CHINO, Calif, November 10, 2022 – Karat Packaging Inc. (Nasdaq: KRT) (“Karat”), 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, 2022.

•Net sales of $110.0 million, up 7.1 percent from the prior-year quarter.

•Gross profit of $34.2 million, up 14.7 percent from the prior-year quarter.

•Gross margin of 31.1 percent, increased from 29.0 percent from the prior-year quarter.

•Net income of $6.2 million, up 51.1 percent from the prior-year quarter.

•Net income margin of 5.6 percent, increased from 4.0 percent from the prior-year quarter.

•Adjusted EBITDA of $11.7 million, up 30.1 percent from the prior-year quarter.

•Adjusted EBITDA margin of 10.7 percent, versus 8.8 percent in the prior-year quarter.

•Record quarterly operating cash flow of $20.2 million

•Financial liquidity of $54.5 million as of September 30, 2022

•Net sales for the 2022 fourth quarter: $95 million to $98 million, up from $91.3 million for the 2021 fourth quarter.

•Gross margin goal for the 2022 full year: 31 percent to 32 percent on average.

“Although net sales for the third quarter were above those of the prior year period - a particularly strong quarter due to COVID re-openings - results were impacted by customers’ destocking of certain inventory due to supply chain recovery,” said Alan Yu, chief executive officer. “Nevertheless, demand remains strong for our eco-friendly products and other offerings. Our eco-friendly products grew 26.7 percent during the quarter.

“We continue to see solid gross margin improvement into the fourth quarter, further benefited from significantly lower ocean freight rates toward the end of the third quarter and the strong U.S. dollar, which is allowing us to implement some price reductions to proactively pass on savings to our customers.

“Proceeding into the fourth quarter and fiscal 2023, we have implemented new initiatives to significantly grow online sales, and we are on track with our Green Earth Technology joint venture in Taiwan to start producing bagasse products at the end of 2022, with shipments to begin early in the new year.”

Net sales for the 2022 third quarter increased 7.1 percent to $110.0 million, from $102.7 million in the 2021 third quarter, a particularly strong quarter due to Covid re-openings.

Gross profit for the 2022 third quarter increased 14.7 percent to $34.2 million, from $29.8 million in the prior-year quarter.

Gross margin expanded 210 basis points to 31.1 percent, from 29.0 percent in the prior-year quarter. Gross margin was favorably impacted by a shift to higher margin products, such as environmentally friendly products, price increases implemented previously to partially offset increased product, ocean freight and labor costs, favorable foreign currency exchange rate from the strengthening of the US Dollar against Taiwan New Dollar, and improved operating efficiencies and leverage.

Operating expenses in the 2022 third quarter were $26.3 million, or 23.9% of net sales, compared with $24.4 million, or 23.8% of net sales, in the prior-year quarter. The increase primarily resulted from higher labor costs due to workforce expansion, and an increase in rental expense due to distribution network expansion.

Operating income in the third quarter of 2022 increased to $7.9 million, from $5.4 million in the prior-year quarter.

Other income totaled $143,000 in the 2022 third quarter, compared with other expense totaled $24,000 in the prior-year quarter. Other income included foreign currency transactions gain of $369,000 for the 2022 third quarter, compared with foreign currency loss of 63,000 in the 2021 third quarter.

The effective tax rate for the 2022 third quarter was 23.6 percent, compared with 23.7 percent for the prior-year quarter.

Net income for the 2022 third quarter increased 51.1 percent to $6.2 million, from $4.1 million for the same quarter last year. Net income margin was 5.6 percent for the 2022 third quarter, compared with 4.0 percent a year ago.

Net income attributable to Karat for the 2022 third quarter was $6.1 million, or $0.31 per diluted share, compared with $3.8 million, or $0.19 per diluted share, in the prior-year quarter.

Adjusted EBITDA rose 30.1 percent to $11.7 million in the 2022 third quarter, from $9.0 million in the prior-year quarter. Adjusted EBITDA margin, a non-GAAP measure defined below, expanded 190 basis point to 10.7 percent of net sales, from 8.8 percent in the prior-year quarter.

Adjusted diluted earnings per common share, a non-GAAP measure defined below, rose to $0.33 per share, from $0.22 per share in the prior-year quarter.

Net sales for the first nine months of 2022 increased 21.0 percent to $330.3 million, from $272.9 million in the same period last year.

Gross profit for the first nine months of 2022 increased 28.8 percent to $102.4 million, from $79.5 million in the same period last year. Gross margin was 31.0 percent, an increase from 29.1 percent in the same period last year. The margin expansion resulted primarily from the shift to higher margin products, price increases implemented previously to partially offset increased product, ocean freight and labor costs, favorable foreign currency exchange rate impact from the strengthening of the US Dollar against Taiwan New Dollar, and improved operating efficiencies and fixed cost leverage, partially offset by higher freight and duty costs.

Operating expenses were $77.2 million in the 2022 year-to-date period, compared with $63.5 million in the same period last year. The increase primarily included higher shipping and transportation costs and the increase in payroll-related costs due to workforce expansion.

Operating income increased to $25.2 million in the first nine months of 2022, or 7.6 percent of net sales, compared with $16.0 million, or 5.9 percent of net sales, in the same period last year.

Other income totaled $2.4 million in the first nine months of 2022, compared with $4.5 million in the same period last year. Other income in the first nine months of 2021 primarily reflected the $5.0 million gain on forgiveness of debt recorded in the second quarter.

Net income increased to $21.3 million for the first nine months of 2022, from $16.5 million in the same period last year, which included the $5.0 million gain on forgiveness of debt recorded in the second quarter of 2021.

Net income margin was 6.4 percent in the first nine months of 2022, versus 6.0 percent in the same period last year. Net income attributable to Karat was $19.1 million, or $0.96 per diluted share, in the first nine months of 2022, compared with $15.1 million, or $0.84 per diluted share, in the same period last year.

Adjusted EBITDA increased to $36.6 million in the first nine months of 2022, compared with $26.2 million in the same period last year. Adjusted EBITDA margin was 11.1 percent in the 2022 year-to-date period, compared with 9.6 percent in the same period last year.

Adjusted diluted earnings per common share, a non-GAAP measure defined below, rose to $1.03 per share, from $0.68 per share in the same period last year.

The Company will host an investor conference call today, November 10, 2022, at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time) to discuss its 2022 third quarter results.

Phone: 877-418-4045 (domestic); 412-317-6745 (international)

Conference ID: Karat Packaging Inc.

Webcast: Accessible at http://investor.karatpackaging.com/; archive available for approximately one year

Karat Packaging Inc. is a specialty distributor and manufacturer of a wide range of environmentally friendly, 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.

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 continued increases in customer demand, along with achieving third quarter and full year 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, as amended, 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.

PondelWilkinson Inc.

Judy Lin Sfetcu/Roger Pondel

310-279-5980

ir@karatpackaging.com

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:

•Beginning in the fourth quarter of fiscal 2021, Adjusted EBITDA is calculated as net income before interest and income taxes, depreciation and amortization, stock-based compensation expense, IPO related expenses and gain on forgiveness of debt. The prior period Adjusted EBITDA has been revised to conform to this definition.

•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, IPO related expense and gain on forgiveness of debt, 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.