4: We executed strong working capital management during the first quarter generating operating cash flow of 7.2 million dollars and free cash flow of 6.3 million dollars despite continued heavy duty and tariff payments as discussed earlier.

Jian Guo: We executed strong working capital management during Q1, generating operating cash flow of $7.2 million and free cash flow of $6.3 million, despite continued heavy duty and tariff payments, as discussed earlier. We paid out a regular quarterly dividend of $0.45 per share to shareholders on 27 February 2026. As of 31 March 2026, we had $90.7 million in working capital and $36.4 million in financial liquidity with another $45.7 million in short-term investments. On 5 May 2026, our board of directors approved a regular quarterly dividend of $0.45 per share, payable 28 May 2026 to stockholders of record as of 21 May 2026.

Speaker #4: We paid out a regular quarterly dividend of 45 cents per share to shareholders on February 27th, 2026. As of March 31st, 2026, we had 90.7 million dollars in working capital and 36.4 million dollars in financial liquidity with another 5.7 million dollars in short-term investments.

Speaker #4: On May 5th, 2026, our board of directors approved a regular quarterly dividend of 45 cents per share payable May 28th, 2026. To shareholders of record as of May 21st, 2026.

Speaker #4: Looking ahead, to the 2026 second quarter, we expect net sales to increase by approximately 8 to 10 percent from the prior year quarter. As Alan noted earlier, some timing shift of orders in March contributed to a softer start in April.

Jian Guo: Looking ahead to the 2026 Q2, we expect net sales to increase by approximately 8% to 10% from the prior year Q2. As Alan noted earlier, some timing shift of orders in March contributed to a softer start in April. Since then, we have replenished inventory and we're confident in our ability to achieve our sales target. We expect gross margin for the 2026 Q2 to be within 35% to 37% and adjusted EBITDA margin to be within 11% to 13%, excluding potential tariff refund impact under the current trade policy. For the full year 2026, we expect net sales to grow in a low double-digit range over the prior year.

Speaker #4: Since then, we have replenished inventory and we're confident in our ability to achieve our sales target. We expect gross margin for the 2026 second quarter to be within 35 to 37 percent, and adjusted EBITDA margin to be within 11 to 13 percent, excluding potential tariff refund impact under the current trade policy.

Speaker #4: For the full year 2026, grow in a low double-digit range over the prior year. We expect gross margin for the full year 2026 to be within 34 to 36 percent and adjusted EBITDA margin to be within 11 to 13 percent excluding potential tariff refund impact under the current trade policy.

Jian Guo: We expect gross margin for the full year 2026 to be within 34% to 36% and adjusted EBITDA margin to be within 11% to 13%, excluding potential tariff refund impact under the current trade policy. As Alan mentioned earlier, we are seeing accelerated growth in our pipeline, reflecting our strong market positioning and initiative to continue gaining market share in a dynamic trade and supply chain environment. We expect to continue to drive top line growth, sustain our gross margin, and continue to deliver strong profitability with enhanced operational efficiency and disciplined cost management. Alan and I will now be happy to answer your questions, and I'll turn the call back to the operator.

Speaker #4: As Alan mentioned earlier, we are seeing accelerated growth in our pipeline. Reflecting our strong market positioning and initiative to continue gaining market share in a dynamic trade and supply chain environment.

Speaker #4: We expect to continue to drive top-line growth, sustain our gross margin, and continue to deliver strong profitability with enhanced operational efficiency and disciplined cost management.

Speaker #4: Alan and I will now be happy to answer your questions and I'll turn the call back to the operator.

Speaker #1: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press the star one on your telephone keypad to raise your hand and join the queue.

Operator: Thank you. We will now begin the question-and-answer session. With that, your first question comes from the line of George Staphos with Bank of America. Please go ahead.

Speaker #1: If you would like to withdraw your question, please press the star one again. With that, your first question comes from the line of George Staffas with Bank of America.

Speaker #1: Please go ahead.

Kyle Benvenuto: Hi, this is Kyle Benvenuto on for George. Thank you for taking my question. You noted the sharp increase in oil prices is pressuring costs across source products and plastics. Within both your Q2 and 2026 margin guidance ranges, what oil price assumptions are embedded, and at what point would the mid-May plastic price increases no longer be sufficient to protect the 34% margin floor for the year?

Speaker #3: Hi, this is Kyle Benvenuto on for George. Thank you for taking my question. You noted the sharp increase in oil prices is pressuring costs across source products and plastics.

Speaker #3: Within both your two queue in 2026 margin guidance ranges, what oil price assumptions are embedded and at what point would the mid-May plastic price increases no longer be sufficient to protect the 34 percent margin floor?

Speaker #3: For the year.

Speaker #2: Well, here's what we see on the oil prices. Yes, you're correct. Oil price has gone up. And raw material has gone up so sharply.

Alan Yu: Well, here's what we see on the oil prices. Yes, you're correct. Oil prices has gone up, raw material has gone up so sharply. The issue is, we were able to negotiate with our vendor to support our less increase versus the full increase impact of the oil prices. Majority of our partner vendors overseas have absorbed majority of the increases. That's where we're seeing that we're giving minimum increase in the May 15 to June area. That's how I see it. Is it gonna be escalating? Is this tension gonna escalate more? Right now we see that the resin price has stabilized in Asia. It has come down a little bit also.

Speaker #2: But the issue is we were able to negotiate with our vendor to support our less increase versus the full increase impact of the oil prices.

Speaker #2: So majority of our partner vendors overseas have absorbed majority of the increases. So that's and also that's what we're seeing that our we're giving minimum increase in the May 15th to June area.

Speaker #2: That's how I see it. Is there going to be escalating is this tension going to escalate more? Right now we see that the resin price has stabilized in Asia.

Speaker #2: It has come down a little bit also. So we do not see at this point that the raw material prices will go up even higher from this point.

Alan Yu: We do not see, at this point that the raw material prices will go up even higher from this point.

Speaker #3: Thank you, Alan. And then one more question for you and I'll turn it over. Your guidance points to 8 to 10 percent sales growth for two queue.

Kyle Benvenuto: One more question for you, and I'll turn it over. Your guidance points to 8% to 10% sales growth for Q2. How much of this is driven by the expansion of new national accounts versus organic volume growth from your existing customer base? Thank you.

Speaker #3: How much of this is driven by the expansion of new national accounts versus organic volume growth from your existing customer base? Thank you.

Alan Yu: We're seeing a sharp increase in our online sale portion of our business. For example, last month, April, we topped our record double-digit in terms of online sales. We do foresee that this quarter we will have a record sales online as well. Last year, we did about $72 to $73 million online revenue, and this year we are on track for $100+ million on online revenues. Majority of the growth, actually, a big chunk of the growth is from online sales revenue. From our national chain accounts, yes, we do see some of the national chain pipeline converting to revenues. That is also a segment that we do see a growth in the national chain account, especially it's summer season.

Speaker #2: We're seeing a sharp increase in our online sale portion of our business. For example, last month, April, we topped our record over double digit in terms of online sales.

Speaker #2: And we do foresee that this quarter we will have a record sales online as well. Last year we did about 72 to 73 million dollars online revenue.

Speaker #2: And this year we are on track for 100 plus million dollars in online revenues. So majority of the growth actually a big chunk of the growth is from online sales revenue.

Speaker #2: From our national chain accounts, yes, we do see some of the national chain pipeline converting to revenues. So that is also a segment that we do see a growth in the national chain account, especially it's summer season.

Speaker #2: Most of these chains are going to increase their orders for their drink cups and carriers, as well as the diesel part of our food segment of our business. That is what we most expect—an increase in that segment as well.

Alan Yu: Most of these chains are gonna increase their order for their drink cups and carriers. As well as the diesel part of our food segment of our business is we was expecting an increase in that segment as well. These are all organic growth, by the way.

Speaker #2: So these are all organic growth right away.

Speaker #3: Thank you. And congrats on the quarter.

Kyle Benvenuto: Thank you, and congrats on the quarter.

Speaker #2: Thank you.

Alan Yu: Thank you.

Speaker #1: The next question comes from the line of Ryan Myers with Lake Street Capital Markets. Please go ahead.

Operator: The next question comes from the line at Ryan Meyers with Lake Street Capital Markets. Please go ahead.

Speaker #4: Hey guys, thanks for taking my questions. First one for me, and I just want to make sure I understand this dynamic correctly. And Alan, you had called out the 20 percent growth that you saw in the month of March and then obviously the second quarter guidance is only 8 to 10 percent revenue growth.

Ryan Meyers: Hey, guys. Thanks for taking my questions. First one for me, I just wanna make sure I understand this dynamic correctly. Alan, you had called out the 20% growth that you saw in the month of March, and then obviously the Q2 guidance is only 8% to 10% revenue growth. It sounds like you guys saw some pull forward in order demand that drove the strength in March, and then things kind of stabilized a little bit in the Q2. That's where that, you know, delta is between that 20% and that 8% to 10% growth is. It's not necessarily the business is slowing.

Speaker #4: So it sounds like you guys saw some pull forward in order demand that drove the strength in March and then things kind of stabilized a little bit.

Speaker #4: In the second quarter, that's where that delta is between that 20 percent and that 8 to 10 percent growth is. It's not necessarily the business is slowing.

Speaker #2: No, it's not. And also we want to be conservative in terms of our growth numbers. We do expect our full year guidance to be in range where what we have guided earlier.

Alan Yu: No, it's not. We want to be conservative in terms of our growth numbers. We do expect our full year guidance to be in range with what we have guided earlier this year. Q2 we're seeing some softening in April because of the pull forwarding from March. In this month, so far we're seeing a very positive revenue growth in terms of May. We want to be conservative, you know, cautious in terms of making sure that we meet the guidance. Yeah. Or exceed the guidance.

Speaker #2: This year, so second quarter we're seeing a some softening in April because of the pull forwarding from March. And in this month so far we're seeing a very positive revenue growth in terms of May.

Speaker #2: But that then we want to be conservative that cautious in terms of making sure that we meet the guidance. Yeah. Or exceed the guidance.

Speaker #4: Yep, fair enough. Nope, that makes sense. And then, just thinking in terms of pricing, you called out the prepared marks and talked a little bit about that.

Ryan Meyers: Yep, fair enough. Nope, that makes sense. Just thinking in terms of pricing, you know, you called out that the prepared marks and talked a little bit about that, but you know, how much price do you feel like needs to be taken for you guys to preserve your gross margins? Thinking about that industry-wide, you know, what does your price increases look like compared to competitors? Are you still feeling like you're, you know, priced below where the market is and that's allowing for some of those share gains?

Speaker #4: But how much price do you feel like needs to be taken for you guys to preserve your gross margins? And then thinking about that industry wide, what is your price increases look like compared to competitors?

Speaker #4: Are you still feeling like you're priced below where the market is and that's allowing for some of those share gains?

Speaker #2: Yes, we're hearing that our price announcement was 5 to 15 percent depending on category wise. And our peer group are seeing to have a price increase of 8 to 12 percent.

Alan Yu: Yes, we're hearing that our price announcement was 5% to 15% depending on category-wise, and our peer group are seeing, seem to have a price increase of 8% to 12%. We are in the lower range of the price increase amongst our peer group. Because we do wanna we understand that this is a difficult environment, that food service is having a challenging year and all the beef price gone up. We do wanna be support our partners in this turn. Basically we're actually announcing a lower price increase. Because of the, some help with the tariff, that in the past 12, past 6 or 9 months we were paying 20% tariff, now we're down to 10% tariff.

Alan Yu: Yes, we're hearing that our price announcement was 5% to 15% depending on category-wise, and our peer group are seeing, seem to have a price increase of 8% to 12%. We are in the lower range of the price increase amongst our peer group. Because we do wanna we understand that this is a difficult environment, that food service is having a challenging year and all the beef price gone up. We do wanna be support our partners in this turn. Basically we're actually announcing a lower price increase. Because of the, some help with the tariff, that in the past 12, past six or nine months we were paying 20% tariff, now we're down to 10% tariff.

Speaker #2: So we are in the lower range of the price increase among our peer group because we do want to we understand that this is a difficult environment that food service is having a challenging year.

Speaker #2: And all the beef price gone up. So we do want to be support our partners in this turn. So basically we're actually announcing a lower price increase but because of some help with the tariff, that in the past 12 past six or nine months, we were paying 20 percent tariff.

Speaker #2: Now we're down to 10 percent tariff. There may be changes in July and August, but at least for now we're seeing it 10 percent tariff reduction is helping our gross margin a lot.

Alan Yu: There may be changes in July and August, but at least for now, we're seeing it, 10% tariff reduction is helping our growth margin a lot. That's where we see that. We do see a stronger growth margin for this quarter versus the prior quarters. That's why we're seeing that, our net sales should be, we should be on track with our net sales.

Speaker #2: So that's where we see that. We do see a stronger gross margin for this quarter versus the prior quarters. That's why we're saying that our net sales should be we should be on track with our net sales.

Speaker #4: Okay. Got it. Thank you for taking my questions.

Ryan Meyers: Okay. Got it. Thank you for taking my questions.

Speaker #2: Thank you, Ryan.

Alan Yu: Thank you, Ryan.

Speaker #1: And the next question comes from the line of Ryan Markel with William Blair. Please go ahead.

Operator: The next question comes from the line at Ryan Merkel with William Blair. Please go ahead.

Speaker #5: Hey, good afternoon. Thanks for the questions. This is Ben Schmidt on for Ryan. First question here just to put a finer point on March and April.

Ben Schmidt: Hey, good afternoon. Thanks for the questions. This is Ben Schmidt on for Ryan. First question here, just to put a finer point on March and April. Is there any way to size the pull forward impact in March? It sounds like April might have been down, so just a finer point there would be great.

[Analyst] (William Blair): Hey, good afternoon. Thanks for the questions. This is Ben Schmidt on for Ryan. First question here, just to put a finer point on March and April. Is there any way to size the pull forward impact in March? It sounds like April might have been down, so just a finer point there would be great.

Speaker #5: Is there any way to size the pull forward impact in March? It sounds like April might have been down. So just a finer point there would be great.

Speaker #2: I would think that about $2 million for pull forward from April to March.

Alan Yu: I would think that about $2 million were pulled forward from April to March.

Speaker #5: Okay. Got it. Thank you. And then last one for me, so I know you guys mentioned to win this quarter, but any other updates on the pipeline of potential wins you guys discussed last quarter?

Ben Schmidt: Okay. Got it. Thank you. Last one for me. I know you guys mentioned a win this quarter, any other updates on the pipeline of potential wins you guys discussed last quarter?

[Analyst] (William Blair): Okay. Got it. Thank you. Last one for me. I know you guys mentioned a win this quarter, any other updates on the pipeline of potential wins you guys discussed last quarter?

Alan Yu: We are working with a very large chains, actually a few large chains, that might be converting in this quarter or at least next quarter. This quarter we are converting some of the existing customers, adding additional SKU to the existing customers, such as the there's eco-friendly product line and paper bags. That's what we're seeing right now.

Speaker #2: We are working with a very large change actually a few large chains. That might be converting in this quarter. Or at least next quarter.

Speaker #2: But this quarter we are converting some of the existing customers adding additional SKU to the existing customers. Such as the there's eco-friendly product line.

Speaker #2: And paperbacks. So that's what we're seeing right now.

Speaker #5: All right. Got it. That's all from me. Thanks, guys.

Ben Schmidt: All right. Got it. That's all for me. Thanks, guys.

[Analyst] (William Blair): All right. Got it. That's all for me. Thanks, guys.

Speaker #2: Thank you.

Alan Yu: Thank you.

Speaker #1: And we have no further questions at this time. I would like to turn it back to Alan Yu for closing remarks.

Operator: We have no further questions at this time. I would like to turn it back to Alan Yu for closing remarks.

Speaker #2: Thank you, everybody, for joining our conference call first quarter tariff packaging earning. We look forward to seeing you next time. Thank you very much.

Alan Yu: Thank you everybody for joining our conference call, Q1 Karat Packaging earnings. We look forward to seeing you next time. Thank you very much and have a wonderful day. Bye-bye.

Speaker #2: Have a wonderful day. Bye-bye.

Operator: Thank you. Ladies and gentlemen, this now concludes today's conference call. You may now disconnect.