Good day, and welcome to the Karat Packaging Inc. First Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Roger Pondel. Please go ahead.

Good afternoon, everyone, and welcome to Karat Packaging's 2022 First Quarter Earnings Call. I'm Roger Pondel with PondelWilkinson, 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 all listeners that today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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 recently 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, 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. Please also note that during today's call, we will be discussing adjusted EBITDA, adjusted EBITDA margin and adjusted diluted earnings per share, 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. And with that, it is my pleasure to turn the call over to CEO, Alan Yu. Alan?

Thank you, Roger. Good afternoon, everyone. We're pleased to be here with all of you today. Our first quarter 2022 results again demonstrated excellent operational execution, achieving record sales and strong margin expansion. Our positive sales performance was broad-based across all categories, including national and regional chain account, distributors, online and retail channels. Sales were boosted to some extent by Karat's Tea Zone branded products, particularly bubble tea supply and our newly expanded logistics services. We continue to gain wallet share with our existing customers. And we added many new customers through wholesale distribution and through e-commerce, direct-to-consumer channels. Our online presence continue to be an important initiative. In addition to selling Karat product, we plan to expand the selling platform of our sites, enable other foodservice purveyor to showcase and sell their product and creating a convenient one-stop shopping option for our customers. The company achieved gross margin of 32.5% in the year 2022 first quarter, increasing 390 basis points over the same quarter last year. Despite continued supply chain challenges and higher freight costs, this demonstrated our ability to improve operational efficiencies and cost leverage. Gross margin also benefited from freight and duty capitalization. Demand for compostable and biodegradable products is on the rise, as more cities and states are beginning to enact regulations to ban single-use plastics and Styrofoam products. Karat's long-standing commitment to providing environmentally friendly disposable products has empowered us to grow into a leader in the industry. As we continue to provide new and innovative offerings, just subsequent to the close of the quarter, we entered into a joint venture agreement to build a 180,000 square feet state-of-the-art automated factory in Taiwan to manufacture 100% compostable foodservice products from bagasse, which is a derivative of sugarcane pulp. The new plant, which will feature state-of-the-art…

Thank you, Alan. As Alan mentioned, we delivered another quarter of impressive sales growth and a significant increase in adjusted EBITDA. We reported record quarterly net sales in the 2022 first quarter, rising 39% to $105.4 million from $75.7 million in the same period last year, reflecting strong growth from existing and new customers. Our new product offerings, greater product penetration and price increases implemented throughout the second half of 2021 and the first 3 months of 2022, all contributed to the strong sales growth. By channel, sales to distributors, our largest channel grew 48% for the 2022 first quarter. Sales to national and regional chains advanced 36% and online sales increased 18%. Sales to the retail channel rose 32% for the quarter fueled by our bubble tea suppliers. Gross profit increased 59% to $34.3 million for the 2022 first quarter. Gross margin for the 2022 first quarter rose to 32.5% from 28.6% for the same quarter last year. The margin expansion was primarily a result of the strong sales growth in our higher-margin products, improved operating efficiencies and fixed cost leverage, along with favorable foreign currency impact. Also benefiting gross margin was strong pricing to offset increased products, ocean freight and labor costs. Although some of the higher first quarter freight costs will not be absorbed in cost of goods sold until the second or possibly the third quarter of 2022, overall, freight costs as a percentage of net sales increased from 8.6% in Q1 2021 to 14.4% in Q1 2022. While we currently expect the ocean freight rates to remain elevated for the remainder of 2022, as Alan mentioned, we are confident that we will continue to effectively manage the freight costs and deliver on our gross margin goal for the full year. Operating expenses for the 2022…

[Operator Instructions] And the first question will be from Jake Bartlett from Truist Securities.

And congrats on a great quarter. Good start to the year. My first question is on the increased guidance for sales in 2022. If you could maybe just give us some detail as to what the main drivers of the increased guidance is? It seems like demand for a while now has been really kind of stronger than you can accommodate. So it feels like it's demand has already been strong. So I'm wondering, is it the increased capacity that you've added in the quarter? Is it just the increased staffing that you're seeing? And then also if you can touch on whether there's more pricing assumed in that guidance. I think the pricing, at least what I had was about 5% to 7% was going to be running through in 2022. Maybe any update there?

Sure, Jake. Well, one thing that we've seen that the increase is coming from demand, for example, you heard that we are adding additional warehousing space, both in California and Hawaii. It's because we've seen the demand in Hawaii has actually explosively grew a lot than what we anticipated it was going to be. There's more tourists going to Hawaii and basically everywhere, there's demand for packaging. And same thing in California, that we're shipping to Las Vegas in Arizona, there's really a strong demand increase on the packaging side for the state of Arizona and Las Vegas. More and more tourists are coming into Vegas and more and more tourists are coming to California. Another thing is our Boba Tea supply. We are seeing a huge demand in the growth of Boba Tea supply, this first quarter already that we're entering into our peak season in the second quarter. And that has attributed to a large sum of growth in our overall revenue wise. Lastly, of course, more and more people looking to go into the eco-friendly lines. We're seeing a high demand in the bagasse products in the compostable utensils, categories and our [full line] is growing. I would say it's -- particularly, there's a few categories growing really strong, but other categories are growing as well. Another thing is our fill rates are going up that -- automatically. Last quarter, I mentioned that our fill rate was only 60%, but we actually increased our fill rate to approximately 70% to 75% now. It automatically increases our revenue. So I wouldn't attribute much of the increase in guidance towards the price increase on that part.

Great. That's really helpful. And then on gross margins, if you could just -- if you could give us how much the first quarter was helped by the capitalization of freight and duty, that would be helpful. And you mentioned in the guidance in the press release that includes that moving piece. Maybe just help us understand how that might flow through the rest of the year. It was a help in the first quarter. Does it hurt in subsequent quarters? Just help us understand how to model the quarterly progression there?

Jian, I'll let you answer that question for Jake.

Sure. Jake, thank you so much for the question. So in terms of the impact from the capitalization for -- in Q1, the total dollar amount of the impact was about approximately $6 million. As we mentioned in our remarks, even with the $6 million in benefit in our cost of goods sold in the first quarter, overall, ocean freight cost remains, as a percentage of sales, much higher year-over-year. And last year, Q1, we were at 8.6% of sales versus Q1, this quarter, it was 14.4%. And a lot of that was primarily because we were really starting up. We brought a lot of the shipments from Asia to stock up our inventory in anticipation of our peak season starting with the second quarter. So to answer the second part of your question in terms of expectation for the remaining quarters in 2022. So in Q2, we expect our -- we'll absorb probably a good chunk of the benefit that we've realized in Q1 in terms of the capitalized ocean freight cost. That said, I will highlight a few factors as we think about our gross margin for the second quarter as well as for the full year 2022 holistically. Even with a little bit of a headwind, if you will, from the ocean freight capitalization in Q2, we are seeing some favorable impacts, and we do expect to be able to offset at least partially or mostly some of the negative impact from the ocean freight capitalization in Q2, just to name a few. So one, we are seeing a fairly significant positive impact from foreign currency impact, just really strong USD against some of the currencies in Asia. And then we continue to see improvement in our product mix as we continue to shift into higher-margin products as well as continue to improve on some of our operating efficiency. So we are seeing quite a few positive factors that are trending towards basically offsetting the negative -- the expected negative impact in Q2, and that's the reason why we reiterated that for the full year 2022, we still expect to deliver on the gross margin goal of 31% to 32% on average.

Great. That's really helpful. And then my next question is on the JV that you're entering into in the facility. You mentioned, Alan, some tons of packaging and some containers. Can you help us understand what that might mean for sales in 2023? And do you expect that facility to be open kind of early in the year and that this could be a benefit for the whole year. That's my next question. And I have one more quick follow-up.

Sure. Well, as you said, we expect the 2023 will be the year [indiscernible] the year that many states and cities will be transforming from Styrofoam or paper and plastic into 100% compostable packaging product. We've already received a new [step], the County of Los Angeles starting May 1, is going to ban all single -- all single-use plastics such as Styrofoam and plastic utensils, plastic straws and plastic takeout containers. Hawaii already did that last year. And New Jersey is banning that too. And more and more states are going to do the same thing. But as we all know, most of the bagasse products are still coming out of China. And this is what we've been telling our investors and same as anyone that we're trying to move away from China into other parts of the world, Asia or perhaps possibly with the JV that we started in Taiwan. Our goal is to test out the automation of the robotic system, can we bring it into Texas to manufacture domestically? And yes, our goal is basically see if we can produce these domestically. And that is our goal. And what kind of impact would it have on our revenue side? Definitely, it will have a favorable impact on our revenue side. Now we can actually control the cost of our product that we will produce versus basically in terms of ocean freight. We don't have to worry about ocean freight. All we have to worry about is the raw material, which domestically can be found and some of the raw material can be actually contributed to from our paper manufacturing into the production of the bagasse product. I would say that -- I mentioned we can produce 650 containers out of that first part of the joint ventures. We do have a second part of joint venture, which will also be able to produce another 650 containers out of the same location on that part. So what exactly the total revenue of 2023, that we're still figuring out right now.

Got it. And then real quickly, is that more of a certainty of supply costs move? Or is that more of a driver of sales you think with that JV?

I would say it's driving our sales and also the ability -- learning the ability to test out the new equipment, see if they are suitable for domestic manufacturing in the U.S.

[Operator Instructions] The next question is from Brian Butler with Stifel.

Let's just start on the eco and environmental products. Can you just update everyone kind of what percent of revenue that is now? And then kind of the expectation of what that percentage for 2022 guidance? And where it could go once the new facilities kind of ramped up in '23?

Jian, can you actually give Brian the current numbers and I'll go over with the future goals of the company, on that part?

Yes, sure. I can take that question. Brian, in terms of our eco-friendly products, overall, as a percentage of total sales, it went up just a little bit from Q4. It remains in the high teens. I think Q4, we said close to 20, high teens. So it's still in that range, it went up just a little bit less than 1% in terms of -- and that is for, obviously, the current quarter. As we think about sort of the rest of 2022 and 2023, we think the percentage will continue to increase throughout 2022, especially as we are seeing some of the regulatory development in some of the regions, [indiscernible], cities where there were some recent developments [indiscernible] towards the use of eco-friendly products and some of the -- and definitely also the continued shift on the consumers' preference side towards the eco-friendly products as well. We do expect the trend to continue into 2023. To answer the second part of your question, it's especially with additional capacities on our end as the JV, the joint venture production starts in the second half of this year.

And Brian, our goal for the 2023 is -- our goal is shooting to be 30% of our overall revenue to the eco-friendly product line, ESG, the green product. That is our goal.

Can you remind me, is the eco-friendly product materially higher in margins? Or is it pretty similar to your other products?

[Indiscernible] higher margin than our traditional products.

It is higher margin. Okay.

It is.

My next question was kind of on the overall growth. Can you break that down between kind of price and volume between the strong growth you saw? And then maybe are you getting price at a level that's offsetting the inflation in each business line?

Can you rephrase that question?

Well, I guess just at the very highest level, can you break down the organic growth between price and volume?

Jian, would that -- the assessment that you have in your hands?

Yes, I can take that question. So when you look at the overall revenue growth year-over-year, I would say roughly approximately half of that come from pricing and then the remaining from primarily out of volume and mix. So in terms of the pricing, the additional color I'll add here is, as you're aware, we implemented multiple price increases in the second half -- primarily in the second half of 2021, also a little bit in the first quarter of this year. So that's really -- when we're looking at the year-over-year comparison, that's giving us the benefit there.

So about -- so if I heard that correctly, about 50% of the growth was from the increased pricing that you had put in place?

Correct. A little over 50%.

A little over 50%. Okay. And on the cash flow side, on the inventory build, how should we think about that inventory through the remainder of the year? Does that come back down and we end up with a working capital number that's either flat or slightly negative? Or is that going to remain at an elevated level for a while?

I would think that inventory will be -- remain elevated level for a while because -- to support our growth because we do expect our growth to continue to be strong. And in the last year, there was a lot of shortages in our product. And that's one has been causing a fulfillment rate to be at 60%. And we realize that we can't -- it takes us 2 months or 3 months to get a product in from overseas to U.S., and we can have -- we can -- a customer wants the product, they want it now. So we have to have products in place sitting in our warehouse. And this is one of the reasons that we increased our warehousing spacing, California and Hawaii, understanding that if we have the product in place, there's a demand for it, and that will definitely automatically increase our sales. So we are actually looking for more warehousing space in Texas and in California to grow that. With that said, we'll be bringing more inventory in to support our growth.

Okay. So with that kind of change in higher inventory to support the growth, I mean, is the expectation that free cash flow is going to be flat to negative this year?

I would say free cash flow will be positive this year. What are -- with us generating more net profit from the operation.

Okay. So even with the additional investment in inventory, you expect free cash flow to remain -- will be positive for 2022. That's fair?

That is fair.

Okay. And then last one for me. Any color on -- or update kind of on the M&A environment and outlook for 2022 and 2023?

Well, last year, it was challenging in terms of when the market was booming, everyone was doing well. And [indiscernible] we've seen a lot of M&A activities in the market. I guess now with the market coming down, there's -- I've seen less M&A activities in the recent months. And I would think that this will be a good opportunity for us to really look into who actually -- which -- what partnership or which company that will be suitable to partner up with in terms of -- in the next 6 to 9 months as economies shift downward in most cases. So I would say that there's -- for us, I think that there's more opportunity down the road than it was 6 months ago.

And the next question will be from Paul Dircks from William Blair.

So first one for me, I just wanted to ask, Alan, over the last 30 to 60 days, how is the tone of the conversations that you've had with national account customers changed as we've seen the rapid inflationary pressures across the economy take greater hold?

Well, the past 30 to 90 days, we've seen our -- most of our national account customers are still continuing -- are looking to work even closely with us. And they're seeing that there's still a concern that there's a supply chain disruption in the marketplace, primarily on the paper side. There is -- there's still -- I mean, the paper shortage is still ongoing, not necessarily on the plastic side, but on the paper side, there is a shortage of paper raw material. And it could be from a paper food container, a paper cup or a paper tray or something else. But mostly on the paper side, there is a shortage in the domestic marketplace. So we talked to a lot of the national chain account. They do want to work with us even closer in terms of if we can be a secondary supplier to them, just in case that the primary supplier would not be able to accommodate them, which I think is a good idea that during the pandemic that it changed everyone's perception of having a single source of vendors versus not only a secondary, but third backup source in order to make sure that there is no supply chain disruption which we are still seeing right now.

Got it. So maybe said differently, my -- I'm implying -- I guess your answer implies that we're not really seeing much of a change from a demand standpoint from those national account customers, if for no other reason then they're looking to carry it as a solution for some of their own supply chain challenges. We're not really seeing an economic impact here as far as the demand goes and as it relates to you, that would be a fair assessment?

Yes, I haven't heard much of a demand increase on that part, yes.

Okay. I appreciate that. Switching to the online channel, you mentioned during the prepared remarks that you guys were planning to open up the website to become more of a one-stop shop. Can you maybe talk about, one, does this require a step-up in expenditure? And two, how would this change the growth potential and maybe even the margin profile of the online channel, which, as you know, is your highest margin channel for your business?

Well, I don't see any change in margin in our online sales. One thing is we have been utilizing Amazon to sell our products. We've been -- we're now being utilizing our Lollicup store, our own website, to sell directly to the end user. At the same time, we feel that our -- we need to expand our product offering, not just what we -- we have to carry ourselves, but in terms of -- it could be a sauce, it could be a [indiscernible] flavoring sauce, it could be a chili sauce, it could be other items. That is basically needed by our customers. So what we're looking at is partnering with different vendors that they can use us as the platform, use our clientele as their base and to sell the product. And that's where we can earn commission or affiliate commission on that part as a revenue stream, just like some of these platforms out there. We do see that we can -- we want to better utilize our 40,000 customers online to see what else we can offer them as a one-stop shop.

That's helpful. And I guess, maybe quickly to follow up on that. Is it your expectation that there would be a major step-up in your expenditure in terms of your website? Or how quickly should we expect to see some of these new ideas implemented online?

I don't see much of an expenditure now because most of our expenditure has been spent last year and the year before. In the past 2 years, we -- operational expense has been higher than I would say this year, is that we spend more money on the technology, warehouse management system within the last 2 years as well as our online upgrades that we mentioned in our past quarter earnings calls, and we spend millions of dollars on the upgrading of our online system. Right now, I would say that what we need to spend -- we will be spending is on people, the people to manage, bring in new products, the people to manage, how to find partners that would like to use our platform to sell their product as well. So that's where we're going to be investing. It's people versus the website this year.

That's helpful. Last one for me. You had mentioned that you expect ocean freight rates to remain elevated over the course of 2022. But recently here, we're starting to see rates come down a bit. So my question is, can you remind us if those rates do continue to come down, how quickly we should see those affect your P&L? Are we -- could we perhaps see some margin tailwind from this later in the year if we continue to see the current change persist over the course of the year?

Sure. The reason I said we expect the ocean freight to be remain elevated is that thinking well last year, we saw it came down for a brief period of 3-week, 4-week, 5-week and it went back again. Right now, we see that, yes, the ocean freight has come down in the past 4 and 5 weeks, mainly due to the lockdown in the port of China. Now what happened when the port opens -- reopens, are we going to see the rate go up again? So we're not -- right now, we're just -- we're not changing our stand in terms of how the rate is going to drop majorly. So we're going to wait and see and -- until the port opens from China and see how it goes because I'm sure I want to support open, there'll be a lot of factories in China that want to ship their products to the U.S. And with that said, they might raise the price again or if the economy still continues to stay at this low end that perhaps the ocean freight will come down. That was -- like you said, with that said, and it will help the margin in terms of the third quarter, not the second quarter. But one thing I would mention that it's helping the margin is the domestic freight -- truckload rate has come down due to the lack of product coming from overseas. We see the truck rate coming down but at the same time, offsetting by the LTL carriers have raised their domestic shipping by nearly double. Where we used to ship $400, now it's been -- we're being told that it's going to be $800. But of course, a lot of these are actually paid for by the customers. So we're seeing -- the market is still not in a normal mode right now. It's -- there's a lot of changes in the market for shipping.

And the next question will be from Michael Hoffman from Stifel.

Okay. So you can tell from my voice, it's why Brian asked the questions, but we had some follow-up, if I could. With regards to the ocean freight, how much is your freight cost, a contracted rate versus a spot rate?

Yes. We have purchased -- we have contracted rate, which last year, our contracted rates were averaged about $4,500. Our current year contracted rate is about $10,000. And that is one of the reasons that we mentioned that our -- we expect the high end -- the ocean freight to be elevated at the same time because if you look at it, actually double -- more than double, this year's contract versus last year. The [indiscernible] is we're able to get the noncontract rate from the freight orders at about $9,000. So even with that, it's still higher than the contract rate from last year.

What percent of total freight is contracted versus spot?

Last year, I would say 40%, 50% of contracted rate versus the spot rate. This year, so far, the newly contracted started May 1. So far on May 1, we only took maybe 10% of our -- 20% of our contracted rate. The remaining 80%, we'll be using market rates.

Okay. So if the trend is favorable, you might actually get the freight as a tailwind because you can lean on the spot rate for some of that?

Correct.

So the next question is about capitalizing freight costs. Within the full year guidance, how much have you assumed you're capitalizing freight as a dollar amount versus the $6 million in 1Q? And within the capitalization, what's the time line to amortize that off?

Jian, can you answer that question?

Yes, I can probably take that question. Michael, if I was hearing you correctly, your first question about how much we -- how much of a benefit we got out of the capitalized -- capitalization of ocean freight costs in Q1? So to answer that question, we capitalized approximately roughly $6 million in Q1. But as I previously mentioned in my prepared remarks, even with the benefit of roughly the $6 million, the total ocean freight cost was about $15.2 million or 14.4% of net sales in Q1. In terms of how quickly that we expect to amortize, if you will, the benefit over the -- on the P&L, our current estimate and this depends on the volume of the purchase that we are making in the second quarter as well as the third quarter. Based on our current estimates, we do expect that we'll absorb the majority of the benefits from Q1 in the second quarter. There might be -- there probably will be just a little bit over -- that we would recognize over the third quarter this year as well. I mentioned previously I just wanted to provide a little bit more color on sort of the expectation for the second quarter gross margin, even with the expected hit, if you will, from the ocean freight capitalization, we still reiterated the full year gross margin goal of 31% to 32% on average. And that's because we expect -- we are seeing some favorable impacts that we believe will pretty much offset the negative impact from the ocean freight capitalization in Q2. So to name a few, the continued shift towards the higher margin products, operating efficiencies, some of the gains from the foreign currencies, I mean we are seeing continued favorable impact from quite a few factors.

Okay. So just to make a little bit of a finer point, which I think is important is the full year guidance is not predicated on having capitalized freight for the full year, you're going to basically reabsorb it. And this is more of a timing difference on when that expense that pushing -- some portion of that expense was being recognized in the context of thinking of capitalization being 5- and 10-year amortization type cycle. So I think that's an important observation. Am I wrong about that?

The full year -- if I'm understanding your question correctly, Michael, our full year guidance on the gross margin is with the expected impact from ocean freight capitalization from all quarters in...

Yes. But if I understood you correctly, Jian, what you're saying is, you capitalized in 1Q, you're going to reabsorb most of it in 2, a little bit in 3. So that you fully absorb it within the P&L, and you're still going to make your numbers.

What numbers? I'm sorry, I didn't get the last part.

Yes. I'm sorry, that's the point, I'm losing my voice. You've given the margin guidance for gross margin and what I'm hearing or correct me if I'm wrong, that gross margin is not going to be dependent on you having capitalizing expense. You will have reabsorbed the timing of that capitalization in 1Q by the time the full year is over.

That's correct.

I think that's an important point is you're not getting to your numbers by capitalizing an expense for the full year, it's more of a timing issue?

You're absolutely right. Obviously, we touched on the improvement, right? We're making -- that really was driving the margin expansion. The margin expansion was not really driven by the capitalization. The capitalization just caused a little bit of fluctuation between the quarters, if you will.

Yes. But I mean it did help your reported number, I mean 1 and 2, but for the full year, you're not making your number by having capitalizing expense?

Yes, you're absolutely right.

I think that's an important comment. And given the inventory build, has that improved your fulfillment because Alan, you alluded to fulfillment dip pretty meaningfully in 4Q as fulfillment -- as fulfillment rebounded?

Yes. Our fulfillment is definitely better than last quarter and also last year's same quarter. We had a major fulfillment issue last year all the way until the entire year, I would say. I would say first quarter is better, and second quarter will be even better.

Okay. And lastly, labor has been a challenge for you, but you didn't really bring it up this time. So as making decisions like adding warehousing or what have you, you can staff add and you're feeling better about labor availability on a relative basis?

I would say labor is definitely better than the beginning of the year. More people are looking for job now. And I would say that it's -- I mean that's one thing that can help us ship the product and grow the business is making sure that we have sufficient labors. Yes, I think it's better for now, maybe better situation better than previous quarter and last year also.

And the next question is a follow-up question from Jake Bartlett from Truist Securities.

Great. Mine is on the pricing. And you mentioned that essentially the pricing was about 20% in the first quarter, half of the roughly 40% revenue growth. So the question -- and that kind of was implemented throughout 2021, you've taken a little bit more in '22 already. So what is -- how much of pricing is contributing to the 22% to 23% revenue growth that you expect in '22?

I believe Jian mentioned 50% of that 23% is contributed to the price increase that we had last year, especially toward the end of last year. We are seeing the price increase. We're using the new price now that we raised back in October, November and of course, January this year. And this is where we're seeing that the benefit is that 23%, 50% of that is the price increase. Are we -- is there going to be more price increases down the road? I would say, yes, particularly on the paper products because we have just received additional price increase from our source that is telling us that there is still challenge in terms of paper raw material. So there'll still the more additional price increase down the road on the paper side, not necessarily on the overall product line, but on certain products, there's going to be a price increase.

So just to clarify, because I understood the first question about pricing to be about the first quarter specifically, but it wasn't. So you're saying that about -- so 11%, 12% pricing is what you expect on average for the whole year of '22?

The growth of the -- if we're saying that our growth this year will be 25% -- 22% year-over-year growth, about 10% of that is from price increase.

Okay. And then maybe just to ask the question about what -- in the first quarter, how much of the 39% revenue growth was from pricing?

Jian, do you have that number?

Yes. So as we were just talking about, Jake, the total first quarter year-over-year growth, a little over 50% was from the pricing increase. And maybe just also to add on to Alan's point, as we think about the impact from the pricing increase for the full year 2022, I would agree with Alan that it's probably going to be roughly half of the total revenue growth or maybe just a little bit less because obviously, when we're comparing year-over-year, last -- the first quarter last year, we -- I mean this is -- we're comparing the year-over-year a lot -- because a lot of the -- most of the price increases we implemented last year was from the second half of 2021. So as we head into the second half of this year, the year-over-year impact from the pricing will be a little bit less. But overall, I would agree with Alan's comments for the full year.

Great. That's helpful. And then I -- well, I'm going to cost now, too. The other question was on CapEx for the year. And I think that includes the deposits paid for property and equipment. But how much do you expect to spend on CapEx in 2022? And does that include the investments related to the JV? And if not, maybe just kind of break that out as well.

I would say that majority of the spending that we're seeing in 2022 were actually spent in 2021. We've been using our 2021 because we had to pay a deposit down last year to get the product in this year. And over 50% of that was already paid for last year and moving forward this year that will be seen in the products such as the automated robots, and as you mentioned, the JV, the investment, I would say that's part of the CapEx that we're looking to spend in terms of no more than 5% of our revenue. That's still our goal.

Just -- with the JV, I mean, are you -- how does the JV work in terms of your investment in the JV?

JV, we're investing approximately $6 million in the first phase. And basically, the production was -- should be starting later this year, around the fourth quarter of this year into full production in 2023. And Karat will take over 50% of the products that's produced out of that manufacturing plant. And the other 50% will be sold to other clients, it could be in Australia, it could be Japan, could be other customers in the U.S., private label branding for other manufacturers. That's what the goal is on that JV.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Alan Yu for any closing remarks.

Thank you, operator, and thank you all for joining us today. We appreciate your support, interest in our company. And I look forward to speaking with you again. Thank you very much. Have a nice day.

And thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.