• Karat Packaging Reports 2021 Third Quarter Financial Results

    ソース: Nasdaq GlobeNewswire / 11 11 2021 16:10:00   America/New_York

    CHINO, Calif., Nov. 11, 2021 (GLOBE NEWSWIRE) -- Karat Packaging Inc. (Nasdaq: KRT), a specialty distributor and manufacturer of environmentally friendly, disposable foodservice products and related items, today announced financial results for its 2021 third quarter ended September 30, 2021.

    Third Quarter 2021 Highlights

    • Net sales of $102.7 million, up 34.6 percent from same period last year.
    • Net sales, excluding personal protective equipment (PPE) sales, rose 43.2 percent over prior year period.
    • Gross profit of $29.8 million, compared with $23.0 million a year ago and $28.1 million in the 2021 second quarter.

    Fourth Quarter and Full Year 2021 Outlook

    • Net sales in the 2021 fourth quarter expected to be $93 million to $96 million, compared with $70.4 million a year ago.
    • Net sales in the 2021 full year expected to be $366 million to $369 million, compared with $295.5 million in 2020.

    Alan Yu, chief executive officer, said, “Results for the 2021 third quarter reflect robust demand and our ability to provide new products to a diverse and expanding customer base. Sales increased at a strong rate, led by our distributor, online and national channels. Excluding PPE products that we sold in last year’s third quarter during the height of the COVID-19 pandemic, top-line growth was 43 percent. Sales also were somewhat constrained by inventory shortages resulting from tight labor conditions and port delays in the third quarter.

    “The sales increase was partially offset by freight and shipping costs that continued to rise internationally during the third quarter. Freight costs have begun to ease in the fourth quarter but remain at elevated levels compared with last year. We continue to successfully and proactively increase prices to pass on these higher costs and protect our margins.

    “As a result of ongoing favorable market trends, we’re currently targeting net sales to be in the range of $93 million to $96 million for the 2021 fourth quarter, which we expect will lead to full year sales in the range of $366 million to $369 million. In addition, the expected growth in our high-margin online channel and our efforts to pass on higher freight and shipping costs give us confidence in our ability to continue to protect our gross margin.” Mr. Yu added.

    Third Quarter 2021 Financial Results

    Net sales for the 2021 third quarter increased 34.6 percent to $102.7 million, from $76.3 million in the same period last year. The increase primarily was driven by greater product penetration with existing customers, as well as new customers added in the quarter.

    Net sales excluding PPE products, which carry higher margins, increased 43.2 percent to $101.9 million, from $71.2 million in the same period last year. Sales rose in each of Karat’s primary channels, distribution, online and national.

    Gross profit for the 2021 third quarter increased to $29.8 million, from $23.0 million for the same period last year, primarily due to the increase in product sales, partially offset by higher freight costs.

    Gross margin was 29.0 percent in the 2021 third quarter, compared with 30.2 percent in the same period last year. Gross margin in the 2021 second quarter was 29.7 percent.

    Operating expenses in the 2021 third quarter totaled $24.4 million, a 52.8 percent increase from $16.0 million in last year’s third quarter, when Karat was still a privately owned company. The increase was primarily due to higher shipping costs, payroll expenses associated with workforce expansion, an increase in facility costs, and stock-based compensation of $0.8 million. Operating expenses in the 2021 second quarter were $21.2 million.

    Operating income for the 2021 third quarter was $5.4 million, or 5.2 percent of net sales, compared with $7.0 million, or 9.2 percent of net sales, for the same period last year. Operating income for the second quarter of 2021 was $6.9 million, or 7.3 percent of net sales.

    Net income amounted to $4.1 million for the 2021 third quarter, compared with $4.6 million for the same period last year. Net income margin was 4.0 percent for the third quarter, compared with 6.0 percent a year ago. Net income was $9.3 million, and net income margin was 9.9 percent for the 2021 second quarter. Net income for the 2021 second quarter included a gain of $5.0 million on the forgiveness of the company’s Paycheck Protection Program (PPP) loan.

    Net income attributable to Karat Packaging for the 2021 third quarter was $3.8 million, or $0.19 per diluted share, compared with $4.1 million, or $0.26 per diluted share a year ago, and $9.6 million, or $0.50 per diluted share for the 2021 second quarter. Net income attributable to Karat Packaging for the 2021 second quarter also included the $5.0 million gain on forgiveness of the PPP loan.

    Adjusted EBITDA totaled $8.2 million for the 2021 third quarter, compared with $9.1 million for the same period last year, and $10.1 million for the 2021 second quarter. Adjusted EBITDA margin was 8.0 percent of net sales, compared with 11.9 percent for the 2020 third quarter, and 10.7 percent in the 2021 second quarter. Adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures. Reconciliations of GAAP to non-GAAP results are provided in the tables following this press release.

    Net cash used in operating activities totaled $3.6 million for the 2021 third quarter, compared with net cash provided by operating activities of $3.6 million for the same period last year. The decrease primarily reflects working capital activity, in particular decreases in accounts receivable and in the line of credit balance.

    Nine-Month 2021 Financial Results

    Net sales for the first nine months of 2021 increased 21.2 percent to $272.9 million, from $225.1 million for the same period last year.

    Gross profit rose 13.9 percent to $79.5 million for the first nine months of 2021, from $69.8 million for the same period last year. Gross margin was 29.1 percent for the first nine months of 2021, compared with 31.0 percent for the same period last year.

    Operating expenses were $63.5 million for the 2021 year-to-date period, an increase of 43.7 percent, compared with $44.2 million for the same period last year.

    Operating income was $16.1 million for the first nine months of 2021, or 5.9 percent of net sales, compared with $25.6 million, or 11.4 percent of net sales, for the same period last year.

    Other income totaled $4.5 million for the first nine months of 2021, compared with other expense of $5.1 million for the same period last year. Other income for the 2021 year-to-date period primarily reflects a $5 million gain on PPP loan forgiveness recorded for the second quarter. Other expense for the first nine months of 2021 primarily reflected a loss of $2 million on interest rate swap positions.

    Net income increased to $16.5 million for the first nine months of 2021, from $15.1 million for the same period last year. Net income margin was 6.0 percent for the first nine months of 2021, compared with 6.7 percent for the same period last year. Net income attributable to Karat Packaging was $15.1 million, or $0.84 per diluted share, for the first nine months of 2021, compared with $16.6 million, or $1.07 per diluted share, for the same period last year.

    Adjusted EBITDA totaled $25.1 million for the first nine months of 2021, compared with $31.5 million for the same period last year. Adjusted EBITDA margin was 9.2 percent for the 2021 year-to-date period, compared with 14.0 percent for the same period last year.

    Net cash used in operating activities totaled $1.2 million for the first nine months of 2021, compared with net cash provided by operating activities of $12.3 million in the same period last year. The net change primarily reflects working capital activity.

    Investor Conference Call

    The Company will host an investor conference call today, November 11, 2021, at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time) to discuss its 2021 third quarter results.

    Phone:             877-270-2148 (domestic); 412-902-6510 (international)
    Replay:            Accessible through November 18, 2021; 877-344-7529 (domestic); 412-317-0088 (international); replay access code 10161613
    Webcast:        Accessible at http://investor.karatpackaging.com/; archive available for approximately one year

     

    Phone: 877-270-2148 (domestic); 412-902-6510 (international)
    Replay: Accessible through November 18, 2021; 877-344-7529 (domestic); 412-317-0088 (international); replay access code 10161613
    Webcast: Accessible at http://investor.karatpackaging.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 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.

    Caution Concerning Forward-Looking Statements

    This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements, including, but not limited to the net sales forecast for the 2021 fourth quarter and 2021 full year, are subject to numerous conditions, many of which are beyond the control of the company, including those set forth in the Risk Factors section of the company’s registration statement for the initial public offering filed with the SEC on April 14, 2021. Copies are available on the SEC’s website at www.sec.gov. Karat Packaging undertakes no obligation to update these statements for revisions or changes after the date of this release, except as required by law.

    Investor Relations and Media Contacts:
            
    PondelWilkinson Inc.        
    Judy Lin Sfetcu/Roger Pondel
    310-279-5980        
    karat@pondel.com

    (tables follow)

    KARAT PACKAGING INC. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
    (In thousands, except share and per share data)

     Three Months Ended
    September 30,    		 Nine Months Ended
    September 30,
      2021   2020   2021   2020 
    Net sales$        102,711  $        76,317  $        272,910  $        225,137 
    Cost of goods sold         72,918           53,286           193,393           155,308 
    Gross profit         29,793           23,031           79,517           69,829 
            
    Operating expenses:       
    Selling expense         9,855           6,112           24,026           16,241 
    General and administrative expense (including $0.7 million and $0.8 million associated with variable interest entity for the three-months ended September 30, 2021 and 2020, respectively; and $2.0 million and $1.4 million for the nine-months ended September 30, 2021 and 2020, respectively, associated with variable interest entity) 14,573    9,877    39,485   27,948 
    Total operating expenses         24,428           15,989           63,511           44,189 
    Operating income         5,365           7,042           16,006           25,640 
            
    Other income (expense)       
    Rental income (including $0.2 million and $0 associated with variable interest entity for the three-months ended September 30, 2021 and 2020, respectively; and $0.7 million and $0 for the nine-months ended September 30, 2021 and 2020, respectively, associated with variable interest entity)  246     66    738    66 
    Other income         101           24           223           86 
    Loss on foreign currency transactions (63)  (268)  (347)  (377)
    Interest expense (including $0.3 million and $0.3 million interest expense associated with variable interest entity for the three-months ended September 30, 2021 and 2020, respectively; and $0.3 million and $2.9 million for the nine-months ended September 30, 2021 and 2020, respectively, associated with variable interest entity) (308

    )    		  (847)  (1,158)  (4,858)
    Gain on forgiveness of debt         -   -           5,000           - 
    Total other income (expense) (24)  (1,025)          4,456   (5,083)
    Income before provision for income tax         5,341   6,017           20,462           20,557 
            
    Provision for income tax         1,268   1,451           4,001           5,483 
    Net income         4,073   4,566           16,461           15,074 
            
    Net income (loss) attributable to noncontrolling interest         287   494           1,312   (1,521)
            
    Net income attributable to Karat Packaging Inc.$        3,786  $        4,072  $        15,149  $        16,595 
            
    Basic and diluted earnings per share:       
    Basic$        0.19  $        0.27  $        0.84  $        1.09 
    Diluted$        0.19  $        0.26  $        0.84  $        1.07 
            
    Weighted average common shares outstanding, basic         19,710,043           15,180,879           17,945,205           15,185,440 
    Weighted average common shares outstanding, diluted         19,881,295           15,451,879           18,110,127           15,456,440 

    KARAT PACKAGING INC. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
    (In thousands, except share and per share data)

      September 30, December 31,
      2021  2020 
    Assets    
    Current assets      
    Cash and cash equivalents (including $0.7 million and $0.1 million associated with variable interest entity at September 30, 2021 and December 31, 2020) $1,679  $448 
    Accounts receivable, net of allowance for doubtful accounts of $0.3 million and $0.3 million at September 30, 2021 and December 31, 2020, respectively (including $0.00 and $0.00 million associated with variable interest entity at September 30, 2021 and December 31,2020)  33,276   23,838 
    Inventories  60,207   48,961 
    Prepaid expenses and other current assets (including $0.1 million and $0.1 million associated with variable interest entity at September 30, 2021 and December 31, 2020)  5,690   6,530 
     Total current assets  100,852   79,777 
    Property and equipment, net (including $46.9 million and $47.8 million associated with variable interest entity at September 30, 2021 and December 31, 2020, respectively)  94,041   95,533 
    Deposits  4,237   2,456 
    Goodwill  3,510   3,113 
    Intangible assets, net  387   - 
    Deferred tax asset  64   64 
    Other assets (including $0 million and $0.1 million associated with variable interest entity at September 30, 2021 and December 31, 2020)  399   161 
    Total assets $203,490  $181,104 
           
    Liabilities and Stockholders’ Equity      
    Current liabilities      
    Accounts payable (including $0 and $0.6 million associated with variable interest entity at September 30, 2021 and December 31, 2020, respectively) $19,028  $20,069 
    Accrued expenses (including $0.4 million and $0.1 million associated with variable interest entity at September 30, 2021 and December 31, 2020, respectively)  8,161   4,959 
    Related party payable  2,611   5,038 
    Credit cards payable  131   794 
    Income taxes payable  106   41 
    Customer deposits (including $0.1 and $0 million associated with variable interest entity at September 30, 2021 and December 31, 2020)  1,125   551 
    Capital leases, current portion  186   321 
    Debt, current portion (including $1.2 million and $0.7 million associated with variable interest entity at September 30, 2021 and December 31, 2020, respectively)  1,166   11,364 
    Total current liabilities  32,514   43,137 
    Deferred tax liability  6,181   6,181 
    Line of credit  -   33,169 
    Long-term debt, net of current portion and debt discount of $0.2 million and $0.1 million at September 30, 2021 and 2020, respectively (including $35.6 million and $36.7 million associated with variable interest entity at September 30, 2021 and December 31, 2020, respectively, and debt discount of $0.2 million and $0.1 million associated with variable interest entity at September 30, 2021 and December 31, 2020)  35,629   53,410 
    Capital leases, net of current portion  106   290 
    Other liabilities (including $2.9 million and $3.9 million associated with variable interest entity at September 30, 2021 and December 31, 2020, respectively)  4,051   5,049 
    Total liabilities  78,481   141,236 
           
    Karat Packaging Inc. stockholders’ equity      
    Common stock, $0.001 par value, 100,000,000 shares authorized, 19,737,500 shares and 19,714,500 shares issued and outstanding, respectively, at September 30, 2021; 15,190,000 and 15,167,000 shares issued and outstanding, respectively, at December 31, 2020  20   15 
    Additional paid in capital  82,656   13,981 
    Treasury stock, $0.001 par value, 23,000 and 23,000 shares on September 30, 2021 and December 31, 2020  (248)  (248)
    Retained earnings  33,805   18,656 
    Total Karat Packaging Inc. stockholders’ equity  116,233   32,404 
    Noncontrolling interest  8,776   7,464 
    Total stockholders’ equity  125,009   39,868 
    Total liabilities and stockholders’ equity $203,490  $181,104 

    KARAT PACKAGING, INC. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
    (In thousands)

       Nine Months Ended
    September 30,
       2021  2020 
     Cash flows from operating activities      
     Net income $16,461  $15,074 
     Adjustments to reconcile net income to net cash (used in) provided by operating activities:      
     Depreciation and amortization  7,477   6,103 
     Provision for bad debt  -   98 
     Reserve for inventory obsolescence  133   - 
     Gain on sales of asset  -   (19)
     Change in fair value of interest rate swap  (1,298)  2,028 
     Amortization of loan fees  9   9 
     Stock-based compensation  1,088   - 
     Gain on forgiveness of PPP loan  (5,000)  - 
     (Increase) decrease in operating assets      
     Accounts receivable  (9,438)  (2,458)
     Inventories  (11,226)  (13,187)
     Prepaid expenses and other current assets  840   (2,332)
     Due from affiliated companies  -   (840)
     Deposits  (64)  1,739 
     Other assets  (238)  - 
     Increase (decrease) in operating liabilities      
     Accounts payable  (1,041)  801 
     Accrued expenses  3,202   1,069 
     Related party payable  (2,427)  1,170 
     Credit cards payable  (663)  (317)
     Income taxes payable  65   3,088 
     Customer deposits  574   (11)
     Other liabilities  300   285 
       Net cash (used in) provided by operating activities $(1,246) $12,300 
            
     Cash flows from investing activities      
     Purchases of property and equipment  (1,604)  (27,621)
     Proceeds on disposal of property and equipment  -   24 
     Deposits paid for property and equipment  (3,792)  (5,640)
     Effect on initial consolidation of Lollicup Franchising Inc, net of cash acquired  -   (893)
     Acquisition of Pacific Cup, Inc., net of cash acquired  (900)  - 
     Purchase of warehouse building  (2,343)  - 
     Net cash used in investing activities $(8,639) $(34,130)
            
     Cash flows from financing activities      
     Proceeds from line of credit  1,470   5,190 
     Net payments online of credit  (34,639)  - 
     Proceeds from long-term debt, net of issuance cost  15,997   24,542 
     Payments on long-term debt  (38,985)  (5,497)
    Issuance of common stock in connection with our initial public offering, net of issuance costs  67,592   - 
    Dividends paid to shareholders  -   (607)
     Payments on capital lease obligations  (319)  (285)
    Treasury stock acquired  -   (248)
     Net cash provided by financing activities $11,116  $23,095 
          Net increase in cash and cash equivalents  1,231   1,265 
            
     Cash and cash equivalents      
     Beginning of year $448  $802 
     End of year $1,679  $2,067 

    KARAT PACKAGING INC. AND SUBSIDIARIES
    RECONCILIATION OF NON-GAAP TO GAAP FINANCIAL MEASURES
    (Unaudited)

      Three Months
    Ended September 30,    		 Three Months
    Ended June 30,    		 Nine Months
    Ended September 30,
       2021   2020   2021   2021   2020 
    Reconciliation of Adjusted EBITDA: (in thousands)  (in thousands)
    Net sales $        102,711  $        76,317  $        94,526  $        272,910  $        225,137 
               
    Net income: $        4,073  $        4,566  $        9,338  $        16,461  $        15,074 
    Add (deduct):           
    Interest expense           308           847            1,128            1,158            4,858 
    Income tax expense           1,268           1,451            1,547            4,001            5,483 
    Depreciation and amortization           2,534           2,234            2,479            7,477            6,103 
    IPO related expenses           —            —            601            997            — 
    Gain on forgiveness of debt  —           —   (5,000)  (5,000)          — 
    Adjusted EBITDA $        8,183  $        9,098  $        10,093  $        25,094  $        31,518 
    Net income margin1          4.0%          6.0%          9.9%          6.0%          6.7%
    Adjusted EBITDA margin1          8.0%          11.9%          10.7%          9.2%          14.0%




    Reconciliation of Adjusted EBITDA by Entity:    		 Three Months Ended September 30, 2021
    (in thousands)    		 
      Karat Packaging  Global Wells  Eliminations  Consolidated 
    Net income (loss): $        3,786  $                332  $        (45)          4,073 
    Add (deduct):            
    Interest expense          35   273           —           308 
    Income tax expense             1,268                   —           —           1,268 
    Depreciation and amortization                2,231                   303           —           2,534 
    IPO related expenses  —           —           —   — 
    Gain on forgiveness of debt          —   —           —           — 
    Adjusted EBITDA $         7,320  $                908           (45)          8,183 


    Reconciliation of Adjusted EBITDA by Entity: Nine Months Ended September 30, 2021
    (in thousands)    		 
      Karat Packaging  Global Wells  Eliminations  Consolidated 
    Net income (loss): $        15,149   $        1,517  $        (205)  $        16,461  
    Add (deduct):            
    Interest expense          875            283           —            1,158  
    Income tax expense          4,001            —           —            4,001  
    Depreciation and amortization          6,568            910           —            7,477  
    IPO related expenses          997            —           —            997  
    Gain on forgiveness of debt          (5,000)           —           —            (5,000) 
    Adjusted EBITDA $        22,589   $        2,710  $        (205)  $        25,094  

    1 We define net income margin as net income divided by net sales and adjusted EBITDA margin as adjusted EBITDA divided by net sales.

    Note about Non-GAAP Financial Measures
    Karat Packaging uses Adjusted EBITDA and Adjusted EBITDA Margin to measure its financial performance. Adjusted EBITDA and Adjusted EBITDA Margin are supplemental non-GAAP financial measures of operating performance and are not based on any standardized methodology prescribed by GAAP. Adjusted EBITDA and Adjusted EBITDA Margin should not be considered in isolation or as alternatives to net income, cash flows from operating activities or other measures determined in accordance with GAAP. Also, Adjusted EBITDA and Adjusted EBITDA Margin are not necessarily comparable to similarly titled measures presented by other companies.

    KARAT PACKAGING INC. AND SUBSIDIARIES
    NET SALES BY CATEGORY
    (Unaudited)

     Three Months Ended
    September 30,    		 Nine Months Ended
    September 30,
     2021 2020 2021 2020
    National$22,894,000  $18,426,000  $63,493,000  $50,092,000 
    Distributors57,317,000  39,862,000  148,294,000  118,322,000 
    Online14,644,000  8,928,000  39,790,000 26,472,000 
    Retail7,856,000  9,101,000  21,333,000  30,251,000 
    Net Sales$102,711,000  $76,317,000  $272,910,000  $225,137,000 

    KARAT PACKAGING INC. AND SUBSIDIARIES
    NET SALES EXCLUDING PPE BY CATEGORY
    (Unaudited)

     Three Months Ended September 30,
     2021 2020
    National$22,871,000   $18,317,000 
    Distributors56,671,000   35,639,000 
    Online14,571,000   8,480,000 
    Retail7,802,000   8,747,000 
    Net sales, excluding PPE$101,915,000   $71,183,000 

     


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