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 third quarter and nine-months ended
September 30, 2023.
Third Quarter 2023 Highlights
- Quarterly net sales of $105.5 million, down 4.1 percent from
the prior year quarter.
- Gross profit of $38.9 million, up 14.0 percent from the prior
year quarter.
- Gross margin of 36.9 percent versus 31.1 percent in the prior
year quarter.
- Net income of $9.1 million, up 48.5 percent from the prior year
quarter.
- Net income margin of 8.7 percent versus 5.6 percent in the
prior year quarter.
- Adjusted EBITDA of $15.2 million, up $3.5 million, or 29.6
percent from the prior year quarter.
- Adjusted EBITDA margin of 14.4 percent versus 10.7 percent in
the prior year quarter.
Guidance
- Net sales for the 2023 fourth quarter expected to increase 2 to
5 percent from the prior year quarter.
- Net sales for the 2023 full year expected to decrease by
mid-single digit.
- Gross margin goal for the 2023 fourth quarter: 36.0 to 38.0
percent versus 32.0 percent for 2022 fourth quarter.
- Gross margin goal for the 2023 full year: 37.5 to 38.5 percent
versus 31.2 percent for 2022.
- Eco-friendly product sales objective for the 2023 full year: 33
to 34 percent of total sales, compared with 27 percent in
2022.
“We delivered another strong performance for our third quarter.
Sales volume was approximately seven percent higher than the prior
year’s quarter, although total revenue again was impacted by
unfavorable year-over-year pricing comparison,” said Alan Yu, Chief
Executive Officer. “Margin growth continued to benefit from our
strategy to scale back manufacturing operations in the U.S. and
significant lower ocean freight costs compared with the previous
year.”
“Sales of our eco-friendly products continued to improve and
represented approximately 33 percent of total sales in the third
quarter, versus 27 percent last year. Online channel sales also
increased during the third quarter. Our new Chicago and Houston
distribution centers, which became fully operational by the end of
the quarter, are expected to contribute to new geographical market
penetration and to enhance fill rates. We also anticipate doubling
the size of our Washington distribution center with the move into a
new 100,000 square-foot distribution center later this year.
Additionally, as part of our strategic growth plan, we are looking
to open smaller satellite warehouses in 2024 in select regions to
support online sales growth, as well as deploying AI technologies
to further improve operating efficiency.”
“With our strong operating cash flow and balance sheet, our
board of directors earlier this week authorized an increase in the
quarterly cash dividend payment to $0.20 per share from $0.10 per
share. The board’s action reflects its confidence in Karat’s
long-term future,” Yu added.
Third Quarter 2023 Financial Results
Net sales for the 2023 third quarter decreased 4.1 percent to
$105.5 million, from $110.0 million in the prior year quarter,
primarily due to unfavorable year-over-year pricing comparison, as
the Company proactively passed on savings from ocean freight and
raw material costs to customers, as well as lower logistics
services and shipping revenue, partially offset by an increase in
volume and change in product mix.
Gross profit for the 2023 third quarter increased 14.0 percent
to $38.9 million, from $34.2 million in the prior year quarter.
Gross margin expanded 580 basis points to 36.9 percent in the
2023 third quarter, from 31.1 percent in the prior year quarter.
Despite the unfavorable impact from price reductions, gross margin
benefited from the Company’s efforts to scale back manufacturing
operations in favor of imports, the strong US dollar, as well as a
significant decrease in ocean freight costs. Ocean freight cost as
a percentage of net sales was 7.9 percent during the 2023 third
quarter, down from 14.8 percent in the prior year quarter.
Operating expenses in the 2023 third quarter were $27.6 million,
or 26.1 percent of net sales, compared with $26.3 million, or 23.9
percent of net sales, in the prior year quarter. The increase was
primarily due to workforce expansion and the shift towards imports
as we reduced production but increased warehouse headcount, higher
marketing expense to support online sales growth, higher
professional expenses in connection with the secondary offering
completed during the quarter, and higher rental expense from the
additional leased warehouses. The increase in operating expenses
was partially offset by a decrease in shipping and transportation
costs due to lower shipping rates.
Operating income in the 2023 third quarter increased 43.9
percent to $11.4 million, or 10.8 percent of net sales, from $7.9
million, or 7.2 percent of net sales, in the prior year
quarter.
Other income, net totaled $0.7 million for the 2023 third
quarter, compared with $0.1 million in the prior year quarter,
primarily due to an increase in interest income of $0.5
million.
The effective tax rate for the 2023 third quarter was 24.1
percent, compared with 23.6 percent for the prior year quarter.
Net income for the 2023 third quarter increased 48.5 percent to
$9.1 million, from $6.2 million for the prior year quarter. Net
income margin rose to 8.7 percent in the 2023 third quarter, from
5.6 percent in the prior year quarter.
Net income attributable to Karat for the 2023 third quarter
advanced to $9.1 million, or $0.45 per diluted share, from $6.1
million, or $0.31 per diluted share, in the prior year quarter.
Adjusted EBITDA, a non-GAAP measure defined below, increased to
$15.2 million in the 2023 third quarter, from $11.7 million in the
prior year quarter. Adjusted EBITDA margin, a non-GAAP measure
defined below, rose to 14.4 percent of net sales, from 10.7 percent
in the prior year quarter.
Adjusted diluted earnings per common share, a non-GAAP measure
defined below, rose to $0.47 per share, from $0.33 per share in the
prior year quarter.
Nine Month 2023 Financial Results
Net sales for the first nine months of 2023 decreased 6.1
percent to $310.1 million, from $330.3 million in the same period
last year.
Gross profit for the first nine months of 2023 increased 16.1
percent to $118.9 million, from $102.4 million in the same period
last year. Gross margin for the first nine months of 2023 of 38.4
percent included a 60-basis-point impact from the write-off of raw
materials associated with the disposal of certain machinery in the
second quarter. The 740-basis-points improvement in gross margin
from 31.0 percent in the same period last year was primarily due to
the Company’s efforts to scale back manufacturing operations in
favor of imports, the strong US dollar, and a significant decrease
in ocean freight costs. Ocean freight cost as a percentage of net
sales was 6.7 percent during the first nine months of 2023, down
from 15.8 percent for the same period in 2022.
Operating expenses were $81.5 million for the nine months of
2023, or 26.3 percent of net sales, compared with $77.2 million or
23.4 percent of net sales in the same period last year. The
increase was primarily due to the impairment expense and loss, net,
on disposal of machinery due to the Company’s scaling back
manufacturing in the U.S., workforce expansion and the shift
towards import, higher marketing expense to support online sales
growth, and higher rental expense from the additional leased
warehouses partially offset by reduced shipping and transportation
costs due to lower shipping rates.
Operating income increased 48.6 percent to $37.5 million for the
first nine months of 2023, or 12.1 percent of net sales, compared
with $25.2 million, or 7.6 percent of net sales, in the same period
last year.
Other income, net was $0.6 million in the first nine months of
2023, compared with $2.4 million in the same period last year,
which consisted primarily of gains associated with an interest rate
swap.
Net income increased 36.2 percent to $29.0 million for the first
nine months of 2023, from $21.3 million in the same period last
year. Net income margin increased to 9.4 percent in the first nine
months of 2023, compared with 6.4 percent in the same period last
year. Net income attributable to Karat was $28.6 million, or $1.43
per diluted share, for the first nine months of 2023, compared with
$19.1 million, or $0.96 per diluted share, in the same period last
year.
Adjusted EBITDA, a non-GAAP measure defined below, increased to
$51.6 million in the first nine months of 2023, compared with $36.6
million in the same period last year. Adjusted EBITDA margin, a
non-GAAP measure defined below, increased to 16.6 percent in the
2023 year-to-date period, compared with 11.1 percent in the same
period last year.
Adjusted diluted earnings per common share, a non-GAAP measure
defined below, rose to $1.62 per share in the first nine months of
2023, from $1.03 per share in the same period last year.
Investor Conference Call
The Company will host an investor conference call today,
November 9, 2023, at 2:00 p.m. Pacific Time (5:00 p.m. Eastern
Time) to discuss its 2023 third quarter results.
Phone: |
877-418-4045
(domestic); 412-317-6745 (international) |
Conference ID: |
Karat Packaging Inc. |
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
StatementsStatements 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 our 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
and 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 Securities and Exchange Commission. 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 Sfetcu/Roger
Pondel310-279-5980ir@karatpackaging.com
KARAT PACKAGING INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF
INCOME (UNAUDITED)(In thousands, except share and
per share data)
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Net sales |
$ |
105,528 |
|
|
$ |
109,996 |
|
|
$ |
310,069 |
|
|
$ |
330,290 |
|
Cost of goods sold |
|
66,584 |
|
|
|
75,828 |
|
|
|
191,120 |
|
|
|
227,869 |
|
Gross profit |
|
38,944 |
|
|
|
34,168 |
|
|
|
118,949 |
|
|
|
102,421 |
|
Operating expenses |
|
|
|
|
|
|
|
Selling expense |
|
8,004 |
|
|
|
9,413 |
|
|
|
25,500 |
|
|
|
28,218 |
|
General and administrative expense (including $702 and $665
associated with variable interest entity for the three months ended
September 30, 2023 and 2022, respectively; $2,020 and $1,899
associated with variable interest entity for the nine months ended
September 30, 2023 and 2022, respectively) |
|
19,870 |
|
|
|
16,861 |
|
|
|
53,767 |
|
|
|
49,033 |
|
Impairment expense and (gain) loss, net, on disposal of
machinery |
|
(310 |
) |
|
|
(16 |
) |
|
|
2,231 |
|
|
|
(33 |
) |
Total operating expenses |
|
27,564 |
|
|
|
26,258 |
|
|
|
81,498 |
|
|
|
77,218 |
|
Operating income |
|
11,380 |
|
|
|
7,910 |
|
|
|
37,451 |
|
|
|
25,203 |
|
Other income (expense) |
|
|
|
|
|
|
|
Rental income (including $235 and $239 associated with variable
interest entity for the three months ended September 30, 2023 and
2022, respectively; and $721 and $715 associated with variable
interest entity for the nine months ended September 30, 2023 and
2022, respectively) |
|
259 |
|
|
|
239 |
|
|
|
781 |
|
|
|
715 |
|
Other income (expense), net |
|
32 |
|
|
|
28 |
|
|
|
(58 |
) |
|
|
(235 |
) |
Gain on foreign currency transactions |
|
455 |
|
|
|
369 |
|
|
|
350 |
|
|
|
1,352 |
|
Interest income (including $80 and $0 interest income associated
with variable interest entity for the three months ended September
30, 2023 and 2022, respectively; and $278 and $2,160 interest
income associated with variable interest entity for the nine months
ended September 30, 2023 and 2022, respectively) |
|
454 |
|
|
|
— |
|
|
|
1,040 |
|
|
|
2,160 |
|
Interest expense (including $528 and $470 interest expense
associated with variable interest entity for the three months ended
September 30, 2023 and 2022, respectively; and $1,499 and $1,379
interest expense associated with variable interest entity for the
nine months ended September 30, 2023 and 2022, respectively) |
|
(536 |
) |
|
|
(493 |
) |
|
|
(1,516 |
) |
|
|
(1,576 |
) |
Total other income, net |
|
664 |
|
|
|
143 |
|
|
|
597 |
|
|
|
2,416 |
|
Income before provision for income taxes |
|
12,044 |
|
|
|
8,053 |
|
|
|
38,048 |
|
|
|
27,619 |
|
Provision for income taxes |
|
2,904 |
|
|
|
1,900 |
|
|
|
9,045 |
|
|
|
6,323 |
|
Net income |
|
9,140 |
|
|
|
6,153 |
|
|
|
29,003 |
|
|
|
21,296 |
|
Net income attributable to noncontrolling
interest |
|
75 |
|
|
|
57 |
|
|
|
431 |
|
|
|
2,189 |
|
Net income attributable to Karat Packaging
Inc. |
$ |
9,065 |
|
|
$ |
6,096 |
|
|
$ |
28,572 |
|
|
$ |
19,107 |
|
Basic and diluted earnings per share: |
|
|
|
|
|
|
|
Basic |
$ |
0.46 |
|
|
$ |
0.31 |
|
|
$ |
1.44 |
|
|
$ |
0.96 |
|
Diluted |
$ |
0.45 |
|
|
$ |
0.31 |
|
|
$ |
1.43 |
|
|
$ |
0.96 |
|
Weighted average common shares outstanding, basic |
|
19,890,646 |
|
|
|
19,809,417 |
|
|
|
19,888,244 |
|
|
|
19,808,813 |
|
Weighted average common shares outstanding, diluted |
|
19,994,648 |
|
|
|
19,938,042 |
|
|
|
19,962,999 |
|
|
|
19,922,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KARAT PACKAGING INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)(in thousands, except share and per
share data)
|
September 30, 2023 |
|
December 31, 2022 |
Assets |
|
|
|
Current
assets |
|
|
|
Cash and cash equivalents (including $7,770 and $2,022 associated
with variable interest entity at September 30, 2023 and
December 31, 2022, respectively) |
$ |
28,162 |
|
|
$ |
16,041 |
|
Short-term investments (including $8,000 and $0 associated with
variable interest entity at September 30, 2023, and
December 31, 2022, respectively) |
|
18,063 |
|
|
|
— |
|
Accounts receivable, net of allowance for doubtful accounts of $430
and $1,260 at September 30, 2023 and December 31, 2022,
respectively (including $0 and $6 associated with variable interest
entity at September 30, 2023 and December 31, 2022,
respectively) |
|
33,984 |
|
|
|
29,912 |
|
Inventories |
|
71,657 |
|
|
|
71,206 |
|
Prepaid expenses and other current assets (including $25 and $191
associated with variable interest entity at September 30, 2023
and December 31, 2022, respectively) |
|
6,823 |
|
|
|
6,641 |
|
Total current assets |
|
158,689 |
|
|
|
123,800 |
|
Property and equipment, net (including $44,489 and $45,399
associated with variable interest entity at September 30, 2023
and December 31, 2022, respectively) |
|
96,690 |
|
|
|
95,568 |
|
Deposits |
|
1,672 |
|
|
|
12,413 |
|
Goodwill |
|
3,510 |
|
|
|
3,510 |
|
Intangible assets, net |
|
333 |
|
|
|
353 |
|
Operating right-of-use assets |
|
17,068 |
|
|
|
15,713 |
|
Other assets (including $55 and $38 associated with variable
interest entity at September 30, 2023 and December 31,
2022, respectively) |
|
2,002 |
|
|
|
818 |
|
Total assets |
$ |
279,964 |
|
|
$ |
252,175 |
|
Liabilities and
Stockholders’ Equity |
|
|
|
Current
liabilities |
|
|
|
Accounts payable (including $60 and $2 associated with variable
interest entity at September 30, 2023 and December 31,
2022, respectively) |
$ |
19,384 |
|
|
$ |
18,559 |
|
Accrued expenses (including $461 and $625 associated with variable
interest entity at September 30, 2023 and December 31,
2022, respectively) |
|
8,858 |
|
|
|
9,005 |
|
Related party payable |
|
2,555 |
|
|
|
4,940 |
|
Income taxes payable |
|
8,010 |
|
|
|
— |
|
Customer deposits (including $116 and $165 associated with variable
interest entity at September 30, 2023 and December 31,
2022, respectively) |
|
803 |
|
|
|
1,281 |
|
Long-term debt, current portion (including $1,111 and $957
associated with variable interest entity at September 30, 2023
and December 31, 2022, respectively) |
|
1,111 |
|
|
|
957 |
|
Operating lease liabilities, current portion |
|
4,927 |
|
|
|
4,511 |
|
Other payables |
|
49 |
|
|
|
— |
|
Total current liabilities |
|
45,697 |
|
|
|
39,253 |
|
Deferred tax liability |
|
5,156 |
|
|
|
5,156 |
|
Long-term debt, net of current portion and debt discount of $219
and $216 at September 30, 2023 and December 31, 2022,
respectively (including $48,668 and $41,558 associated with
variable interest entity at September 30, 2023 and
December 31, 2022, respectively, and debt discount of $219 and
$216 associated with variable interest entity at September 30,
2023 and December 31, 2022, respectively) |
|
48,668 |
|
|
|
41,558 |
|
Operating lease liabilities, net of current portion |
|
12,866 |
|
|
|
11,623 |
|
Other liabilities (including $1,302 associated with variable
interest entity at both September 30, 2023 and
December 31, 2022) |
|
2,824 |
|
|
|
2,652 |
|
Total liabilities |
|
115,211 |
|
|
|
100,242 |
|
|
|
|
|
Karat Packaging Inc.
stockholders’ equity |
|
|
|
Preferred stock, $0.001 par value, 10,000,000 shares authorized, no
shares issued and outstanding, at both September 30, 2023 and
December 31, 2022 |
|
— |
|
|
|
— |
|
Common stock, $0.001 par value, 100,000,000 shares authorized,
19,916,839 and 19,893,839 shares issued and outstanding,
respectively, as of September 30, 2023 and 19,908,005 and
19,885,005 shares issued and outstanding, respectively, as of
December 31, 2022 |
|
20 |
|
|
|
20 |
|
Additional paid in capital |
|
86,620 |
|
|
|
85,792 |
|
Treasury stock, $0.001 par value, 23,000 shares at both
September 30, 2023 and December 31, 2022 |
|
(248 |
) |
|
|
(248 |
) |
Retained earnings |
|
67,773 |
|
|
|
56,118 |
|
Total Karat Packaging Inc. stockholders’ equity |
|
154,165 |
|
|
|
141,682 |
|
Noncontrolling interest |
|
10,588 |
|
|
|
10,251 |
|
Total stockholders’ equity |
|
164,753 |
|
|
|
151,933 |
|
Total liabilities and stockholders’ equity |
$ |
279,964 |
|
|
$ |
252,175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KARAT PACKAGING, INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS (UNAUDITED)(in thousands)
|
Nine Months Ended September 30, |
|
|
2023 |
|
|
|
2022 |
|
Cash flows from
operating activities |
|
|
|
Net income |
$ |
29,003 |
|
|
$ |
21,296 |
|
Adjustments to reconcile net
income to net cash provided by operating activities: |
|
|
|
Depreciation and amortization (including $910 associated with
variable interest entity for both the nine months ended September
30, 2023 and 2022) |
|
8,058 |
|
|
|
7,752 |
|
Adjustments to allowance for doubtful accounts |
|
(673 |
) |
|
|
1,112 |
|
Adjustments to inventory reserve |
|
(27 |
) |
|
|
441 |
|
Write-off of inventory |
|
3,225 |
|
|
|
— |
|
Impairment of deposits |
|
523 |
|
|
|
— |
|
Loss (gain), net, on disposal of machinery and equipment |
|
1,708 |
|
|
|
(33 |
) |
Change in fair value of interest rate swap (including $0 and $2,159
associated with variable interest entity for the nine months ended
September 30, 2023 and 2022, respectively) |
|
— |
|
|
|
(2,159 |
) |
Amortization of loan fees (including $41 and $28 associated with
variable interest entity for the nine months ended September 30,
2023 and 2022, respectively) |
|
57 |
|
|
|
28 |
|
Accrued interest on certificates of deposit |
|
(63 |
) |
|
|
— |
|
Stock-based compensation |
|
743 |
|
|
|
1,774 |
|
Amortization of operating right-of-use assets |
|
3,617 |
|
|
|
2,897 |
|
(Increase) decrease in operating assets |
|
|
|
Accounts receivable (including $6 and $21 associated with variable
interest entity for the nine months ended September 30, 2023 and
2022, respectively) |
|
(3,399 |
) |
|
|
(5,068 |
) |
Inventories |
|
(3,649 |
) |
|
|
(15,255 |
) |
Prepaid expenses and other current assets (including $22 and $396
associated with variable interest entity for the nine months ended
September 30, 2023 and 2022, respectively) |
|
431 |
|
|
|
(2,264 |
) |
Other assets (including $34 and $458 associated with variable
interest entity for the nine months ended September 30, 2023 and
2022, respectively) |
|
(75 |
) |
|
|
(43 |
) |
Increase (decrease) in operating liabilities |
|
|
|
Accounts payable (including $57 and $470 associated with variable
interest entity for the nine months ended September 30, 2023 and
2022, respectively) |
|
1,701 |
|
|
|
459 |
|
Accrued expenses (including $163 and $414 associated with variable
interest entity for the nine months ended September 30, 2023 and
2022, respectively) |
|
(147 |
) |
|
|
1,130 |
|
Related party payable |
|
(2,385 |
) |
|
|
2,855 |
|
Income taxes payable |
|
8,010 |
|
|
|
111 |
|
Customer deposits (including $49 and $156 associated with variable
interest entity for the nine months ended September 30, 2023 and
2022, respectively) |
|
(478 |
) |
|
|
(29 |
) |
Operating lease liability |
|
(3,313 |
) |
|
|
(2,897 |
) |
Other liabilities (including $0 and $1 associated with variable
interest entity for the nine months ended September 30, 2023 and
2022, respectively) |
|
172 |
|
|
|
150 |
|
Other payables |
|
49 |
|
|
|
242 |
|
Net cash provided by operating activities |
$ |
43,088 |
|
|
$ |
12,499 |
|
Cash flows from
investing activities |
|
|
|
Purchases of property and equipment |
|
(2,870 |
) |
|
|
(2,007 |
) |
Proceeds from disposal of property and equipment |
|
605 |
|
|
|
76 |
|
Payments for costs incurred from sale of machinery and
equipment |
|
(189 |
) |
|
|
— |
|
Deposits paid for joint venture investment |
|
(2,900 |
) |
|
|
(4,000 |
) |
Deposits refunded from joint venture investment |
|
6,900 |
|
|
|
— |
|
Deposit refund from cancelled property and equipment purchase |
|
503 |
|
|
|
— |
|
Deposits paid for property and equipment |
|
(5,390 |
) |
|
|
(11,471 |
) |
Proceeds from settlement of interest rate swap (including $0 and
$825 associated with variable interest entity for the nine months
ended September 30, 2023 and 2022, respectively) |
|
— |
|
|
|
825 |
|
Purchase of short-term investments (including $8,000 and $0
associated with variable interest entity for the nine months ended
September 30, 2023 and 2022, respectively) |
|
(28,000 |
) |
|
|
— |
|
Redemption of short-term investments |
|
10,000 |
|
|
|
— |
|
Net cash used in investing activities |
$ |
(21,341 |
) |
|
$ |
(16,577 |
) |
Cash flows from
financing activities |
|
|
|
Proceeds from line of credit |
|
— |
|
|
|
21,100 |
|
Payments on line of credit |
|
— |
|
|
|
(21,100 |
) |
Proceeds from long-term debt (including $8,000 and $27,477
associated with variable interest entity for the nine months ended
September 30, 2023 and 2022, respectively) |
|
8,000 |
|
|
|
27,477 |
|
Payments for lender fees |
|
(61 |
) |
|
|
— |
|
Payments on long-term debt (including $733 and $21,338 associated
with variable interest entity for the nine months ended September
30, 2023 and 2022, respectively) |
|
(733 |
) |
|
|
(21,338 |
) |
Tax withholding on vesting of restricted stock units |
|
(18 |
) |
|
|
— |
|
Proceeds from exercise of common stock options |
|
103 |
|
|
|
51 |
|
Dividends paid to shareholders |
|
(16,917 |
) |
|
|
— |
|
Payments of noncontrolling interest tax withholding (including $0
and $1,064 associated with variable interest entity for the nine
months ended September 30, 2023 and 2022, respectively) |
|
— |
|
|
|
(1,064 |
) |
Net cash (used in) provided by financing activities |
$ |
(9,626 |
) |
|
$ |
5,126 |
|
Net increase in cash and cash equivalents |
|
12,121 |
|
|
|
1,048 |
|
Cash and cash
equivalents |
|
|
|
Beginning of period |
$ |
16,041 |
|
|
$ |
6,483 |
|
End of period |
$ |
28,162 |
|
|
$ |
7,531 |
|
Supplemental
disclosures of non-cash investing and financing
activities: |
|
|
|
Transfers from deposit to
property and equipment |
$ |
8,953 |
|
|
$ |
6,639 |
|
Non-cash purchases of property
and equipment |
$ |
71 |
|
|
$ |
— |
|
Supplemental
disclosures of cash flow information: |
|
|
|
Cash paid for income tax |
$ |
309 |
|
|
$ |
7,069 |
|
Cash paid for interest |
$ |
1,493 |
|
|
$ |
1,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KARAT PACKAGING INC. AND
SUBSIDIARIESRECONCILIATION 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 September 30, |
|
Nine Months Ended September 30, |
|
|
2023 |
|
|
2022 |
|
|
|
2023 |
|
|
2022 |
|
|
Amounts |
% of net sale |
Amounts |
% of net sale |
|
Amounts |
% of net sale |
Amounts |
% of net sale |
Net income: |
$ |
9,140 |
|
8.7 |
% |
$ |
6,153 |
5.6 |
% |
|
$ |
29,003 |
|
9.4 |
% |
$ |
21,296 |
|
6.4 |
% |
Add (deduct): |
|
|
|
|
|
|
|
|
|
Interest income |
|
(454 |
) |
(0.4 |
) |
|
— |
— |
|
|
|
(1,040 |
) |
(0.3 |
) |
|
(2,160 |
) |
(0.7 |
) |
Interest expense |
|
536 |
|
0.5 |
|
|
493 |
0.4 |
|
|
|
1,516 |
|
0.5 |
|
|
1,576 |
|
0.5 |
|
Provision for income taxes |
|
2,904 |
|
2.8 |
|
|
1,900 |
1.7 |
|
|
|
9,045 |
|
2.9 |
|
|
6,323 |
|
1.9 |
|
Depreciation and amortization |
|
2,708 |
|
2.6 |
|
|
2,604 |
2.5 |
|
|
|
8,058 |
|
2.6 |
|
|
7,752 |
|
2.4 |
|
Stock-based compensation expense |
|
250 |
|
0.2 |
|
|
598 |
0.5 |
|
|
|
743 |
|
0.2 |
|
|
1,774 |
|
0.6 |
|
Secondary offering transaction costs (2) |
|
453 |
|
0.4 |
|
|
— |
— |
|
|
|
453 |
|
0.1 |
|
|
— |
|
— |
|
Write-off of inventory (1) |
|
— |
|
— |
|
|
— |
— |
|
|
|
1,710 |
|
0.6 |
|
|
— |
|
— |
|
Impairment expense and (gain) loss, net, on disposal of machinery
(1) |
|
(310 |
) |
(0.4 |
) |
|
— |
— |
|
|
|
2,135 |
|
0.6 |
|
|
— |
|
— |
|
Adjusted
EBITDA |
$ |
15,227 |
|
14.4 |
% |
$ |
11,748 |
10.7 |
% |
|
$ |
51,623 |
|
16.6 |
% |
$ |
36,561 |
|
11.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
Adjusted Diluted Earnings Per Common Share |
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Diluted earnings per common
share: |
$ |
0.45 |
|
|
$ |
0.31 |
|
|
$ |
1.43 |
|
|
$ |
0.96 |
|
Add (deduct): |
|
|
|
|
|
|
|
Stock-based compensation expense |
|
0.01 |
|
|
|
0.03 |
|
|
|
0.04 |
|
|
|
0.09 |
|
Secondary offering transaction costs (2) |
|
0.02 |
|
|
|
— |
|
|
|
0.02 |
|
|
|
— |
|
Write-off of inventory (1) |
|
— |
|
|
|
— |
|
|
|
0.09 |
|
|
|
— |
|
Impairment expense and (gain) loss, net, on disposal of machinery
(1) |
|
(0.01 |
) |
|
|
— |
|
|
|
0.10 |
|
|
|
— |
|
Income tax impact of adjustments |
|
— |
|
|
|
(0.01 |
) |
|
|
(0.06 |
) |
|
|
(0.02 |
) |
Adjusted diluted
earnings per common shares |
$ |
0.47 |
|
|
$ |
0.33 |
|
|
$ |
1.62 |
|
|
$ |
1.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
Adjusted EBITDA by Entity: |
Three Months Ended September 30, 2023 |
|
Nine Months Ended September 30, 2023 |
|
Karat Packaging |
Global Wells |
Eliminations |
Consolidated |
|
Karat Packaging |
Global Wells |
Eliminations |
Consolidated |
Net income (loss): |
$ |
9,039 |
|
$ |
87 |
|
$ |
14 |
$ |
9,140 |
|
|
$ |
28,572 |
|
$ |
499 |
|
$ |
(68 |
) |
$ |
29,003 |
|
Add (deduct) |
|
|
|
|
|
|
|
|
|
Interest income |
|
(375 |
) |
|
(79 |
) |
|
— |
|
(454 |
) |
|
|
(762 |
) |
|
(295 |
) |
|
17 |
|
|
(1,040 |
) |
Interest expense |
|
8 |
|
|
528 |
|
|
— |
|
536 |
|
|
|
34 |
|
|
1,499 |
|
|
(17 |
) |
|
1,516 |
|
Provision for income taxes |
|
2,904 |
|
|
— |
|
|
— |
|
2,904 |
|
|
|
9,045 |
|
|
— |
|
|
— |
|
|
9,045 |
|
Depreciation and amortization |
|
2,405 |
|
|
303 |
|
|
— |
|
2,708 |
|
|
|
7,148 |
|
|
910 |
|
|
— |
|
|
8,058 |
|
Stock-based compensation expense |
|
250 |
|
|
— |
|
|
— |
|
250 |
|
|
|
743 |
|
|
— |
|
|
— |
|
|
743 |
|
Secondary offering transaction costs (2) |
|
453 |
|
|
— |
|
|
— |
|
453 |
|
|
|
453 |
|
|
— |
|
|
— |
|
|
453 |
|
Write-off of inventory (1) |
|
— |
|
|
— |
|
|
— |
|
— |
|
|
|
1,710 |
|
|
— |
|
|
— |
|
|
1,710 |
|
Impairment expense and (gain) loss, net, on disposal of machinery
(1) |
|
(310 |
) |
|
— |
|
|
— |
|
(310 |
) |
|
|
2,135 |
|
|
— |
|
|
— |
|
|
2,135 |
|
Adjusted
EBITDA |
$ |
14,374 |
|
$ |
839 |
|
$ |
14 |
$ |
15,227 |
|
|
$ |
49,078 |
|
$ |
2,613 |
|
$ |
(68 |
) |
$ |
51,623 |
|
(1) The write-off of inventory and impairment
expense and (gain) loss, net, on disposal of machinery represent
costs incurred in connection with the scaling back of production in
the U.S. 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.
(2) Secondary offering transaction costs
represent legal and professional fees incurred in connection with
the completion of the secondary offering, which were directly
related to the offering and were incremental to our normal
operating expenses.
Reconciliation of
Adjusted EBITDA by Entity: |
Three Months Ended September 30, 2022 |
|
Nine Months Ended September 30, 2022 |
|
Karat Packaging |
Global Wells |
Eliminations |
Consolidated |
|
Karat Packaging |
Global Wells |
Eliminations |
Consolidated |
Net income (loss): |
$ |
6,060 |
$ |
66 |
|
$ |
27 |
|
$ |
6,153 |
|
$ |
19,096 |
$ |
2,531 |
|
$ |
(331 |
) |
$ |
21,296 |
|
Add (deduct) |
|
|
|
|
|
|
|
|
|
Interest income |
|
— |
|
(68 |
) |
|
68 |
|
|
— |
|
|
— |
|
(2,228 |
) |
|
68 |
|
|
(2,160 |
) |
Interest expense |
|
91 |
|
470 |
|
|
(68 |
) |
|
493 |
|
|
265 |
|
1,379 |
|
|
(68 |
) |
|
1,576 |
|
Provision for income taxes |
|
1,900 |
|
— |
|
|
— |
|
|
1,900 |
|
|
6,323 |
|
— |
|
|
— |
|
|
6,323 |
|
Depreciation and amortization |
|
2,301 |
|
303 |
|
|
— |
|
|
2,604 |
|
|
6,842 |
|
910 |
|
|
— |
|
|
7,752 |
|
Stock-based compensation expense |
|
598 |
|
— |
|
|
— |
|
|
598 |
|
|
1,774 |
|
— |
|
|
— |
|
|
1,774 |
|
Adjusted
EBITDA |
$ |
10,950 |
$ |
771 |
|
$ |
27 |
|
$ |
11,748 |
|
$ |
34,300 |
$ |
2,592 |
|
$ |
(331 |
) |
$ |
36,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 calculated as net income before interest
income and interest expense, provision for income taxes,
depreciation and amortization, stock-based compensation expense,
secondary offering transaction costs, write-off of certain
inventory items outside the normal course of business, and
impairment expense and (gain) loss, net, on disposal of machinery
outside the normal course of business.
- 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, secondary offering transaction costs,
write-off of certain inventory items outside the normal course of
business, impairment expense and (gain) loss, net, 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
SUBSIDIARIESNET SALES BY CATEGORY
(UNAUDITED) (In Thousands)
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
(in thousands) |
National and regional
chains |
$ |
23,407 |
|
$ |
23,956 |
|
$ |
68,602 |
|
$ |
73,943 |
Distributors |
|
61,037 |
|
|
63,555 |
|
|
178,274 |
|
|
189,078 |
Online |
|
14,271 |
|
|
14,044 |
|
|
43,419 |
|
|
43,084 |
Retail |
|
6,813 |
|
|
8,441 |
|
|
19,774 |
|
|
24,185 |
|
$ |
105,528 |
|
$ |
109,996 |
|
$ |
310,069 |
|
$ |
330,290 |
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