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Karat Packaging Reports 2024 Second Quarter Financial Results

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Karat Packaging Inc. (Nasdaq: KRT) reported its Q2 2024 financial results. Net sales increased 3.5% to $112.6 million, while gross profit rose 3.7% to $43.4 million. Net income decreased to $9.2 million from $10.7 million in the prior-year quarter. The company maintained a gross margin of 38.5%. Karat expects Q3 2024 net sales to increase by mid to high single digits and full-year 2024 net sales to grow by mid-single digits. The company's business pipeline is expanding with new national and regional chain accounts. Karat's warehouse expansion strategy is contributing to growth across sales channels, including online sales, which now represent 17.4% of total sales.

Karat Packaging Inc. (Nasdaq: KRT) ha riportato i risultati finanziari del secondo trimestre del 2024. Le vendite nette sono aumentate del 3,5% a 112,6 milioni di dollari, mentre il profitto lordo è salito del 3,7% a 43,4 milioni di dollari. Il reddito netto è diminuito a 9,2 milioni di dollari rispetto ai 10,7 milioni dello stesso trimestre dell'anno precedente. L'azienda ha mantenuto un margine lordo del 38,5%. Karat prevede che le vendite nette del terzo trimestre 2024 aumenteranno di una percentuale media bassa o alta a una cifra, e che le vendite nette annuali del 2024 cresceranno di una percentuale media a una cifra. Il portafoglio commerciale dell'azienda si sta espandendo con nuovi conti di catene nazionali e regionali. La strategia di espansione del magazzino di Karat sta contribuendo alla crescita su diversi canali di vendita, compresi i vendite online, che ora rappresentano il 17,4% delle vendite totali.

Karat Packaging Inc. (Nasdaq: KRT) reportó sus resultados financieros del segundo trimestre de 2024. Las ventas netas aumentaron un 3,5% a 112,6 millones de dólares, mientras que el beneficio bruto creció un 3,7% a 43,4 millones de dólares. El ingreso neto disminuyó a 9,2 millones de dólares desde los 10,7 millones del trimestre del año anterior. La empresa mantuvo un margen bruto del 38,5%. Karat espera que las ventas netas del tercer trimestre de 2024 aumenten entre un 5% y un 10%, y que las ventas netas del año completo 2024 crezcan en cifras individuales medias. El pipeline de negocios de la empresa se está expandiendo con nuevas cuentas de cadenas nacionales y regionales. La estrategia de expansión de almacenes de Karat está contribuyendo al crecimiento a través de los canales de ventas, incluyendo las ventas en línea, que ahora representan el 17,4% de las ventas totales.

Karat Packaging Inc. (Nasdaq: KRT)는 2024년 2분기 재무 결과를 발표했습니다. 순매출은 3.5% 증가하여 1억 1,260만 달러에 달했고, 총이익은 3.7% 상승하여 4,340만 달러에 도달했습니다. 순이익은 전년도 같은 분기 1,070만 달러에서 920만 달러로 감소했습니다. 회사는 38.5%의 총마진을 유지했습니다. Karat은 2024년 3분기 순매출이 중간에서 높은 한 자릿수 성장률을 기록할 것으로 예상하며, 2024년 전체 연도 순매출은 중간 한 자릿수 성장률을 나타낼 것으로 보입니다. 회사의 사업 파이프라인은 새로운 국내 및 지역 체인 계정으로 확장되고 있습니다. Karat의 창고 확장 전략은 온라인 판매를 포함한 여러 판매 채널의 성장에 기여하고 있으며, 현재 온라인 판매는 전체 판매의 17.4%를 차지하고 있습니다.

Karat Packaging Inc. (Nasdaq: KRT) a présenté ses résultats financiers du deuxième trimestre 2024. Les ventes nettes ont augmenté de 3,5% pour atteindre 112,6 millions de dollars, tandis que le bénéfice brut a crû de 3,7% pour s'établir à 43,4 millions de dollars. Le revenu net a diminué à 9,2 millions de dollars, contre 10,7 millions de dollars au cours du trimestre de l'année précédente. L'entreprise a maintenu une marge brute de 38,5%. Karat prévoit une augmentation des ventes nettes au troisième trimestre 2024 de l'ordre de chiffres simples moyens à élevés et une croissance des ventes nettes pour l'année entière 2024 d'un chiffre simple moyen. Le portefeuille commercial de l'entreprise s'élargit avec de nouveaux comptes de chaînes nationales et régionales. La stratégie d'expansion des entrepôts de Karat contribue à la croissance à travers les canaux de vente, y compris les ventes en ligne, qui représentent désormais 17,4% des ventes totales.

Karat Packaging Inc. (Nasdaq: KRT) hat die finanziellen Ergebnisse für das zweite Quartal 2024 veröffentlicht. Der Nettoumsatz stieg um 3,5% auf 112,6 Millionen Dollar, während der Bruttogewinn um 3,7% auf 43,4 Millionen Dollar anstieg. Der Nettogewinn fiel auf 9,2 Millionen Dollar im Vergleich zu 10,7 Millionen Dollar im Vorjahresquartal. Das Unternehmen hielt eine Bruttomarge von 38,5%. Karat erwartet, dass der Nettoumsatz im 3. Quartal 2024 um niedrige bis hohe einstellige Prozentsätze steigen wird und dass der Nettoumsatz für das Gesamtjahr 2024 um mittlere einstellige Prozentsätze wachsen wird. Die Unternehmenspipeline erweitert sich mit neuen nationalen und regionalen Kettenkonten. Die Lagererweiterungsstrategie von Karat trägt zum Wachstum über verschiedene Vertriebskanäle bei, einschließlich Online-Verkäufen, die nun 17,4% des Gesamtumsatzes ausmachen.

Positive
  • Net sales increased 3.5% to $112.6 million in Q2 2024
  • Gross profit rose 3.7% to $43.4 million
  • Maintained gross margin of 38.5%
  • Expects Q3 2024 net sales to increase by mid to high single digits
  • Forecasts full-year 2024 net sales growth by mid-single digits
  • Online sales now represent 17.4% of total sales
  • Expanding business pipeline with new national and regional chain accounts
  • Warehouse expansion strategy contributing to growth across sales channels
Negative
  • Net income decreased to $9.2 million from $10.7 million in the prior-year quarter
  • Net income margin declined to 8.2% from 9.8% in the prior-year quarter
  • Adjusted EBITDA decreased to $15.7 million from $21.1 million in the prior-year quarter
  • Operating expenses increased to $32.3 million from $28.5 million in the prior-year quarter
  • Faced pressure from significantly higher ocean freight costs in Q2

Insights

Karat Packaging's Q2 2024 results show mixed performance. While net sales increased by 3.5% to $112.6 million, net income decreased from $10.7 million to $9.2 million. The company maintained its gross margin at 38.5% despite higher freight costs, which is commendable. However, the drop in Adjusted EBITDA from $21.1 million to $15.7 million is concerning, indicating pressure on profitability.

The company's strategic expansion of warehouse footprint is paying off, contributing to growth across sales channels. Online sales now represent 17.4% of total sales, which is positive given their higher margins. The guidance for Q3 and full-year 2024 suggests continued growth, but investors should monitor the company's ability to maintain margins amidst competitive pricing pressures and fluctuating freight costs.

Karat Packaging's Q2 results reflect broader industry trends. The competitive pricing environment, especially in the distributor channel, indicates a saturated market. However, the company's ability to grow volume despite a 6.4% price decrease suggests strong demand for their products.

The expansion of Karat's warehouse footprint is a strategic move that aligns with the growing trend of e-commerce in the foodservice industry. The increase in online sales to 17.4% of total revenue is particularly noteworthy, as it not only carries higher margins but also positions the company well for future growth in digital sales channels. Investors should watch for the company's ability to capitalize on this trend and potentially increase market share in the environmentally friendly disposable foodservice products segment.

CHINO, Calif., Aug. 08, 2024 (GLOBE NEWSWIRE) -- Karat Packaging Inc. (Nasdaq: KRT) (“Karat” or the “Company”), a specialty distributor and manufacturer of environmentally friendly, disposable foodservice products and related items, today announced financial results for its 2024 second quarter ended June 30, 2024.

Second Quarter 2024 Highlights

  • Net sales of $112.6 million, versus $108.7 million in the prior-year quarter.
  • Gross profit of $43.4 million, versus $41.9 million in the prior-year quarter.
  • Gross margin of 38.5 percent, equal to that of the prior-year quarter.
  • Net income of $9.2 million, versus $10.7 million in the prior-year quarter.
  • Net income margin of 8.2 percent, versus 9.8 percent in the prior-year quarter.
  • Adjusted EBITDA of $15.7 million, versus $21.1 million in the prior-year quarter.
  • Adjusted EBITDA margin of 13.9 percent, versus 19.4 percent in the prior-year quarter.

2024 Guidance

  • Net sales for the 2024 third quarter expected to increase by mid to high single digits from the prior-year quarter.
  • Gross margin for the 2024 third quarter expected to be 38 to 39 percent versus 36.9 percent for the prior-year quarter.
  • Net sales for the 2024 full year expected to increase by mid-single digits from the prior year.
  • Gross margin goal for the 2024 full year expected to be 38 to 40 percent versus 37.7 percent from the prior year.

“Our business pipeline continues to expand, with the signing of new national and regional chain accounts. During the second quarter, however, initiation of certain new orders took longer than anticipated, due, in part, to administrative set-up procedures at a number of the larger chain accounts and softer demand in certain categories, which we do not expect either to recur in the second-half of the year,” said Alan Yu, Chief Executive Officer. “Net sales for the second quarter rose by 3.5 percent, even with approximately 6.4 percent lower prices, compared with last year.

“We were pleased that gross margin remained steady, despite pressure from significantly higher ocean freight costs, which spiked in mid-May and remained high through July. Freight costs have since started to moderate.

“Our strategic initiative established last year to expand Karat’s warehouse footprint in new geographic markets and enlarge existing warehouses is paying off and contributing to business growth across most of our sales channels, including online sales, which typically carries the highest margin and now represents 17.4 percent of total sales,” Yu said.

Second Quarter 2024 Financial Results

Net sales for the 2024 second quarter increased 3.5 percent to $112.6 million, from $108.7 million in the prior-year quarter. The increase was primarily driven by growth in volume and a change in product mix, as well as the inclusion of online sales platform fees, partially offset by unfavorable year-over-year pricing comparison, as the pricing environment remained competitive, especially in the distributor channel.

Gross profit for the 2024 second quarter increased 3.7 percent to $43.4 million, from $41.9 million in the prior-year quarter. Gross margin for both the 2024 and 2023 second quarters was 38.5 percent. Gross margin for the 2024 second quarter included a net favorable impact of 90 basis points from the inclusion of online platform fees in net sales and production expenses in cost of goods sold. Gross margin also improved from lower vendor pricing and increased imports as a percentage of total product mix, partially offset by an increase in freight and duty costs and inventory reserve adjustment. Gross margin for the 2023 second quarter included a negative impact of 160 basis points from the write-off of certain raw materials, as the Company disposed of certain machinery and equipment in executing the plan to scale back production in certain locations.

Operating expenses in the 2024 second quarter were $32.3 million, compared with $28.5 million in the prior-year quarter. The increase was primarily due to the inclusion of online sales platform fees, higher rent and warehouse expense, including a higher rate on our Chino, California facility lease extension, an increase in online marketing expense and higher stock compensation expense, partially offset by the inclusion of production expense in cost of goods sold, and a decrease in impairment expense and loss on disposal of machinery.

Operating income in the 2024 second quarter decreased to $11.1 million, from $13.3 million in the prior-year quarter, primarily due to an increase in operating expenses of $3.8 million, partially offset by an increase in gross profit of $1.5 million.

Total other income, net, was $1.0 million for the 2024 second quarter, compared with $0.7 million in the prior-year quarter. The increase was primarily due to higher rental income from the sublease of the City of Industry warehouse.

Net income for the 2024 second quarter decreased to $9.2 million, from $10.7 million for the prior-year quarter. Net income margin was 8.2 percent in the 2024 second quarter, compared with 9.8 percent a year ago.

Net income attributable to Karat for the 2024 second quarter was $9.1 million, or $0.45 per diluted share, compared with $10.5 million, or $0.53 per diluted share in the prior-year quarter.

Adjusted EBITDA, a non-GAAP measure defined below, totaled $15.7 million for the 2024 second quarter, compared with $21.1 million for the prior-year quarter. Adjusted EBITDA margin, a non-GAAP measure defined below, was 13.9 percent of net sales, compared with 19.4 percent for the same quarter last year.

Adjusted diluted earnings per common share, a non-GAAP measure defined below, was $0.49 per share for the 2024 second quarter, compared with $0.69 per share in the prior-year quarter.

Six-Month 2024 Financial Results

Net sales for the first half of 2024 increased 1.8 percent to $208.2 million, from $204.5 million in the same period last year. Net sales for the first half of 2024 were understated by $0.7 million from products shipped and recognized as revenue in 2023 and not delivered until 2024. The increase in net sales in the first half of 2024 primarily resulted from volume growth and product mix change and the inclusion of online sales platform fees, partially offset by unfavorable year-over-year pricing comparison.

Gross profit for the first half of 2024 increased 1.3 percent to $81.0 million, from $80.0 million in the same period last year. Gross margin was 38.9 percent for the first half of 2024, compared with 39.1 percent in the same period last year. Gross profit for the first half of 2024 was understated by $0.3 million related to the timing of revenue recognition. Gross margin for the first half of 2024 included a net favorable impact from the inclusion of online platform fees in net sales and production expenses in cost of goods sold totaling 80 basis points. Gross margin for the first half of 2024 benefited from the strengthening of the United States Dollar against Taiwan New Dollar, more favorable vendor pricing, and increased import as a percentage of total product mix. These improvements were partially offset by an increase in freight and duty costs and inventory reserve adjustment. Gross margin for the first half of 2023 included the negative impact of 80 basis points from the write-off of certain raw materials, as the Company disposed of certain machinery and equipment in executing the plan to scale back production in certain locations.

Operating expenses were $61.8 million for the first half of 2024, compared with $53.9 million in the same period last year. Operating expenses for the six months ended June 30, 2024 included a $2.0 million non-cash impairment of a ROU asset and $0.5 million from loss of disposal of machinery in the normal course of business. In comparison, operating expenses for the six months ended June 30, 2023 included non-routine impairment expense and loss on disposal of machinery of $2.5 million as the Company executed its plan to scale back production in certain locations. The increase in operating expenses for the current year period was primarily due to the inclusion of online sales platform fees in operating expenses, higher rent and warehouse expense, including a higher rate on our Chino, California facility lease extension, an increase in online marketing expense, higher stock compensation expense and an increase in bad debt expense. These increases were partially offset by inclusion of production expense in cost of goods sold and a reduction in shipping and transportation costs.

Operating income decreased to $19.2 million for the first half of 2024, from $26.1 million in the same period last year. The decrease was primarily due to an increase in operating expenses of $7.9 million, partially offset by an increase in gross profit of $1.0 million.

Total other income, net, was $1.3 million in the first half of 2024, compared with total other expenses, net of $0.1 million in the same period last year. The year-over-year increase was primarily driven by the foreign currency transactions gain/loss and an increase in interest income and rental income.

Net income decreased to $15.7 million for the first half of 2024, from $19.9 million in the same period last year. Net income margin was 7.5 percent in the first half of 2024, compared with 9.7 percent in the same period last year.

Net income attributable to Karat was $15.3 million, or $0.76 per diluted share, for the first half of 2024, compared with $19.5 million, or $0.98 per diluted share, in the same period last year.

Adjusted EBITDA, a non-GAAP measure defined below, decreased to $29.2 million in the first six months of 2024, compared with $36.4 million in the same period last year. Adjusted EBITDA margin, a non-GAAP measure defined below, was 14.0 percent in the 2024 year-to-date period, compared with 17.8 percent in the same period last year.

Adjusted diluted earnings per common share, a non-GAAP measure defined below, was $0.88 per share, compared with $1.15 per share in the same period last year.

Dividends
On August 6, 2024, Karat’s board of directors approved a quarterly regular cash dividend of $0.35 per share and declared a special cash dividend of $0.15 per share, both payable on August 30, 2024, to stockholders of record as of August 21, 2024.

Investor Conference Call
The Company will host an investor conference call today, August 8, 2024, at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time).

Phone: 646-307-1963 (domestic); (800) 715-9871 (international)
Conference ID: 4261013
Webcast: Accessible at http://irkarat.com/; archive available for approximately one year

About Karat Packaging Inc.
Karat Packaging Inc. is a specialty distributor and manufacturer of a wide range of disposable foodservice products and related items, primarily used by national and regional restaurants and in foodservice settings throughout the United States. Its products include food and take-out containers, bags, tableware, cups, lids, cutlery, straws, specialty beverage ingredients, equipment, gloves and other products. The company’s eco-friendly Karat Earth® line offers quality, sustainably focused products that are made from renewable resources. Karat Packaging also offers customized solutions, including new product development and design, printing, and logistics services. To learn more about Karat Packaging, please visit the company’s website at www.karatpackaging.com.

Caution Concerning Forward-Looking Statements
Statements made in this release that are not statements of historical or current facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. We caution readers that forward-looking statements are predictions based on our current expectations about future events. These forward-looking statements, including, but not limited to, achieving financial guidance, are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Our actual results, performance, or achievements could differ materially from those expressed or implied by the forward-looking statements as a result of a number of factors, including the risks discussed under the heading “Risk Factors” discussed under the caption “Item 1A. Risk Factors” in Part I of our most recent Annual Report on Form 10-K or any updates discussed under the caption “Item 1A. Risk Factors” in Part II of our Quarterly Reports on Form 10-Q and in our other filings with the SEC. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise that occur after that date, except as required by law.

Investor Relations and Media Contacts:
PondelWilkinson Inc.
Judy Lin /Roger Pondel
310-279-5980; ir@karatpackaging.com

KARAT PACKAGING INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except share and per share data)
 
 Three Months Ended June 30, Six Months Ended June 30,
  2024   2023   2024   2023 
Net sales$112,600  $108,740  $208,213  $204,541 
Cost of goods sold 69,193   66,879   127,204   124,536 
Gross profit 43,407   41,861   81,009   80,005 
Operating expenses:       
Selling expenses 13,868   8,871   24,631   17,572 
General and administrative expenses (including $689 and $647 associated with variable interest entity for the three months ended June 30, 2024 and 2023; respectively, $1,245 and $1,318 associated with variable interest entity for the six months ended June 30, 2024 and 2023, respectively) 17,893   17,192   34,662   33,821 
Impairment expense and loss, net, on disposal of machinery 531   2,459   2,525   2,541 
Total operating expenses 32,292   28,522   61,818   53,934 
Operating income 11,115   13,339   19,191   26,071 
Other income (expenses)       
Rental income (including $258 and $239 associated with variable interest entity for the three months ended June 30, 2024 and 2023; respectively, $513 and $486 associated with variable interest entity for the six months ended June 30, 2024 and 2023, respectively) 600   275   891   522 
Other income (expenses), net 51   118   106   (90)
Gain (loss) on foreign currency transactions 317   322   439   (105)
Interest income (including $133 and $182 associated with variable interest entity for the three months ended June 30, 2024 and 2023; respectively, $346 and $198 associated with variable interest entity for the six months ended June 30, 2024 and 2023, respectively) 533   519   964   586 
Interest expense (including $519 and $565 associated with variable interest entity for the three months ended June 30, 2024 and 2023; respectively, $1,036 and $971 associated with variable interest entity for the six months ended June 30, 2024 and 2023, respectively) (548)  (573)  (1,072)  (980)
Total other income (expenses), net 953   661   1,328   (67)
Income before provision for income taxes 12,068   14,000   20,519   26,004 
Provision for income taxes 2,841   3,323   4,816   6,141 
Net income 9,227   10,677   15,703   19,863 
Net income attributable to noncontrolling interest 127   175   437   356 
Net income attributable to Karat Packaging Inc.$9,100  $10,502  $15,266  $19,507 
Basic and diluted earnings per share:       
Basic$0.46  $0.53  $0.76  $0.98 
Diluted$0.45  $0.53  $0.76  $0.98 
Weighted average common shares outstanding, basic 19,994,250   19,886,585   19,981,928   19,887,023 
Weighted average common shares outstanding, diluted 20,113,842   19,953,510   20,094,664   19,947,155 
                


KARAT PACKAGING INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share and per share data)
 
 June 30,
2024
 December 31,
2023
Assets   
Current assets   
Cash and cash equivalents (including $4,705 and $13,566 associated with variable interest entity at June 30, 2024 and December 31, 2023, respectively)$19,311  $23,076 
Short-term investments (including $7,132 and $0 associated with variable interest entity at June 30, 2024 and December 31, 2023, respectively) 32,743   26,343 
Accounts receivable, net of allowance for bad debt of $491 and $392 at June 30, 2024 and December 31, 2023, respectively 33,683   27,763 
Inventories 79,841   71,528 
Prepaid expenses and other current assets (including $72 and $82 associated with variable interest entity at June 30, 2024 and December 31, 2023, respectively) 4,265   6,219 
Total current assets 169,843   154,929 
Property and equipment, net (including $43,578 and $44,185 associated with variable interest entity at June 30, 2024 and December 31, 2023, respectively) 92,281   95,226 
Deposits 159   1,047 
Goodwill 3,510   3,510 
Intangible assets, net 313   327 
Operating right-of-use assets 43,403   20,739 
Other non-current assets (including $44 and $53 associated with variable interest entity at June 30, 2024 and December 31, 2023, respectively) 1,184   619 
Total assets$310,693  $276,397 
    
Liabilities and Stockholders’ Equity   
Current liabilities   
Accounts payable (including $68 and $63 associated with variable interest entity at June 30, 2024 and December 31, 2023, respectively)$24,316  $18,446 
Accrued expenses (including $268 and $591 associated with variable interest entity at June 30, 2024 and December 31, 2023, respectively) 13,947   10,576 
Related party payable 3,873   5,306 
Customer deposits (including $0 and $116 associated with variable interest entity at June 30, 2024 and December 31, 2023) 877   951 
Long-term debt, current portion (including $1,150 and $1,122 associated with variable interest entity at June 30, 2024 and December 31, 2023, respectively) 1,150   1,122 
Operating lease liabilities, current portion 7,758   4,800 
Other current liabilities (including $2,186 and $1,302 associated with variable interest entity at June 30, 2024 and December 31, 2023, respectively) 3,686   3,200 
Total current liabilities 55,607   44,401 
Deferred tax liability 4,197   4,197 
Long-term debt, net of current portion and debt discount of $172 and $203 at June 30, 2024 and December 31, 2023, respectively (including $47,844 and $48,396 associated with variable interest entity at June 30, 2024 and December 31, 2023, respectively, and debt discount of $172 and $203 associated with variable interest entity at June 30, 2024 and December 31, 2023, respectively) 47,844   48,396 
Operating lease liabilities, net of current portion 38,854   16,687 
Other non-current liabilities (including $116 and $0 associated with variable interest entity at June 30, 2024 and December 31, 2023 respectively) 363   26 
Total liabilities 146,865   113,707 
    
Karat Packaging Inc. stockholders’ equity   
Preferred stock, $0.001 par value, 10,000,000 shares authorized, no shares issued and outstanding, as of June 30, 2024 and December 31, 2023     
Common stock, $0.001 par value, 100,000,000 shares authorized, 20,037,665 and 20,014,665 shares issued and outstanding, respectively, as of June 30, 2024 and 19,988,482 and 19,965,482 shares issued and outstanding, respectively, as of December 31, 2023 20   20 
Additional paid in capital 88,307   86,667 
Treasury stock, $0.001 par value, 23,000 shares as of both June 30, 2024 and December 31, 2023 (248)  (248)
Retained earnings 69,633   67,679 
Total Karat Packaging Inc. stockholders’ equity 157,712   154,118 
Noncontrolling interest 6,116   8,572 
Total stockholders’ equity 163,828   162,690 
Total liabilities and stockholders’ equity$310,693  $276,397 
        


KARAT PACKAGING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
 Six Months Ended June 30,
  2024   2023 
Cash flows from operating activities   
Net income$15,703  $19,863 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization (including $607 associated with variable interest entity for both the six months ended June 30, 2024 and 2023, respectively) 5,289   5,350 
Adjustments to allowance for bad debt 140   (843)
Adjustments to inventory reserve 375   (408)
Write-off of inventory 451   2,944 
Impairment of deposits    523 
Impairment of operating right-of-use asset 1,993    
Loss, net, on disposal of machinery and equipment 532   2,018 
Amortization of loan fees (including $31 associated with variable interest entity for both the six months ended June 30, 2024 and 2023, respectively) 46   40 
Accrued interest on certificates of deposit (including $132 and $0 associated with variable interest entity for the six months ended June 30, 2024 and 2023, respectively) (299)   
Stock-based compensation 1,315   493 
Amortization of operating right-of-use assets 3,461   2,281 
(Increase) decrease in operating assets   
Accounts receivable (including $0 and $3 associated with variable interest entity for the six months ended June 30, 2024 and 2023, respectively) (6,060)  (2,061)
Inventories (9,139)  (7,625)
Prepaid expenses and other current assets (including $12 and $9 associated with variable interest entity for the six months ended June 30, 2024 and 2023, respectively) 1,976   478 
Other non-current assets (including $10 and $21 associated with variable interest entity for the six months ended June 30, 2024 and 2023, respectively) (165)  (36)
Increase (decrease) in operating liabilities   
Accounts payable (including $5 and $1 associated with variable interest entity for the six months ended June 30, 2024 and 2023, respectively) 6,300   4,006 
Accrued expenses (including $323 and $336 associated with variable interest entity for the six months ended June 30, 2024 and 2023, respectively) 3,371   (1,059)
Related party payable (1,433)  2,187 
Income taxes payable    5,105 
Customer deposits (including $0 and $49 associated with variable interest entity for the six months ended June 30, 2024 and 2023, respectively) (449)  (302)
Operating lease liabilities (3,093)  (2,205)
Other liabilities (60)  304 
Net cash provided by operating activities$20,254  $31,053 
Cash flows from investing activities   
Purchases of property and equipment (415)  (1,816)
Proceeds on disposal of property and equipment 90   28 
Payments for costs incurred from sale of machinery and equipment    (209)
Deposits paid for joint venture investment    (2,900)
Deposits refunded from joint venture investment    6,900 
Deposit refund from cancelled property and equipment purchase    503 
Deposits paid for property and equipment (2,041)  (3,823)
Purchases of short-term investments (including $7,000 and $8,000 associated with variable interest entity for the six months ended June 30, 2024 and 2023, respectively) (22,513)  (28,000)
Redemption of short-term investments 16,412    
Net cash used in investing activities$(8,467) $(29,317)
Cash flows from financing activities   
Proceeds from long-term debt (including $0 and $8,000 associated with variable interest entity for the six months ended June 30, 2024 and 2023, respectively)    8,000 
Payments for lender fees    (61)
Payments on long-term debt (including $555 and $476 associated with variable interest entity for the six months ended June 30, 2024 and 2023, respectively) (555)  (476)
Tax withholding on vesting of restricted stock units    (18)
Proceeds from exercise of common stock options 325    
Dividends paid to shareholders (12,996)  (6,965)
Payment for Global Wells noncontrolling membership interest redemption (including $2,010 and $0 associated with variable interest entity for the six months ended June 30, 2024 and 2023, respectively) (2,326)   
Net cash (used in) provided by financing activities$(15,552) $480 
Net (decrease) increase in cash and cash equivalents$(3,765) $2,216 
Cash and cash equivalents   
Beginning of period$23,076  $16,041 
End of period$19,311  $18,257 
Supplemental disclosures of non-cash investing and financing activities:   
Transfers from deposit to property and equipment$2,492  $5,273 
Non-cash purchases of property and equipment$118  $819 
Supplemental disclosures of cash flow information:   
Income tax refund$3,315  $200 
Cash paid for interest$1,040  $1,026 
        


KARAT PACKAGING INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (UNAUDITED)
(In thousands, except per share amounts)


Reconciliation of Adjusted EBITDA and Adjusted EBITDA Margin:Three Months Ended June 30, Six Months Ended June 30,
  2024  2023   2024  2023 
 Amounts% of net saleAmounts% of net sale Amounts% of net saleAmounts% of net sale
Net income:$9,227 8.2%$10,677 9.8% $15,703 7.5%$19,863 9.7%
Add (deduct):         
Interest income (533)(0.5) (519)(0.5)  (964)(0.5) (586)(0.3)
Interest expense 548 0.5  573 0.5   1,072 0.5  980 0.5 
Provision for income taxes 2,841 2.5  3,323 3.1   4,816 2.3  6,141 3.0 
Depreciation and amortization 2,660 2.4  2,717 2.5   5,289 2.6  5,350 2.7 
Stock-based compensation expense 940 0.8  216 0.2   1,315 0.6  493 0.2 
Write-off of inventory (1)    1,710 1.6      1,710 0.8 
Impairment expense and loss on disposal of machinery (1)    2,445 2.2      2,445 1.3 
Operating right-of-use asset impairment        1,993 1.0    
Adjusted EBITDA$15,683 13.9%$21,142 19.4% $29,224 14.0%$36,396 17.8%
                      

(1) The write-off of inventory and impairment expense and loss on disposal of machinery represent costs incurred in connection with the scaling back of production in certain locations. As part of the execution of this strategy, certain machinery and equipment was disposed of or impaired, and raw materials associated with those machinery and equipment were written-off.

Reconciliation of Adjusted Diluted Earnings Per Common ShareThree Months Ended June 30, Six Months Ended June 30,
  2024   2023   2024   2023 
Diluted earnings per common share:$0.45  $0.53  $0.76  $0.98 
Add (deduct):       
Stock-based compensation expense 0.05   0.01   0.06   0.02 
Write-off of inventory (1)    0.09      0.09 
Impairment expense and loss on disposal of machinery (1)    0.12      0.12 
Operating right-of-use asset impairment       0.10    
Income tax impact of adjustments (0.01)  (0.06)  (0.04)  (0.06)
Adjusted diluted earnings per common shares$0.49  $0.69  $0.88  $1.15 
                

(1) The write-off of inventory and impairment expense and loss on disposal of machinery represent costs incurred in connection with the scaling back of production in certain locations. As part of the execution of this strategy, certain machinery and equipment was disposed of or impaired, and raw materials associated with those machinery and equipment were written-off.

Reconciliation of Adjusted EBITDA by Entity:Three Months Ended June 30, 2024 Six Months Ended June 30, 2024
 Karat PackagingGlobal WellsEliminationsConsolidated Karat PackagingGlobal WellsEliminationsConsolidated
Net income (loss):$9,100 $150 $(23)$9,227  $14,950 $510 $243 $15,703 
Add (deduct):         
Interest income (400) (133)   (533)  (618) (346)   (964)
Interest expense 29  519    548   36  1,036    1,072 
Provision for income taxes 2,841      2,841   4,816      4,816 
Depreciation and amortization 2,356  304    2,660   4,682  607    5,289 
Stock-based compensation expense 940      940   1,315      1,315 
Operating right-of-use asset impairment          1,993      1,993 
Adjusted EBITDA$14,866 $840 $(23)$15,683  $27,174 $1,807 $243 $29,224 
                          


Reconciliation of Adjusted EBITDA by Entity:Three Months Ended June 30, 2023 Six Months Ended June 30, 2023
 Karat PackagingGlobal WellsEliminationsConsolidated Karat PackagingGlobal WellsEliminationsConsolidated
Net income (loss):$10,493 $203 $(19)$10,677  $19,533 $412 $(82)$19,863 
Add (deduct)         
Interest income (336) (183)   (519)  (387) (216) 17  (586)
Interest expense 8  565    573   26  971  (17) 980 
Provision for income taxes 3,323      3,323   6,141      6,141 
Depreciation and amortization 2,413  304    2,717   4,743  607    5,350 
Stock-based compensation expense 216      216   493      493 
Write-off of inventory (1) 1,710      1,710   1,710      1,710 
Impairment expense and loss on disposal of machinery (1) 2,445      2,445   2,445      2,445 
Adjusted EBITDA$20,272 $889 $(19)$21,142  $34,704 $1,774 $(82)$36,396 
                          

(1) The write-off of inventory and impairment expense and loss on disposal of machinery represent costs incurred in connection with the scaling back of production in certain locations. As part of the execution of this strategy, certain machinery and equipment was disposed of or impaired, and raw materials associated with those machinery and equipment were written-off.

Use of Non-GAAP Financial Measures
Karat utilizes certain financial measures and key performance indicators that are not defined by, or calculated in accordance with, GAAP to assess our financial and operating performance. A non-GAAP financial measure is defined as a numerical measure of a company’s financial performance that (i) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the comparable measure calculated and presented in accordance with GAAP in the statement of operations; or (ii) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the comparable GAAP measure so calculated and presented. The following non-GAAP measures are presented in this press release:

  • Adjusted EBITDA is a financial measure calculated as net income excluding (i) interest income, (ii) interest expense, (iii) provision for income taxes, (iv) depreciation and amortization, (v) stock-based compensation expense, (vi) write-off of certain inventory items outside the normal course of business, (vii) impairment expense and loss on disposal of machinery outside the normal course of business, and (viii) operating right-of-use asset impairment.
  • Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by net sales.
  • Adjusted diluted earnings per common share is calculated as diluted earnings per common share, plus the per share impact of stock-based compensation, operating right-of-use asset impairment, write-off of certain inventory items outside the normal course of business, impairment expense and loss on disposal of machinery outside the normal course of business, and adjusted for the related tax effects of these adjustments.

We believe the above-mentioned non-GAAP measures, which are used by management to assess the core performance of Karat, provide useful information and additional clarity of our operating results to our investors in their own evaluation of the core performance of Karat and facilitate a comparison of such performance from period to period. These are not measurements of financial performance or liquidity under GAAP and should not be considered in isolation or construed as substitutes for net income or other cash flow data prepared in accordance with GAAP for purposes of analyzing our profitability or liquidity. These measures should be considered in addition to, and not as a substitute for, revenue, net income, earnings per share, cash flows or other measures of financial performance prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies, as other companies may calculate such financial results differently.

KARAT PACKAGING INC. AND SUBSIDIARIES
NET SALES BY CATEGORY (UNAUDITED)
(In thousands)
 
 Three Months Ended June 30, Six Months Ended June 30,
  2024   2023   2024   2023 
 (in thousands)
National and regional chains$24,052  $23,827  $45,522  $45,195 
Distributors 62,097   62,590   114,924   117,237 
Online 19,546   15,493   34,425   29,148 
Retail 6,905   6,830   13,342   12,961 
 $112,600  $108,740  $208,213  $204,541 
                

FAQ

What was Karat Packaging's (KRT) net sales for Q2 2024?

Karat Packaging's net sales for Q2 2024 were $112.6 million, a 3.5% increase from $108.7 million in the prior-year quarter.

How did Karat Packaging's (KRT) net income change in Q2 2024 compared to Q2 2023?

Karat Packaging's net income decreased to $9.2 million in Q2 2024 from $10.7 million in Q2 2023.

What is Karat Packaging's (KRT) guidance for Q3 2024 net sales?

Karat Packaging expects Q3 2024 net sales to increase by mid to high single digits compared to the prior-year quarter.

What percentage of Karat Packaging's (KRT) total sales came from online sales in Q2 2024?

Online sales represented 17.4% of Karat Packaging's total sales in Q2 2024.

What dividends did Karat Packaging (KRT) declare for Q2 2024?

Karat Packaging declared a quarterly regular cash dividend of $0.35 per share and a special cash dividend of $0.15 per share, both payable on August 30, 2024.

Karat Packaging Inc.

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Packaging & Containers
Plastics Products, Nec
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United States of America
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