Disclosures and conflicts of interest is available on our website. With us today is Alan Yu, who's Chairman and CEO. We have Jian Guo, CFO. Karat is a fast-growing manufacturer and distributor of eco-friendly, single-use food service products. Key products include packaging, containers, cups, and straws. We have confidence that the industry will allow Karat to grow double-digit top lines organically, plus mid-teens EPS long term. Our view is that Karat is a disruptor in the packaging distribution market. With that, I'll turn it over to Alan.
Thank you, Ryan. Thank you, everyone, for attending our presentation. First, I would like to begin, before we begin, I'd like to, discuss about our, forward-looking statement. It's right there. You can see that. After that, reading through that, I will begin our presentation. Well, first of all, Karat Packaging, if you never heard of us, I'm sure you've used our product, throughout the U.S. Anytime you go to QSR, such as Panda Express, Chipotle, Applebee's, Chili's, you'll be using our product. Our product's everywhere throughout the U.S., from California to Boston and, even in Mexico and Puerto Rico. We have a strong presence in the QSR area, and we're expanding our—continuing to expand our, customer base in, throughout the U.S.
And next, I'd like to go through a little bit of our history. Karat started as a single retail boba tea shop in San Gabriel Valley, and ever since we first began our first store, we actually expanded to over 120 retail shop in the U.S. Back in 2000, boba was, boba tea was not as popular as it is now. Today, you will probably see there's over 20,000 retail stores that are carrying boba tea product, and it has become a mainstream product. Some of our latest clients, such as Dutch Bros and Del Taco and Jack in the Box, The Coffee Bean & Tea Leaf, they've also also incorporated boba tea product into their drink mix now.
And we see that even Starbucks has incorporated boba tea into their newest, latest drink. So we see this trend is actually going to explode actually even more, next year. People thought that it hasn't matured. I would say that this is only the beginning of the new development for the boba tea, as we will start beginning to develop more different type of boba tea product, something with energy drink, vitamin drinks, other things. So we're looking forward to that, okay? Next, you know, I will go over what are we here? I mean, Karat Packaging, what is our advantage? Well, first of all, we consider ourself as one-stop shop for all the packaging goods and even not only the packaging, the supply product, also the raw material, syrup, coffee syrup, drinks.
Lollicup is the largest distributors, importers of coffee syrups. We have Monin Syrup, 1883. We have the largest wide variety of syrup product that you can use each for your tea and bars and coffee houses, okay? Basically, Karat, we have a unique platform. Our advantage also that is we have 9 warehouse distribution centers throughout the U.S., 3 manufacturing facility, 1 in Hawaii, 1 in Chino, California, and 1 in Rockwall, Texas. Our ability to scale upward or downward on our manufacturing facility is 1 of our strength. During the COVID period, we actually rapidly ramp up our manufacturing facilities. We added new equipment. We invested in over $40 million in equipment.
Since 2023, we scaled back our our manufacturing investment, and recently, we just ramp up, starting this week, we ramp up our manufacturing capability again, probably for just 6 weeks, due to some shortages in ocean freight issues. So basically, we're very nimble and flexible in terms of scaling upward or downward and to keep maintaining our competitiveness in the market, okay? We have warehouses throughout the U.S. Recently, we added 3 warehouses. The latest one's in Arizona. Prior to that, it was Chicago and also Houston. Why are we adding so many warehouses? Well, first of all, we wanted to be able to add new facilities near our client base. Our online sales is one of our our top driver of our top line, actually, our margin growth.
We expect our revenue to exceed $100 million in revenue just for the online sales. Currently, we uses Lollicupstore.com, Amazon stores, Amazon FBA, Walmart.com, and also TikTok e-commerce to sell our product throughout the online e-commerce. We're also expanding our online into Hawaii and Amazon Canada, also Mexico Amazon. So these are the area that we see that will help us grow our revenues in terms of online. Online channel also create help us bring additional higher margin than our traditional distribution channels and our retail channels. So that's where we're focusing, and this is where we see that our. We were able to reiterate our first quarter 2024 gross margin goal of 38%-40%.
Also, one of the thing that about Karat is, we were one of the first company to introduce eco-friendly product, ESG items such as compostable items. In 2007, we first introduced the eco-friendly compostable cups, hot cup, and cold cup. Today, we're one of the leaders in terms of, compostable product, eco-friendly product line. First quarter of this year, 34% of our revenue derived from the sales of eco-friendly product. Our goal for the, 2025 is to have 50% of overall revenue derived from the sales of eco-friendly product. This is something that we're focusing and thriving for. There are a lot of our competitors are actually has continuous sell Styrofoam product.
Styrofoam is not something that we sell, so we feel that the future of the packaging is more of going toward the ESG eco-friendly line. Expanding our product offering is another strategy that we have to increase our revenue. We've added additional 1,000 SKU last year. This year, we're looking to add additional 500 SKU, including the ESG product line, compostable line of product. Right now, we're focused. This year, we've introduced pizza boxes that are 100% compostable, biodegradable. Last year, we added the paper shopping bag, SOS bag, and other eco-friendly product line. So we're still looking at additional items that we can add to our compostable ESG product line. And customization also is one of our other strength that we have.
We can customize anything that you see in the market, a food container, PET cup, pizza boxes, we can customize in that part. And another one of our, this customer base, okay? We have four type of customer base. We have no concentration in any single customer, over 5%. One of our 2024 growth strategy is that we will add new distributors as a customer base. We will add new QSR, regional chain, chain accounts, as well as going to the supermarket chains. Recently, we've signed up a deal with the Texas supermarket, that we will start shipping product in the third quarter of this year and continue forward. So that's where our focus gonna be in terms of selling more into supermarket, into national chain accounts, and QSR accounts.
Online is one of our other strategies that we have. Like I mentioned earlier, $100 million or more in sales by 2025. We have, in 2019, our online sales were no more than $5 million, and we have five people working on online team. Today, we have over 70 people working on online team as we scale down this, the headcounts into traditional sales force, but adding more, online people, online channels. Another way of channel of ramping up our revenues is adding new sales force. We've added double our sales force since 2023, and we're still looking to add additional sales force into our business.
Now, as far as the revenues and income statement, I'll have Jian Guo, our CFO, to discuss on our revenue and cash flow. Jian, sure.
Thank you, Alan. So I'll go through this fairly quickly here. Just two comments here, two themes here I wanted to point out. Revenue, as you can see, we've, as a company, we've had significant growth strategy over the past few years. 2023, just a quick note here. 2023, the little bit of a decrease that you are seeing in terms of the dollar amount of the revenue, it's actually there are two things going on. One, we actually have volume growth about close to 4%. We actually were able to grow our volume.
The dollar amount of the slight decrease in revenue was primarily year-over-year pricing comparison, as we were giving out kind of the savings on the ocean freight from 2021, 2022, back to the customers as the ocean freight, the rates started to normalize in 2023. So that's kind of the one note I'll make there. The other note is, we have been adopting kind of an asset-light model. What we meant by asset-light model was, starting in 2023, we were able to transition, to pivot more into the import, and kind of scaled back a little bit on the domestic manufacturing, and we continue to execute on this strategy this year.
What this allowed us to do, as you can see from the improvement on the net income number, as well as the adjusted EBITDA and free cash flow, is the continued sustained, one, kind of the structural improvement on the gross margin, because the import products carry higher margin, and then, two, stronger cash flow generation. In 2023, our free cash flow conversion from EBITDA, adjusted EBITDA, was north of 75, 75%, and we do continue to see the significant sustained cash-generating capabilities. Since last year, we were able to provide significant return to our shareholders in the form of special and regular dividend.
We actually started last year, August, a regular dividend policy, and we continue to increase our dividend payout to our shareholders. So this is a quick snapshot of the 2023 versus 2022 financial highlights. The consistent themes here: revenue, volume growth, sustained structural improvement across all margin and profitability. This is a quick snapshot of our 2024 first quarter performance, as well as our 2024 guidance. We do project on the dollar amount of the basis, 8%-15% of revenue growth year-over-year, as the year-over-year pricing comparison started to get more normalized. And then we do expect gross margin to remain at a pretty high level, 37%-40%.
With that, this is a quick summary of the investment strategy, investment thesis in Karat Packaging, and I would like to open it up for maybe Q&A.
Any questions?
We, question.
We do produce manufactured paper and plastic.
Compostable?
Compostable, we actually import the paper and plastic compostable items, instead of manufacturing it ourselves. Yeah. Okay.
Yeah, where?
Actually, it's from multiple geographic locations from China, Taiwan, Vietnam, basically.
You have manufacturing it?
Yes. Currently, we're actually in due diligence phase with some of the vendors and partners. It's either... So there are a couple of customers that we're in talk on as joint ventures. And there's different type of channels, frozen food manufacturers that has currently existing channels to supermarkets. Because we do wanna get more business into the supermarket channel. And we see that what is a channel avenue that we can get our foot in the door in the supermarket? Just like what we did in 2021, we had a small acquisition in Hawaii.
With that $1 million acquisition in Hawaii, we're able to actually open up our foot in the door in over 65 national chain account from that acquisition.
Uh, yeah.
Sure. During our first quarter conference call, we, we mentioned that, our, we have already signed a contract with the five ocean freight liners, that the ocean freight pricing should be stabilizing. But somehow, a few weeks ago, the United States government actually imposed a additional tariff on batteries, items coming out of, Asia, not only China, but Asia, primarily, Vietnam, and it's on solar panels and other things. Over 135 items listed. And what's happening is, the tariff will start, additional new tariff will start in, I believe, either, sometime at, beginning of August or end of July.
So every manufacturer or importer is trying to rush, get as many product as they can, as many container they can, and that's creating a spike in the ocean freight demand. But this demand is not because we see in the COVID period that there's a demand in retail spike or other items. It's due to the fact that government regulation, tariffs. And we discussing, after discussing with freight forwarders and other peers, that we all believe that this is gonna be a very, very short delay because there's really nothing to ship afterward. Because once these people ship, these companies ship all these items that are gonna be hit with the tariff, they're not gonna ship anything after that.
We're gonna see the price probably fall back to even lower than what we've seen right now. But of course, we already signed a contract with these carriers, and we should be able to go back to normal. But there's gonna be some backlog. Because people can't, we can't, like ourself, we're only able to get 50% of the container that we need. And luckily, we wrap up our inventory during the March and April period. Traditionally, we wrap up our inventory during March and April period for the summer season, and not anticipating that this all of a sudden increase in tariff.
So we are prepared, well prepared ahead of time, and now we're just seeing that, we're gonna reduce our usage of these containers, and we just turn on our equipments, Texas facilities and California. As we scale back on our manufacturing, last year and even beginning of this year, we just told our plant manager to increase our production just for the next following 6-8 weeks, basically, on that part.
Questions?
Yes, the one of the reason that we started to reduce manufacturing domestically and started importing, because the ocean freight was cheaper, lower, and also manufacturing overseas is definitely cheaper than manufacturing domestically. We're gonna see some headwinds in terms of on the margin, just on the item that we manufacture domestically. But luckily, our, our selling price is still higher, and our so we're seeing demand growing, and we're gonna see volume increase. So we're gonna see a positive bottom line, basically, based on that factors. And also, we did bring in a lot more product than we should have, the past two months, so we're gonna see a gain offset in that margin-wise.
It should be actually help us increase our top line and bottom line for the next two quarters.
Can you talk about the health of your restaurant customers? Their traffic levels are steady, going up, or going down?
After discussing with our some of the large chain accounts, and they're saying that for example, California, okay? California, the mom-and-pop restaurants are getting hit hard. They can't afford to raise their minimum wage to fight against the QSR for people staffing, okay? So they're closing. The national chain accounts, such as Panda Express, the El Pollo Loco, and the other businesses like Dave's Hot Chicken that we service, they're seeing foot traffic increase. And Chili's, of course, against McDonald's, I guess, I mean, personally, I would spend $11 to get real burgers, and a French fry, and a drink, and a salad versus a $15 Big Mac. So we see some of our clients volume increase in both online orders and also in-store dining.
I wanted to follow up on the eco-friendly. So you said 30% of sales today, the goal is 50% in 2025. Do you have visibility to some big customers wanting to move to the eco-friendly?
Yes. First quarter is 34%-
Okay
... overall revenue, and we are, we do have pipeline customers that are converting into our, our, Karat packaging product, especially on the bagasse product and paper shopping bag.
The margins are roughly how much higher on eco-friendly versus non-eco-friendly?
Before, it was 50% on selling price on the eco-friendly side. Right now, due to the wide usage of the eco-friendly product, it has lowered to 20%. The good thing about that is because now that the price is lower, the operator can see that it really makes sense to them for them to switch over into the eco-friendly product for just 20%. Margin is also slightly higher on the eco-friendly product versus traditional items because we don't have to fight for the bottom.
Anything else?
It seems like California would be a terrific place for you because how is eco-friendly?
Eco-friendly product, we're seeing that, more and more people are going California. They're moving to eco-friendly because of laws, cities, rules, and regulations. It's not because of the restaurant operator wanted to switch over to eco-friendly product. It's mainly they're forced to. Some companies are still trying to hold on to whatever they can on the regular item, even Styrofoam, like Fresno cities, and, you know, they want to keep that Styrofoam because Styrofoam is still very functional and cheaper than eco-friendly product line. But I would say that, more of the coastal line are moving toward the eco-friendly product. Okay.
Yeah. Good. This is-
In terms of overall volume-wise, our first—Actually, last year, we had some, like, single, low single-digit growth in terms of volume. This year, we're seeing double-digit growth in terms of volume. It is actually in the entire industry-wise, our peers are seeing decline. If they can actually zero decline, it would be good, basically very good for them. We're seeing a normal 5% decline on our peers, competitors. But for our company, basically, we're seeing a growth of double-digit. We're looking at 15, anywhere from 15%-25% growth in terms of volume-wise. The what?
Sure, got it.
This is all organic volume growth, not revenue, volume growth.
Including?
Price, basically, we're seeing a price decline, just like we did in 2020, 2023. But right now, price has stabilized. This year has stabilized, mostly stabilized price. So we're not gonna see any more price decreases, but we're gonna see volume increase.
Any effects of tariffs that are going on that are causing, shipping rates to increase? Have you done any exploration in your manufacturing instead of bringing in like Mexico or, elsewhere?
Here's the thing. Tariffs is something unexpectedly. We couldn't expect that what's gonna happen in terms of any administration is there to change, increase, or decrease the tariff. Moving to Mexico might, they might, we might, U.S. might even erase the tariff against Mexico next year. Who knows? But the thing is, for us to manufacture more, like investing more equipment in manufacturing, we will feel that it's not economical for us to do so. It is more economical for us to just find new vendor partners overseas and have them manufacture a product for us to bring in. Good thing is, like, Jian mentioned earlier, in the year 2019 to 2022, we invested heavily into new advanced machines.
Ever since we stopped purchasing this equipment, we were able to make more margin, create more net profit, and also now that we're able to distribute dividend back to the shareholders. Okay, thank you.
All right. Thanks a lot.
Thank you.
Thank you, everyone.