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 quarter ended June 30, 2023.
Second Quarter 2023 Highlights
- Quarterly net sales of $108.7 million, down 5.3 percent from
the prior-year quarter.
- Gross profit of $41.9 million, up 23.3 percent from the
prior-year quarter.
- Gross margin of 38.5 percent versus 29.6 percent in the
prior-year quarter.
- Net income of $10.7 million, up 48.3 percent from the
prior-year quarter.
- Net income margin of 9.8 percent versus 6.3 percent in the
prior-year quarter.
- Adjusted EBITDA of $21.1 million, up $9.3 million, or 78.6
percent from the prior-year quarter.
- Adjusted EBITDA margin of 19.4 percent versus 10.3 percent in
the prior-year quarter.
2023 Guidance
- Net sales for the 2023 third quarter expected to decrease 3 to
4 percentage, compared with prior-year period, primarily due to
implementation delays by new chain accounts and in opening new
warehouses, and lower revenue from logistics services and shipping
fees.
- Net sales for the 2023 fourth quarter expected to increase 10
to 15 percent over the prior year period.
- Net sales for the 2023 full year expected to decrease by low
single digits.
- Gross margin goal for the 2023 full
year: 36 to 37 percent versus 31.2 percent for 2022.
- Eco-friendly product sales objective for the 2023 full year: 35
percent of total sales, compared with 27 in 2022.
“Karat achieved excellent second quarter results, despite net
sales being impacted by price reductions and lower revenue from
logistics services and shipping charges, as we had anticipated,”
said Alan Yu, Chief Executive Officer. “Sales of our core products
grew during the quarter, with volume increasing five percent over
the prior year period, and we again experienced solid demand for
our eco-friendly products.
“Gross margin remained at record level, as we continued to
implement our strategic initiatives, which include reducing our
manufacturing footprint in certain locations, increasing import
items and improving inventory management and fill-rates.
“We continued to generate strong operating cash flow, and as
announced earlier today, our Board of Directors declared a special
cash dividend of $0.40 per share, along with approving a quarterly
cash dividend policy and declaring a quarterly cash dividend of
$0.10 per share. These distributions demonstrate the board’s
confidence in Karat’s future and commitment to returning value to
our shareholders,” Mr. Yu added.
Second Quarter 2023 Financial Results
Net sales for the 2023 second quarter decreased 5.3 percent to
$108.7 million, from $114.9 million in the prior-year quarter,
primarily due to price reductions, 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 second quarter increased 23.3 percent
from $34.0 million in the prior-year quarter to $41.9 million,
which included a $1.7 million write-off of raw materials
associated with our disposal of certain machinery and equipment in
executing the plan to scale back production in certain
locations.
Gross margin increased to 38.5 percent in the 2023 second
quarter, including a 160-basis-point impact from the write-off of
raw materials associated with the disposal of certain machinery as
discussed above, from 29.6 percent for the same quarter last year.
The margin expansion primarily reflected a significant decrease in
ocean freight costs. Ocean freight cost as a percentage of net
sales was 6.2 percent during the 2023 second quarter, down from
18.0 percent for the same quarter last year. Despite the
unfavorable impact from the inventory write-offs, along with price
reductions, gross margin benefited from initiatives to increase
imported products; scale back manufacturing in high-cost states
such as California; shift toward high-margin eco-friendly products,
and enhance operating efficiencies.
Operating expenses in the 2023 second quarter were $28.5
million, or 26.2 percent of net sales, compared with $26.2 million,
or 22.8 percent of net sales, in the prior-year quarter. The
increase was primarily due to an impairment expense and loss on
disposal of machinery of $2.5 million, as well as workforce
expansion, higher marketing expense to support online sales growth,
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 and bad debt
expense.
Operating income in the 2023 second quarter increased 71 percent
to $13.3 million, or 12.3 percent of net sales, compared with $7.8
million, or 6.8 percent of net sales, in the prior-year
quarter.
Other income totaled $0.7 million in the 2023 second quarter,
compared with $1.1 million in the prior-year quarter, which
primarily included a gain on foreign currency transactions of $0.9
million.
The effective tax rate for the 2023 second quarter was 23.7
percent, compared with 19.5 percent for the prior-year quarter,
with the increase primarily due to the change in the non-taxable
non-controlling interest income.
Net income for the 2023 second quarter increased 48.3 percent to
$10.7 million, from $7.2 million for the same quarter last year.
Net income margin rose to 9.8 percent in the 2023 second quarter,
from 6.3 percent a year ago.
Net income attributable to Karat in the 2023 second quarter
advanced to $10.5 million, or $0.53 per diluted share, from $6.3
million, or $0.32 per diluted share, in the prior-year quarter.
Adjusted EBITDA, a non-GAAP measure defined below, increased to
$21.1 million in the 2023 second quarter, compared with $11.8
million in the prior-year quarter. Adjusted EBITDA margin, a
non-GAAP measure defined below, rose to 19.4 percent of net sales,
compared with 10.3 percent in the prior-year quarter.
Adjusted diluted earnings per common share, a non-GAAP measure
defined below, rose to $0.69 per share, from $0.34 per share in the
prior-year quarter.
Six-Month 2023 Financial Results
Net sales for the first six months of 2023 decreased 7.2 percent
to $204.5 million, from $220.3 million in the same period last
year.
Gross profit for the first six months of 2023 increased 17.2
percent to $80.0 million, from $68.3 million in the same period
last year. Gross margin for the first six months of 2023 increased
to 39.1 percent, including a 80-basis-point impact from the
write-off of raw materials associated with the disposal of certain
machinery as discussed above, from 31.0 percent in the same period
last year. The margin expansion was primarily due to a significant
decrease in ocean freight costs. Ocean freight cost as a percentage
of net sales was 6.1 percent during the first six months of 2023,
down from 16.3 percent for the same period in 2022.
Operating expenses were $53.9 million for the first half of
2023, compared with $51.0 million in the same period last year.
Operating income increased 50.8 percent to $26.1 million for the
first half of 2023, or 12.7 percent of net sales, compared with
$17.3 million, or 7.8 percent of net sales, in the same period last
year.
Total other expense, net was $0.1 million in the first half of
2023, compared with total other income, net of $2.3 million in the
same period last year, which consisted primarily of gains
associated with interest rate swap and foreign currency
transactions.
Net income increased 31.2 percent to $19.9 million for the first
half of 2023, from $15.1 million in the same period last year. Net
income margin increased to 9.7 percent in the first half of 2023,
compared with 6.9 percent in the same period last year. Net income
attributable to Karat was $19.5 million, or $0.98 per diluted
share, for the first half of 2023, compared with $13.0 million, or
$0.65 per diluted share, in the same period last year.
Adjusted EBITDA, a non-GAAP measure defined below, increased to
$36.4 million in the first six months of 2023, compared with $24.8
million in the same period last year. Adjusted EBITDA margin, a
non-GAAP measure defined below, increased to 17.8 percent in the
2023 year-to-date period, compared with 11.3 percent in the same
period last year.
Adjusted diluted earnings per common share, a non-GAAP measure
defined below, rose to $1.15 per share, from $0.70 per share in the
prior year-to-date period.
Investor Conference Call
The Company will host an investor conference call today, August
9, 2023, at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time) to
discuss its 2023 second 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 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 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/Roger
Pondel310-279-5980ir@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, |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Net sales |
$ |
108,740 |
|
|
$ |
114,881 |
|
|
$ |
204,541 |
|
|
$ |
220,294 |
|
Cost of goods sold |
|
66,879 |
|
|
|
80,917 |
|
|
|
124,536 |
|
|
|
152,041 |
|
Gross profit |
|
41,861 |
|
|
|
33,964 |
|
|
|
80,005 |
|
|
|
68,253 |
|
Operating expenses |
|
|
|
|
|
|
|
Selling expense |
|
8,871 |
|
|
|
9,468 |
|
|
|
17,572 |
|
|
|
18,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expense (including $647 and $671
associated with variable interest entity for the three months ended
June 30, 2023 and 2022, respectively; $1,318 and $1,234 associated
with variable interest entity for the six months ended June 30,
2023 and 2022, respectively) |
|
17,192 |
|
|
|
16,715 |
|
|
|
33,821 |
|
|
|
32,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment expense and loss (gain) on disposal of machinery |
|
2,459 |
|
|
|
(21 |
) |
|
|
2,541 |
|
|
|
(17 |
) |
Total operating expenses |
|
28,522 |
|
|
|
26,162 |
|
|
|
53,934 |
|
|
|
50,960 |
|
Operating income |
|
13,339 |
|
|
|
7,802 |
|
|
|
26,071 |
|
|
|
17,293 |
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income (including $239 and $238 associated with variable
interest entity for the three months ended June 30, 2023 and 2022,
respectively; and $486 and $476 associated with variable interest
entity for the six months ended June 30, 2023 and 2022,
respectively) |
|
275 |
|
|
|
238 |
|
|
|
522 |
|
|
|
476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net |
|
118 |
|
|
|
(181 |
) |
|
|
(90 |
) |
|
|
(263 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on foreign currency transactions |
|
322 |
|
|
|
850 |
|
|
|
(105 |
) |
|
|
983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (including $182 and $847 interest income associated
with variable interest entity for the three months ended June 30,
2023 and 2022, respectively; and $198 and $2,187 interest expense
associated with variable interest entity for the six months ended
June 30, 2023 and 2022, respectively) |
|
519 |
|
|
|
847 |
|
|
|
586 |
|
|
|
2,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (including $565 and $488 interest expense
associated with variable interest entity for the three months ended
June 30, 2023 and 2022, respectively; and $971 and $936 interest
expense associated with variable interest entity for the six months
ended June 30, 2023 and 2022, respectively) |
|
(573 |
) |
|
|
(610 |
) |
|
|
(980 |
) |
|
|
(1,083 |
) |
Total other income (expense), net |
|
661 |
|
|
|
1,144 |
|
|
|
(67 |
) |
|
|
2,273 |
|
Income before provision for income taxes |
|
14,000 |
|
|
|
8,946 |
|
|
|
26,004 |
|
|
|
19,566 |
|
Provision for income taxes |
|
3,323 |
|
|
|
1,746 |
|
|
|
6,141 |
|
|
|
4,423 |
|
Net income |
|
10,677 |
|
|
|
7,200 |
|
|
|
19,863 |
|
|
|
15,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to noncontrolling
interest |
|
175 |
|
|
|
856 |
|
|
|
356 |
|
|
|
2,132 |
|
Net income attributable to Karat Packaging
Inc. |
$ |
10,502 |
|
|
$ |
6,344 |
|
|
$ |
19,507 |
|
|
$ |
13,011 |
|
Basic and diluted earnings per share: |
|
|
|
|
|
|
|
Basic |
$ |
0.53 |
|
|
$ |
0.32 |
|
|
$ |
0.98 |
|
|
$ |
0.66 |
|
Diluted |
$ |
0.53 |
|
|
$ |
0.32 |
|
|
$ |
0.98 |
|
|
$ |
0.65 |
|
Weighted average common shares outstanding, basic |
|
19,886,585 |
|
|
|
19,809,417 |
|
|
|
19,887,023 |
|
|
|
19,808,505 |
|
Weighted average common shares outstanding, diluted |
|
19,953,510 |
|
|
|
19,926,956 |
|
|
|
19,947,155 |
|
|
|
19,914,044 |
|
KARAT PACKAGING INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED) |
(in thousands, except share and per share
data) |
|
|
|
|
|
June 30, 2023 |
|
December 31, 2022 |
Assets |
|
|
|
Current
assets |
|
|
|
Cash and cash equivalents (including $7,256 and $2,022 associated
with variable interest entity at June 30, 2023 and
December 31, 2022, respectively) |
$ |
18,257 |
|
|
$ |
16,041 |
|
Short-term investments (including $8,000 and $0 associated with
variable interest entity at June 30, 2023, and
December 31, 2022, respectively) |
|
28,000 |
|
|
|
— |
|
Accounts receivable, net of allowance for doubtful accounts of $260
and $1,260 at June 30, 2023 and December 31, 2022,
respectively (including $3 and $6 associated with variable interest
entity at June 30, 2023 and December 31, 2022,
respectively) |
|
32,816 |
|
|
|
29,912 |
|
Inventories |
|
76,295 |
|
|
|
71,206 |
|
Prepaid expenses and other current assets (including $178 and $191
associated with variable interest entity at June 30, 2023 and
December 31, 2022, respectively) |
|
5,631 |
|
|
|
6,641 |
|
Total current assets |
|
160,999 |
|
|
|
123,800 |
|
Property and equipment, net
(including $44,792 and $45,399 associated with variable interest
entity at June 30, 2023 and December 31, 2022,
respectively) |
|
95,705 |
|
|
|
95,568 |
|
Deposits |
|
5,997 |
|
|
|
12,413 |
|
Goodwill |
|
3,510 |
|
|
|
3,510 |
|
Intangible assets, net |
|
340 |
|
|
|
353 |
|
Operating right-of-use
assets |
|
18,404 |
|
|
|
15,713 |
|
Other assets (including $15
and $38 associated with variable interest entity at June 30,
2023 and December 31, 2022, respectively) |
|
1,970 |
|
|
|
818 |
|
Total assets |
$ |
286,925 |
|
|
$ |
252,175 |
|
Liabilities and
Stockholders’ Equity |
|
|
|
Current
liabilities |
|
|
|
Accounts payable (including $2 associated with variable interest
entity at both June 30, 2023 and December 31, 2022) |
$ |
23,384 |
|
|
$ |
18,559 |
|
Accrued expenses (including $289 and $625 associated with variable
interest entity at June 30, 2023 and December 31, 2022,
respectively) |
|
7,946 |
|
|
|
9,005 |
|
Related party payable |
|
7,127 |
|
|
|
4,940 |
|
Income taxes payable |
|
5,105 |
|
|
|
— |
|
Customer deposits (including $116 and $165 associated with variable
interest entity at June 30, 2023 and December 31, 2022,
respectively) |
|
979 |
|
|
|
1,281 |
|
Long-term debt, current portion (including $971 and $957 associated
with variable interest entity at June 30, 2023 and
December 31, 2022, respectively) |
|
971 |
|
|
|
957 |
|
Operating lease liabilities, current portion |
|
5,078 |
|
|
|
4,511 |
|
Other payables |
|
132 |
|
|
|
— |
|
Total current liabilities |
|
50,722 |
|
|
|
39,253 |
|
Deferred tax liability |
|
5,156 |
|
|
|
5,156 |
|
Long-term debt, net of current
portion and debt discount of $190 and $216 at June 30, 2023
and December 31, 2022, respectively (including $49,094 and
$41,558 associated with variable interest entity at June 30,
2023 and December 31, 2022, respectively, and debt discount of
$190 and $216 associated with variable interest entity at
June 30, 2023 and December 31, 2022, respectively) |
|
49,094 |
|
|
|
41,558 |
|
Operating lease liabilities,
net of current portion |
|
13,823 |
|
|
|
11,623 |
|
Other liabilities (including
$1,302 associated with variable interest entity at both
June 30, 2023 and December 31, 2022) |
|
2,824 |
|
|
|
2,652 |
|
Total liabilities |
|
121,619 |
|
|
|
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 June 30, 2023 and
December 31, 2022 |
|
— |
|
|
|
— |
|
Common stock, $0.001 par value, 100,000,000 shares authorized,
19,911,039 and 19,888,039 shares issued and outstanding,
respectively, as of June 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 |
|
86,267 |
|
|
|
85,792 |
|
Treasury stock, $0.001 par value, 23,000 shares at both
June 30, 2023 and December 31, 2022 |
|
(248 |
) |
|
|
(248 |
) |
Retained earnings |
|
68,660 |
|
|
|
56,118 |
|
Total Karat Packaging Inc. stockholders’ equity |
|
154,699 |
|
|
|
141,682 |
|
Noncontrolling interest |
|
10,607 |
|
|
|
10,251 |
|
Total stockholders’ equity |
|
165,306 |
|
|
|
151,933 |
|
Total liabilities and stockholders’ equity |
$ |
286,925 |
|
|
$ |
252,175 |
|
KARAT PACKAGING, INC. AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) |
(in thousands) |
|
|
|
Six Months Ended June 30, |
|
2023 |
|
2022 |
Cash flows from
operating activities |
|
|
|
Net income |
$ |
19,863 |
|
|
$ |
15,143 |
|
Adjustments to reconcile net
income to net cash provided by (used in) operating activities: |
|
|
|
Depreciation and amortization (including $607 and $606 associated
with variable interest entity for the six months ended June 30,
2023 and 2022, respectively) |
|
5,350 |
|
|
|
5,148 |
|
Adjustments to allowance for doubtful accounts |
|
(843 |
) |
|
|
1,151 |
|
Adjustments to inventory reserve |
|
(408 |
) |
|
|
513 |
|
Write-off of inventory |
|
2,944 |
|
|
|
— |
|
Impairment of deposits |
|
523 |
|
|
|
— |
|
Loss (gain) on disposal of machinery and equipment |
|
2,018 |
|
|
|
(17 |
) |
Change in fair value of interest rate swap (including $0 and $2,159
associated with variable interest entity for the six months ended
June 30, 2023 and 2022, respectively) |
|
— |
|
|
|
(2,159 |
) |
Amortization of loan fees (including $31 and $18 associated with
variable interest entity for the six months ended June 30, 2023 and
2022, respectively) |
|
40 |
|
|
|
18 |
|
Stock-based compensation |
|
493 |
|
|
|
1,176 |
|
Amortization of operating right-of-use assets |
|
2,281 |
|
|
|
1,790 |
|
(Increase) decrease in operating assets |
|
|
|
Accounts receivable (including $3 and $18 associated with variable
interest entity for the six months ended June 30, 2023 and 2022,
respectively) |
|
(2,061 |
) |
|
|
(6,848 |
) |
Inventories |
|
(7,625 |
) |
|
|
(27,516 |
) |
Prepaid expenses and other current assets (including $9 and $115
associated with variable interest entity for the six months ended
June 30, 2023 and 2022, respectively) |
|
478 |
|
|
|
(1,697 |
) |
Other assets (including $21 and $28 associated with variable
interest entity for the six months ended June 30, 2023 and 2022,
respectively) |
|
(36 |
) |
|
|
(76 |
) |
Increase (decrease) in operating liabilities |
|
|
|
Accounts payable (including $1 and $493 associated with variable
interest entity for the six months ended June 30, 2023 and 2022,
respectively) |
|
4,006 |
|
|
|
4,855 |
|
Accrued expenses (including $336 and $706 associated with variable
interest entity for the six months ended June 30, 2023 and 2022,
respectively) |
|
(1,059 |
) |
|
|
552 |
|
Related party payable |
|
2,187 |
|
|
|
1,201 |
|
Income taxes payable |
|
5,105 |
|
|
|
(85 |
) |
Customer deposits (including $49 and $7 associated with variable
interest entity for the six months ended June 30, 2023 and 2022,
respectively) |
|
(302 |
) |
|
|
404 |
|
Operating lease liability |
|
(2,205 |
) |
|
|
(1,790 |
) |
Other liabilities (including $0 and $493 associated with variable
interest entity for the six months ended June 30, 2023 and 2022,
respectively) |
|
172 |
|
|
|
9 |
|
Other payables |
|
132 |
|
|
|
482 |
|
Net cash provided by (used in) operating activities |
$ |
31,053 |
|
|
$ |
(7,746 |
) |
|
|
|
|
Cash flows from
investing activities |
|
|
|
Purchases of property and equipment |
|
(1,816 |
) |
|
|
(1,615 |
) |
Proceeds from disposal of property and equipment |
|
28 |
|
|
|
35 |
|
Payments for costs incurred from sale of machinery and
equipment |
|
(209 |
) |
|
|
— |
|
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 |
|
(3,823 |
) |
|
|
(7,596 |
) |
Proceeds from settlement of interest rate swap (including $0 and
$825 associated with variable interest entity for the six months
ended June 30, 2023 and 2022, respectively) |
|
— |
|
|
|
825 |
|
Purchase of short-term investments (including $8,000 and $0
associated with variable interest entity for the six months ended
June 30, 2023 and 2022, respectively) |
|
(28,000 |
) |
|
|
— |
|
Net cash used in investing activities |
$ |
(29,317 |
) |
|
$ |
(12,351 |
) |
|
|
|
|
Cash flows from
financing activities |
|
|
|
Proceeds from line of credit |
|
— |
|
|
|
20,100 |
|
Payments on line of credit |
|
— |
|
|
|
(8,500 |
) |
Proceeds from long-term debt (including $8,000 and $27,477
associated with variable interest entity for the six months ended
June 30, 2023 and 2022, respectively) |
|
8,000 |
|
|
|
27,477 |
|
Payments for lender fees |
|
(61 |
) |
|
|
— |
|
Payments on long-term debt (including $476 and $21,139 associated
with variable interest entity for the six months ended June 30,
2023 and 2022, respectively) |
|
(476 |
) |
|
|
(21,139 |
) |
Tax withholding on vesting of restricted stock units |
|
(18 |
) |
|
|
— |
|
Proceeds from exercise of common stock options |
|
— |
|
|
|
51 |
|
Dividends paid to shareholders |
|
(6,965 |
) |
|
|
— |
|
Payments of noncontrolling interest tax withholding (including $0
and $874 associated with variable interest entity for the six
months ended June 30, 2023 and 2022, respectively) |
|
— |
|
|
|
(874 |
) |
Net cash provided by financing activities |
$ |
480 |
|
|
$ |
17,115 |
|
Net increase (decrease) in cash and cash equivalents |
|
2,216 |
|
|
|
(2,982 |
) |
Cash and cash
equivalents |
|
|
|
Beginning of period |
$ |
16,041 |
|
|
$ |
6,483 |
|
End of period |
$ |
18,257 |
|
|
$ |
3,501 |
|
Supplemental
disclosures of non-cash investing and financing
activities: |
|
|
|
Transfers from deposit to
property and equipment |
$ |
5,273 |
|
|
$ |
5,107 |
|
Non-cash purchases of property
and equipment |
$ |
819 |
|
|
$ |
— |
|
Supplemental
disclosures of cash flow information: |
|
|
|
Cash paid for income tax |
$ |
200 |
|
|
$ |
5,830 |
|
Cash paid for interest |
$ |
1,026 |
|
|
$ |
1,074 |
|
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, |
|
2023 |
2022 |
|
2023 |
2022 |
|
Amounts |
% of net sale |
Amounts |
% of net sale |
|
Amounts |
% of net sale |
Amounts |
% of net sale |
Net income: |
$ |
10,677 |
|
9.8 |
% |
$ |
7,200 |
|
6.3 |
% |
|
$ |
19,863 |
|
9.7 |
% |
$ |
15,143 |
|
6.9 |
% |
Add (deduct): |
|
|
|
|
|
|
|
|
|
Interest income |
|
(519 |
) |
(0.5 |
) |
|
(847 |
) |
(0.7 |
) |
|
|
(586 |
) |
(0.3 |
) |
|
(2,160 |
) |
(1.0 |
) |
Interest expense |
|
573 |
|
0.5 |
|
|
610 |
|
0.5 |
|
|
|
980 |
|
0.5 |
|
|
1,083 |
|
0.5 |
|
Provision for income taxes |
|
3,323 |
|
3.1 |
|
|
1,746 |
|
1.5 |
|
|
|
6,141 |
|
3.0 |
|
|
4,423 |
|
2.0 |
|
Depreciation and amortization |
|
2,717 |
|
2.5 |
|
|
2,564 |
|
2.2 |
|
|
|
5,350 |
|
2.7 |
|
|
5,148 |
|
2.4 |
|
Stock-based compensation expense |
|
216 |
|
0.2 |
|
|
565 |
|
0.5 |
|
|
|
493 |
|
0.2 |
|
|
1,176 |
|
0.5 |
|
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 |
|
1.2 |
|
|
— |
|
— |
|
Adjusted
EBITDA |
$ |
21,142 |
|
19.4 |
% |
$ |
11,838 |
|
10.3 |
% |
|
$ |
36,396 |
|
17.8 |
% |
$ |
24,813 |
|
11.3 |
% |
Reconciliation of
Adjusted Diluted Earnings Per Common Share |
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Diluted earnings per common share: |
$ |
0.53 |
|
|
$ |
0.32 |
|
|
$ |
0.98 |
|
|
$ |
0.65 |
|
Add (deduct): |
|
|
|
|
|
|
|
Stock-based compensation expense |
|
0.01 |
|
|
|
0.03 |
|
|
|
0.02 |
|
|
|
0.06 |
|
Write-off of inventory (1) |
|
0.09 |
|
|
|
— |
|
|
|
0.09 |
|
|
|
— |
|
Impairment expense and loss on disposal of machinery (1) |
|
0.12 |
|
|
|
— |
|
|
|
0.12 |
|
|
|
— |
|
Income tax impact of adjustments |
|
(0.06 |
) |
|
|
(0.01 |
) |
|
|
(0.06 |
) |
|
|
(0.01 |
) |
Adjusted diluted
earnings per common shares |
$ |
0.69 |
|
|
$ |
0.34 |
|
|
$ |
1.15 |
|
|
$ |
0.70 |
|
Reconciliation of
Adjusted EBITDA by Entity: |
Three Months Ended June 30, 2023 |
|
Six Months Ended June 30, 2023 |
|
Karat Packaging |
Global Wells |
Eliminations |
Consolidated |
|
Karat Packaging |
Global Wells |
Eliminations |
Consolidated |
Net income (loss): |
$ |
10,493 |
|
$ |
203 |
|
$ |
(19 |
) |
$ |
10,677 |
|
|
$ |
19,533 |
|
$ |
412 |
|
$ |
(82 |
) |
$ |
19,863 |
|
Add: |
|
|
|
|
|
|
|
|
|
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.
Reconciliation of
Adjusted EBITDA by Entity: |
Three Months Ended June 30, 2022 |
|
Six Months Ended June 30, 2022 |
|
Karat Packaging |
Global Wells |
Eliminations |
Consolidated |
|
Karat Packaging |
Global Wells |
Eliminations |
Consolidated |
Net income (loss): |
$ |
6,255 |
$ |
990 |
|
$ |
(45 |
) |
$ |
7,200 |
|
|
$ |
13,036 |
$ |
2,465 |
|
$ |
(358 |
) |
$ |
15,143 |
|
Add (deduct) |
|
|
|
|
|
|
|
|
|
Interest income |
|
— |
|
(874 |
) |
|
27 |
|
|
(847 |
) |
|
|
— |
|
(2,187 |
) |
|
27 |
|
|
(2,160 |
) |
Interest expense |
|
149 |
|
488 |
|
|
(27 |
) |
|
610 |
|
|
|
174 |
|
936 |
|
|
(27 |
) |
|
1,083 |
|
Provision for income taxes |
|
1,746 |
|
— |
|
|
— |
|
|
1,746 |
|
|
|
4,423 |
|
— |
|
|
— |
|
|
4,423 |
|
Depreciation and amortization |
|
2,261 |
|
303 |
|
|
— |
|
|
2,564 |
|
|
|
4,541 |
|
607 |
|
|
— |
|
|
5,148 |
|
Stock-based compensation expense |
|
565 |
|
— |
|
|
— |
|
|
565 |
|
|
|
1,176 |
|
— |
|
|
— |
|
|
1,176 |
|
Adjusted
EBITDA |
$ |
10,976 |
$ |
907 |
|
$ |
(45 |
) |
$ |
11,838 |
|
|
$ |
23,350 |
$ |
1,821 |
|
$ |
(358 |
) |
$ |
24,813 |
|
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, write-off of certain inventory items outside
the normal course of business, and impairment expense and loss 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, 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, |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
(in thousands) |
National and regional chains |
$ |
23,827 |
|
$ |
25,081 |
|
$ |
45,195 |
|
$ |
49,987 |
Distributors |
|
62,590 |
|
|
66,399 |
|
|
117,237 |
|
|
125,523 |
Online |
|
15,493 |
|
|
15,491 |
|
|
29,148 |
|
|
29,040 |
Retail |
|
6,830 |
|
|
7,910 |
|
|
12,961 |
|
|
15,744 |
|
$ |
108,740 |
|
$ |
114,881 |
|
$ |
204,541 |
|
$ |
220,294 |
Karat Packaging (NASDAQ:KRT)
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Karat Packaging (NASDAQ:KRT)
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