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| 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 9, 2024 | KARAT PACKAGING INC. | |||||||
| By: | /s/ Jian Guo |
|||||||
Jian Guo |
||||||||
Chief Financial Officer |
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| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Net sales | $ | 95,613 | $ | 95,801 | |||||||
| Cost of goods sold | 58,011 | 57,657 | |||||||||
| Gross profit | 37,602 | 38,144 | |||||||||
| Operating expenses: | |||||||||||
| Selling expenses | 10,763 | 8,701 | |||||||||
General and administrative expenses (including $556 and $671 associated with variable interest entity for the three months ended March 31, 2024 and 2023, respectively) |
16,769 | 16,629 | |||||||||
Impairment expense and loss, net, on disposal of machinery |
1,994 | 82 | |||||||||
| Total operating expenses | 29,526 | 25,412 | |||||||||
| Operating income | 8,076 | 12,732 | |||||||||
| Other income (expenses) | |||||||||||
Rental income (including $255 and $247 associated with variable interest entity for the three months ended March 31, 2024 and 2023, respectively) |
291 | 247 | |||||||||
Other income (expense), net |
55 | (208) | |||||||||
Gain (loss) on foreign currency transactions |
122 | (427) | |||||||||
Interest income (including $213 and $16 associated with variable interest entity for the three months ended March 31, 2024 and 2023, respectively) |
431 | 67 | |||||||||
Interest expense (including $517 and $406 associated with variable interest entity for the three months ended March 31, 2024 and 2023, respectively) |
(524) | (407) | |||||||||
Total other income (expenses), net |
375 | (728) | |||||||||
| Income before provision for income taxes | 8,451 | 12,004 | |||||||||
| Provision for income taxes | 1,975 | 2,818 | |||||||||
| Net income | 6,476 | 9,186 | |||||||||
| Net income attributable to noncontrolling interest | 310 | 181 | |||||||||
| Net income attributable to Karat Packaging Inc. | $ | 6,166 | $ | 9,005 | |||||||
| Basic and diluted earnings per share: | |||||||||||
| Basic | $ | 0.31 | $ | 0.45 | |||||||
| Diluted | $ | 0.31 | $ | 0.45 | |||||||
| Weighted average common shares outstanding, basic | 19,969,606 | 19,886,585 | |||||||||
| Weighted average common shares outstanding, diluted | 20,075,485 | 19,939,923 | |||||||||
| March 31, 2024 | December 31, 2023 | ||||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
Cash and cash equivalents (including $4,327 and $13,566 associated with variable interest entity at March 31, 2024 and December 31, 2023, respectively) |
$ | 13,144 | $ | 23,076 | |||||||
Short-term investments (including $7,038 and $0 associated with variable interest entity at March 31, 2024 and December 31, 2023, respectively) |
33,515 | 26,343 | |||||||||
Accounts receivable, net of allowance for bad debt of $342 and $392 at March 31, 2024 and December 31, 2023, respectively |
30,111 | 27,763 | |||||||||
| Inventories | 79,272 | 71,528 | |||||||||
Prepaid expenses and other current assets (including $78 and $82 associated with variable interest entity at March 31, 2024 and December 31, 2023, respectively) |
4,492 | 6,219 | |||||||||
| Total current assets | 160,534 | 154,929 | |||||||||
Property and equipment, net (including $43,882 and $44,185 associated with variable interest entity at March 31, 2024 and December 31, 2023, respectively) |
93,853 | 95,226 | |||||||||
| Deposits | 229 | 1,047 | |||||||||
| Goodwill | 3,510 | 3,510 | |||||||||
| Intangible assets, net | 320 | 327 | |||||||||
| Operating right-of-use assets | 19,360 | 20,739 | |||||||||
Other non-current assets (including $67 and $53 associated with variable interest entity at March 31, 2024 and December 31, 2023, respectively) |
1,232 | 619 | |||||||||
| Total assets | $ | 279,038 | $ | 276,397 | |||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Current liabilities | |||||||||||
Accounts payable (including $68 and $63 associated with variable interest entity at March 31, 2024 and December 31, 2023, respectively) |
$ | 21,394 | $ | 18,446 | |||||||
Accrued expenses (including $171 and $591 associated with variable interest entity at March 31, 2024 and December 31, 2023, respectively) |
11,318 | 10,576 | |||||||||
| Related party payable | 5,300 | 5,306 | |||||||||
Customer deposits (including $0 and $116 associated with variable interest entity at March 31, 2024 and December 31, 2023) |
725 | 951 | |||||||||
Long-term debt, current portion (including $1,139 and $1,122 associated with variable interest entity at March 31, 2024 and December 31, 2023, respectively) |
1,139 | 1,122 | |||||||||
| Operating lease liabilities, current portion | 4,439 | 4,800 | |||||||||
Other current liabilities (including $2,186 and $1,302 associated with variable interest entity at March 31, 2024 and December 31, 2023, respectively) |
3,875 | 3,200 | |||||||||
| Total current liabilities | 48,190 | 44,401 | |||||||||
| March 31, 2024 | December 31, 2023 | ||||||||||
| Deferred tax liability | 4,197 | 4,197 | |||||||||
Long-term debt, net of current portion and debt discount of $187 and $203 at March 31, 2024 and December 31, 2023, respectively (including $48,116 and $48,396 associated with variable interest entity at March 31, 2024 and December 31, 2023, respectively, and debt discount of $187 and $203 associated with variable interest entity at March 31, 2024 and December 31, 2023, respectively) |
48,116 | 48,396 | |||||||||
| Operating lease liabilities, net of current portion | 17,754 | 16,687 | |||||||||
Other non-current liabilities |
389 | 26 | |||||||||
| Total liabilities | 118,646 | 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 March 31, 2024 and December 31, 2023 |
— | — | |||||||||
Common stock, $0.001 par value, 100,000,000 shares authorized, 19,995,032 and 19,972,032 shares issued and outstanding, respectively, as of March 31, 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 | 87,094 | 86,667 | |||||||||
Treasury stock, $0.001 par value, 23,000 shares as of both March 31, 2024 and December 31, 2023 |
(248) | (248) | |||||||||
| Retained earnings | 67,537 | 67,679 | |||||||||
| Total Karat Packaging Inc. stockholders’ equity | 154,403 | 154,118 | |||||||||
| Noncontrolling interest | 5,989 | 8,572 | |||||||||
| Total stockholders’ equity | 160,392 | 162,690 | |||||||||
| Total liabilities and stockholders’ equity | $ | 279,038 | $ | 276,397 | |||||||
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash flows from operating activities | |||||||||||
| Net income | $ | 6,476 | $ | 9,186 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Depreciation and amortization (including $303 and $304 associated with variable interest entity for the three months ended March 31, 2024 and 2023, respectively) |
2,629 | 2,633 | |||||||||
Adjustments to allowance for bad debt |
(12) | (652) | |||||||||
| Adjustments to inventory reserve | 40 | 288 | |||||||||
| Write-off of inventory | 293 | 216 | |||||||||
Impairment of operating right-of-use asset |
1,993 | — | |||||||||
Loss, net, on disposal of machinery and equipment |
1 | 82 | |||||||||
Amortization of loan fees (including $15 and $16 associated with variable interest entity for the three months ended March 31, 2024 and 2023, respectively) |
23 | 17 | |||||||||
Accrued interest on certificates of deposit (including $38 and $0 associated with variable interest entity for the three months ended March 31, 2024 and 2023, respectively) |
(126) | — | |||||||||
| Stock-based compensation | 375 | 277 | |||||||||
| Amortization of operating right-of-use assets | 1,466 | 997 | |||||||||
| (Increase) decrease in operating assets | |||||||||||
Accounts receivable (including $0 and $7 associated with variable interest entity for the three months ended March 31, 2024 and 2023, respectively) |
(2,336) | (2,409) | |||||||||
| Inventories | (8,077) | (207) | |||||||||
Prepaid expenses and other current assets (including $4 and $52 associated with variable interest entity for the three months ended March 31, 2024 and 2023, respectively) |
1,727 | 1,023 | |||||||||
Other non-current assets (including $14 and $88 associated with variable interest entity for the three months ended March 31, 2024 and 2023, respectively) |
(190) | 9 | |||||||||
| Increase (decrease) in operating liabilities | |||||||||||
Accounts payable (including $5 and $1 associated with variable interest entity for the three months ended March 31, 2024 and 2023, respectively) |
3,367 | (1,978) | |||||||||
Accrued expenses (including $420 and $415 associated with variable interest entity for the three months ended March 31, 2024 and 2023, respectively) |
742 | (1,127) | |||||||||
| Related party payable | (6) | 4,967 | |||||||||
| Income taxes payable | — | 1,782 | |||||||||
Customer deposits (including $0 and $17 associated with variable interest entity for the three months ended March 31, 2024 and 2023, respectively) |
(507) | (326) | |||||||||
Operating lease liabilities |
(1,474) | (1,067) | |||||||||
Other non-current liabilities |
155 | 474 | |||||||||
| Net cash provided by operating activities | $ | 6,559 | $ | 14,185 | |||||||
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash flows from investing activities | |||||||||||
| Purchases of property and equipment | (163) | (1,042) | |||||||||
| Proceeds on disposal of property and equipment | 23 | 25 | |||||||||
| Deposits paid for joint venture investment | — | (2,900) | |||||||||
| Deposits refunded from joint venture investment | — | 950 | |||||||||
| Deposits paid for property and equipment | (761) | (1,718) | |||||||||
Purchases of short-term investments (including $7,000 and $0 associated with variable interest entity for the three months ended March 31, 2024 and 2023, respectively) |
(12,190) | (10,000) | |||||||||
Redemption of short-term investments |
5,144 | — | |||||||||
| Net cash used in investing activities | $ | (7,947) | $ | (14,685) | |||||||
| Cash flows from financing activities | |||||||||||
Proceeds from long-term debt (including $0 and $8,000 associated with variable interest entity for the three months ended March 31, 2024 and 2023, respectively) |
— | 8,000 | |||||||||
| Payments for lender fees | — | (61) | |||||||||
Payments on long-term debt (including 278 and $241 associated with variable interest entity for the three months ended March 31, 2024 and 2023, respectively) |
(278) | (241) | |||||||||
| Tax withholding on vesting of restricted stock units | — | (14) | |||||||||
| Proceeds from exercise of common stock options | 52 | — | |||||||||
| Dividends paid to shareholders | (5,992) | — | |||||||||
Payment for Global Wells noncontrolling membership interest redemption (including $2,010 and $0 associated with variable interest entity for the three months ended March 31, 2024 and 2023, respectively) |
(2,326) | — | |||||||||
Net cash (used in) provided by financing activities |
$ | (8,544) | $ | 7,684 | |||||||
Net (decrease) increase in cash and cash equivalents |
$ | (9,932) | $ | 7,184 | |||||||
| Cash and cash equivalents | |||||||||||
| Beginning of year | $ | 23,076 | $ | 16,041 | |||||||
| End of year | $ | 13,144 | $ | 23,225 | |||||||
| Supplemental disclosures of non-cash investing and financing activities: | |||||||||||
| Transfers from deposit to property and equipment | $ | 1,148 | $ | 4,381 | |||||||
| Non-cash purchases of property and equipment | $ | 159 | $ | 1,159 | |||||||
| Supplemental disclosures of cash flow information: | |||||||||||
Income tax refund |
$ | 13 | $ | — | |||||||
| Cash paid for interest | $ | 502 | $ | 421 | |||||||
| (In thousands, except per share amounts) | ||
| Reconciliation of Adjusted EBITDA and Adjusted EBITDA margin: | Three Months Ended March 31, | |||||||||||||
| 2024 | 2023 | |||||||||||||
| Amounts | % of Net Sales | Amounts | % of Net Sales | |||||||||||
| Net income: | $ | 6,476 | 6.8 | % | $ | 9,186 | 9.6 | % | ||||||
| Add (deduct): | ||||||||||||||
| Interest income | (431) | (0.5) | (67) | (0.1) | ||||||||||
| Interest expense | 524 | 0.6 | 407 | 0.4 | ||||||||||
| Provision for income taxes | 1,975 | 2.1 | 2,818 | 2.9 | ||||||||||
| Depreciation and amortization | 2,629 | 2.7 | 2,633 | 2.8 | ||||||||||
| Stock-based compensation expense | 375 | 0.4 | 277 | 0.3 | ||||||||||
| Operating right-of-use asset impairment | 1,993 | 2.1 | — | — | ||||||||||
| Adjusted EBITDA | $ | 13,541 | 14.2 | % | $ | 15,254 | 15.9 | % | ||||||
| Reconciliation of Adjusted Diluted Earnings Per Common Share | Three Months Ended March 31, | ||||||||||
| 2024 | 2023 | ||||||||||
| Diluted earnings per common share: | $ | 0.31 | $ | 0.45 | |||||||
| Add (deduct): | |||||||||||
| Stock-based compensation expense | 0.02 | 0.01 | |||||||||
Operating right-of-use asset impairment |
0.10 | — | |||||||||
| Tax impact | (0.03) | — | |||||||||
| Adjusted diluted earnings per common shares | $ | 0.40 | $ | 0.46 | |||||||
Reconciliation of Adjusted EBITDA by Entity: |
Three Months Ended March 31, 2024 | |||||||||||||
| Karat Packaging | Global Wells | Eliminations | Consolidated | |||||||||||
| Net income: | $ | 5,850 | $ | 360 | $ | 266 | $ | 6,476 | ||||||
| Add | ||||||||||||||
| Interest income | (218) | (213) | — | (431) | ||||||||||
| Interest expense | 7 | 517 | — | 524 | ||||||||||
| Provision for income taxes | 1,975 | — | — | 1,975 | ||||||||||
| Depreciation and amortization | 2,326 | 303 | — | 2,629 | ||||||||||
| Stock-based compensation expense | 375 | — | — | 375 | ||||||||||
| Operating right-of-use asset impairment | 1,993 | — | — | 1,993 | ||||||||||
| Adjusted EBITDA | $ | 12,308 | $ | 967 | $ | 266 | $ | 13,541 | ||||||
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 | ||||||
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (in thousands) | |||||||||||
| National and regional chains | $ | 21,470 | $ | 21,368 | |||||||
| Distributors | 52,827 | 54,647 | |||||||||
| Online | 14,879 | 13,655 | |||||||||
| Retail | 6,437 | 6,131 | |||||||||
| $ | 95,613 | $ | 95,801 | ||||||||