Karat Packaging (KRT) The 44th Annual William Blair Growth Stock Conference summary

Business overview and growth strategy

• Focuses on eco-friendly, single-use food service products with a strong presence in QSRs and expanding customer base across the U.S., Mexico, and Puerto Rico.

• Originated from a single boba tea shop, now serving major chains and capitalizing on the growing boba tea trend.

• Operates 9 warehouse distribution centers and 3 manufacturing facilities, with nimble scaling of production based on market needs.

• Online sales are a key growth driver, expected to exceed $100 million by 2025, with expansion into new markets and higher margins than traditional channels.

• Plans to double sales force and add new distributors, QSRs, and supermarket chains to diversify revenue streams.

Product innovation and ESG focus

• Early adopter and leader in eco-friendly, compostable packaging, with 34% of Q1 2024 revenue from these products and a 2025 goal of 50%.

• Continues to expand product offerings, adding 1,000 SKUs last year and 500 more this year, including new compostable pizza boxes and paper bags.

• Customization capabilities for a wide range of packaging products.

• Eco-friendly products offer slightly higher margins and are increasingly adopted due to regulatory pressures, especially in California.

• Pipeline of customers converting to eco-friendly products, particularly bagasse and paper shopping bags.

Financial performance and outlook

• Despite a slight revenue decrease in 2023 due to lower pricing, volume grew by about 4%.

• Shifted to an asset-light model, increasing imports and reducing domestic manufacturing, improving gross margins and cash flow.

• Free cash flow conversion from adjusted EBITDA exceeded 75% in 2023, enabling increased dividends.

• Projects 8%-15% revenue growth and 37%-40% gross margin for 2024.

• Double-digit organic volume growth expected in 2024, outperforming industry peers.