Delaware | 001-40336 | 83-2237832 | ||||||
(State or other jurisdiction of incorporation | (Commission File Number | (IRS Employer Identification No.) |
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | ||||
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a -12) | ||||
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | ||||
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e -4(c)) |
Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
Common Stock, $0.001 par value per share | KRT | The Nasdaq Stock Market LLC |
Exhibit Number |
Description | |||||||
99.1 | ||||||||
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
Date: May 10, 2023 |
KARAT PACKAGING INC. | |||||||
By: | /s/ Jian Guo |
|||||||
Jian Guo |
||||||||
Chief Financial Officer |
Three Months Ended March 31, | |||||||||||
2023 | 2022 | ||||||||||
Net sales | $ | 95,801 | $ | 105,413 | |||||||
Cost of goods sold | 57,657 | 71,124 | |||||||||
Gross profit | 38,144 | 34,289 | |||||||||
Operating expenses: | |||||||||||
Selling expenses | 8,701 | 9,337 | |||||||||
General and administrative expenses (including $671 and $629 associated with variable interest entity for the three months ended March 31, 2023 and 2022, respectively) |
16,711 | 15,461 | |||||||||
Total operating expenses | 25,412 | 24,798 | |||||||||
Operating income | 12,732 | 9,491 | |||||||||
Other income (expenses) | |||||||||||
Rental income (including $247 and $238 associated with variable interest entity for the three months ended March 31, 2023 and 2022, respectively) |
247 | 238 | |||||||||
Other expense, net | (208) | (82) | |||||||||
(Loss) gain on foreign currency transactions | (427) | 133 | |||||||||
Interest income (including $16 and $1,313 associated with variable interest entity for the three months ended March 31, 2023 and 2022, respectively) |
67 | 1,313 | |||||||||
Interest expense (including $406 and $448 associated with variable interest entity for the three months ended March 31, 2023 and 2022, respectively) |
(407) | (473) | |||||||||
Total other (expense) income, net | (728) | 1,129 | |||||||||
Income before provision for income taxes | 12,004 | 10,620 | |||||||||
Provision for income taxes | 2,818 | 2,677 | |||||||||
Net income | 9,186 | 7,943 | |||||||||
Net income attributable to noncontrolling interest | 181 | 1,276 | |||||||||
Net income attributable to Karat Packaging Inc. | $ | 9,005 | $ | 6,667 | |||||||
Basic and diluted earnings per share: | |||||||||||
Basic | $ | 0.45 | $ | 0.34 | |||||||
Diluted | $ | 0.45 | $ | 0.34 | |||||||
Weighted average common shares outstanding, basic | 19,886,585 | 19,807,584 | |||||||||
Weighted average common shares outstanding, diluted | 19,939,923 | 19,901,384 |
March 31, 2023 | December 31, 2022 | ||||||||||
Assets | |||||||||||
Current assets | |||||||||||
Cash and cash equivalents (including $14,411 and $2,022 associated with variable interest entity at March 31, 2023 and December 31, 2022, respectively) |
$ | 23,225 | $ | 16,041 | |||||||
Short-term investments | 10,000 | — | |||||||||
Accounts receivable, net of allowance for doubtful accounts of $451 and $1,260 at March 31, 2023 and December 31, 2022, respectively (including $12 and $6 associated with variable interest entity at March 31, 2023 and December 31, 2022, respectively) |
32,973 | 29,912 | |||||||||
Inventories | 70,909 | 71,206 | |||||||||
Prepaid expenses and other current assets (including $136 and $191 associated with variable interest entity at March 31, 2023 and December 31, 2022, respectively) |
4,448 | 6,641 | |||||||||
Total current assets | 141,555 | 123,800 | |||||||||
Property and equipment, net (including $45,095 and $45,399 associated with variable interest entity at March 31, 2023 and December 31, 2022, respectively) |
99,416 | 95,568 | |||||||||
Deposits | 11,700 | 12,413 | |||||||||
Goodwill | 3,510 | 3,510 | |||||||||
Intangible assets, net | 347 | 353 | |||||||||
Operating right-of-use assets | 14,716 | 15,713 | |||||||||
Other assets (including $73 and $38 associated with variable interest entity at March 31, 2023 and December 31, 2022, respectively) |
2,036 | 818 | |||||||||
Total assets | $ | 273,280 | $ | 252,175 | |||||||
Liabilities and Stockholders’ Equity | |||||||||||
Current liabilities | |||||||||||
Accounts payable (including $2 associated with variable interest entity at both March 31, 2023 and December 31, 2022) |
$ | 17,740 | $ | 18,559 | |||||||
Accrued expenses (including $210 and $625 associated with variable interest entity at March 31, 2023 and December 31, 2022, respectively) |
7,878 | 9,005 | |||||||||
Related party payable | 9,907 | 4,940 | |||||||||
Income taxes payable | 1,782 | — | |||||||||
Customer deposits (including $182 and $165 associated with variable interest entity at March 31, 2023 and December 31, 2022, respectively) |
955 | 1,281 | |||||||||
Long-term debt, current portion (including $962 and $957 associated with variable interest entity at March 31, 2023 and December 31, 2022, respectively) |
962 | 957 | |||||||||
Operating lease liabilities, current portion | 4,506 | 4,511 | |||||||||
Other payables | 452 | — | |||||||||
Total current liabilities | 44,182 | 39,253 |
March 31, 2023 | December 31, 2021 | ||||||||||
Deferred tax liability | 5,156 | 5,156 | |||||||||
Long-term debt, net of current portion and debt discount of $202 and $216 at March 31, 2023 and December 31, 2022, respectively (including $49,325 and $41,558 associated with variable interest entity at March 31, 2023 and December 31, 2022, respectively, and debt discount of $202 and $216 associated with variable interest entity at March 31, 2023 and December 31, 2022, respectively) |
49,325 | 41,558 | |||||||||
Operating lease liabilities, net of current portion | 10,561 | 11,623 | |||||||||
Other liabilities (including $1,302 associated with variable interest entity at both March 31, 2023 and December 31, 2022) |
2,674 | 2,652 | |||||||||
Total liabilities | 111,898 | 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 March 31, 2023 and December 31, 2022 |
— | — | |||||||||
Common stock, $0.001 par value, 100,000,000 shares authorized, 19,910,457 and 19,887,457 shares issued and outstanding, respectively, as of March 31, 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 | 86,055 | 85,792 | |||||||||
Treasury stock, $0.001 par value, 23,000 shares at both March 31, 2023 and December 31, 2022 |
(248) | (248) | |||||||||
Retained earnings | 65,123 | 56,118 | |||||||||
Total Karat Packaging Inc. stockholders’ equity | 150,950 | 141,682 | |||||||||
Noncontrolling interest | 10,432 | 10,251 | |||||||||
Total stockholders’ equity | 161,382 | 151,933 | |||||||||
Total liabilities and stockholders’ equity | $ | 273,280 | $ | 252,175 |
Three Months Ended March 31, | |||||||||||
2023 | 2022 | ||||||||||
Cash flows from operating activities | |||||||||||
Net income | $ | 9,186 | $ | 7,943 | |||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||||||
Depreciation and amortization (including $304 and $303 associated with variable interest entity for the three months ended March 31, 2023 and 2022, respectively) |
2,633 | 2,584 | |||||||||
Adjustments to allowance for doubtful accounts | (652) | 500 | |||||||||
Adjustments to inventory reserve | 288 | 476 | |||||||||
Write-off of inventory | 216 | — | |||||||||
Loss on disposal of fixed assets | 82 | — | |||||||||
Change in fair value of interest rate swap (including $0 and $1,313 associated with variable interest entity for the three months ended March 31, 2023 and 2022, respectively) |
— | (1,313) | |||||||||
Amortization of loan fees (including $16 and $9 associated with variable interest entity for the three months ended March 31, 2023 and 2022, respectively) |
17 | 9 | |||||||||
Stock-based compensation | 277 | 611 | |||||||||
Amortization of operating right-of-use assets | 997 | 650 | |||||||||
(Increase) decrease in operating assets | |||||||||||
Accounts receivable (including $7 and $18 associated with variable interest entity for the three months ended March 31, 2023 and 2022, respectively) |
(2,409) | (11,061) | |||||||||
Inventories | (207) | (19,341) | |||||||||
Prepaid expenses and other current assets (including $52 and $108 associated with variable interest entity for the three months ended March 31, 2023 and 2022, respectively) |
1,023 | (895) | |||||||||
Other assets (including $88 and $122 associated with variable interest entity for the three months ended March 31, 2023 and 2022, respectively) |
9 | 88 | |||||||||
Increase (decrease) in operating liabilities | |||||||||||
Accounts payable (including $1 and $390 associated with variable interest entity for the three months ended March 31, 2023 and 2022, respectively) |
(1,978) | 5,526 | |||||||||
Accrued expenses (including $415 and $136 associated with variable interest entity for the three months ended March 31, 2023 and 2022, respectively) |
(1,127) | 547 | |||||||||
Related party payable | 4,967 | (743) | |||||||||
Income taxes payable | 1,782 | 1,892 | |||||||||
Customer deposits (including $17 and $7 associated with variable interest entity for the three months ended March 31, 2023 and 2022, respectively) |
(326) | 233 | |||||||||
Operating lease liability | (1,067) | (667) | |||||||||
Other liabilities | 22 | — | |||||||||
Other payables | 452 | 1,534 | |||||||||
Net cash provided by (used in) operating activities | $ | 14,185 | $ | (11,427) |
Three Months Ended March 31, | |||||||||||
2023 |
2022 |
||||||||||
Cash flows from investing activities | |||||||||||
Purchases of property and equipment | (1,042) | (824) | |||||||||
Proceeds from disposal of property and equipment | 25 | — | |||||||||
Deposits paid for joint venture investment | (2,900) | — | |||||||||
Deposits refunded from joint venture investment | 950 | — | |||||||||
Deposits paid for property and equipment | (1,718) | (3,971) | |||||||||
Purchase of short-term investments | (10,000) | — | |||||||||
Net cash used in investing activities | $ | (14,685) | $ | (4,795) | |||||||
Cash flows from financing activities | |||||||||||
Proceeds from line of credit | — | 10,200 | |||||||||
Proceeds from long-term debt (including $8,000 and $6,885 associated with variable interest entity for the three months ended March 31, 2023 and 2022, respectively) |
8,000 | 6,885 | |||||||||
Payments for lender fees | (61) | — | |||||||||
Payments on long-term debt (including $241 and $267 associated with variable interest entity for the three months ended March 31, 2023 and 2022, respectively) |
(241) | (267) | |||||||||
Tax withholding on vesting of restricted stock units (including $0 and $310 associated with variable interest entity for the three months ended March 31, 2023 and 2022, respectively) |
(14) | — | |||||||||
Proceeds from exercise of common stock options | — | 51 | |||||||||
Payments of noncontrolling interest tax withholding | — | (310) | |||||||||
Net cash provided by financing activities | $ | 7,684 | $ | 16,559 | |||||||
Net increase in cash and cash equivalents | 7,184 | 337 | |||||||||
Cash and cash equivalents | |||||||||||
Beginning of period | $ | 16,041 | $ | 6,483 | |||||||
End of period | $ | 23,225 | $ | 6,820 | |||||||
Supplemental disclosures of non-cash investing and financing activities: | |||||||||||
Transfers from deposit to property and equipment | $ | 4,381 | $ | 416 | |||||||
Non-cash purchases of property and equipment | $ | 1,159 | $ | — | |||||||
Supplemental disclosures of cash flow information: | |||||||||||
Cash paid for income tax | $ | — | $ | 200 | |||||||
Cash paid for interest | $ | 421 | $ | 440 |
(in thousands, except per share amounts) |
Reconciliation of Adjusted EBITDA and Adjusted EBITDA margin: | Three Months Ended March 31, | |||||||||||||
2023 | 2022 | |||||||||||||
Amounts | % of Net Sales | Amounts | % of Net Sales | |||||||||||
Net income: | $ | 9,186 | 9.6 | % | $ | 7,943 | 7.5 | % | ||||||
Add (deduct): | ||||||||||||||
Interest income | (67) | (0.1) | (1,313) | (1.2) | ||||||||||
Interest expense | 407 | 0.4 | 473 | 0.4 | ||||||||||
Provision for income taxes | 2,818 | 2.9 | 2,677 | 2.5 | ||||||||||
Depreciation and amortization | 2,633 | 2.8 | 2,584 | 2.5 | ||||||||||
Stock-based compensation expense | 277 | 0.3 | 611 | 0.6 | ||||||||||
Adjusted EBITDA | $ | 15,254 | 15.9 | % | $ | 12,975 | 12.3 | % |
Reconciliation of Adjusted Diluted Earnings Per Common Share | Three Months Ended March 31, | ||||||||||
2023 | 2022 | ||||||||||
Diluted earnings per common share: | $ | 0.45 | $ | 0.34 | |||||||
Add (deduct): | |||||||||||
Stock-based compensation expense | 0.01 | 0.03 | |||||||||
Income tax impact of adjustments | — | (0.01) | |||||||||
Adjusted diluted earnings per common shares | $ | 0.46 | $ | 0.36 |
Reconciliation of Adjusted EBITDA by Entity: |
Three Months Ended March 31, 2023 | |||||||||||||
Karat Packaging | Global Wells | Eliminations | Consolidated | |||||||||||
Net income (loss): | $ | 9,040 | $ | 209 | $ | (63) | $ | 9,186 | ||||||
Add | ||||||||||||||
Interest income | (51) | (33) | 17 | (67) | ||||||||||
Interest expense | 18 | 406 | (17) | 407 | ||||||||||
Provision for income taxes | 2,818 | — | — | 2,818 | ||||||||||
Depreciation and amortization | 2,330 | 303 | — | 2,633 | ||||||||||
Stock-based compensation expense | 277 | — | — | 277 | ||||||||||
Adjusted EBITDA | $ | 14,432 | $ | 885 | $ | (63) | $ | 15,254 |
Reconciliation of Adjusted EBITDA by Entity: |
Three Months Ended March 31, 2022 | |||||||||||||
Karat Packaging | Global Wells | Eliminations | Consolidated | |||||||||||
Net income (loss): | $ | 6,781 | $ | 1,475 | $ | (313) | $ | 7,943 | ||||||
Add (deduct) | ||||||||||||||
Interest income | — | (1,313) | — | (1,313) | ||||||||||
Interest expense | 25 | 448 | — | 473 | ||||||||||
Provision for income taxes | 2,677 | — | — | 2,677 | ||||||||||
Depreciation and amortization | 2,280 | 304 | — | 2,584 | ||||||||||
Stock-based compensation expense | 611 | — | — | 611 | ||||||||||
Adjusted EBITDA | $ | 12,374 | $ | 914 | $ | (313) | $ | 12,975 |
Three Months Ended March 31, | |||||||||||
2023 | 2022 | ||||||||||
(in thousands) | |||||||||||
National and regional chains | $ | 21,368 | $ | 24,906 | |||||||
Distributors | 54,647 | 59,124 | |||||||||
Online | 13,655 | 13,549 | |||||||||
Retail | 6,131 | 7,834 | |||||||||
$ | 95,801 | $ | 105,413 |