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 fourth quarter and full year ended
December 31, 2023.
Fourth Quarter
2023 Highlights
- Fourth quarter 2023 financial
results included:
- Change of estimate on import duty
reserve totaling $2.3 million, an increase to cost of goods
sold.
- Write-off of $1.1 million of a
vendor prepayment upon the resolution of a legal contingency, an
increase to general and administrative expenses.
- Out-of-period tax adjustment of
$0.3 million, an increase to provision for income taxes.
- Misclassification adjustments for
the full year amounts within the income statement with no impact on
net income:
- Adjustment of $6.4 million
online sales platform fees, an increase to net sales, offset by the
same increase to selling expenses.
- Adjustment of $3.9 million of
certain production expenses out of general and administrative
expenses into cost of goods sold.
- The prior period financial results
were not adjusted due to the immaterial impact on the overall
financial statements.
- Net sales of $95.6 million,
including the adjustment of $6.4 million online sales platform
fees, versus $92.7 million in the prior-year quarter, up 3.1
percent in amount and 7.3 percent in volume.
- Gross profit of $34.1 million,
including the favorable impact totaling $0.2 million from the
import duty reserve and the adjustments, up 14.9 percent from the
prior-year quarter.
- Gross margin of 35.7 percent,
including the negative impact totaling 240 basis points from the
import duty reserve and adjustments, versus 32.0 percent in the
prior-year quarter.
- Net income of $4.2 million,
including the negative impact totaling $2.9 million from the import
duty reserve, vendor prepayment write-off, and tax adjustment,
versus $4.5 million in the prior-year quarter.
- Net income margin of 4.4 percent,
including the negative impact totaling 350 basis points from the
import duty reserve, vendor prepayment write-off, tax adjustment
and the adjustments, versus 4.9 percent in the prior-year
quarter.
- Adjusted EBITDA of
$8.6 million, including the negative impact totaling $2.3
million from the import duty reserve, versus $9.9 million in
the prior-year quarter.
- Adjusted EBITDA margin of 9.0
percent, including the negative impact totaling 330 basis points
from the import duty reserve and the adjustments, versus 10.7
percent in the prior-year quarter.
Guidance
- Net sales for the 2024 first
quarter expected to increase low to mid-single digit from the
prior-year quarter.
- Gross margin goal for the 2024
first quarter: 37 to 39 percent versus 39.8 percent for 2023 first
quarter.
- Net sales for full year 2024
expected to increase 8 to 15 percent from the prior year.
- Gross margin goal for full year
2024: 35 to 38 percent assuming no significant increases in ocean
freight rates.
“Sales volume again grew 7.3 percent for the
2023 fourth quarter over the prior-year quarter. However, revenue
was impacted principally by year-over-year pricing comparisons and
start-up delays into 2024 by several new national and regional
chain accounts,” said Alan Yu, Chief Executive Officer. “During the
fourth quarter, we continued to scale back U.S. manufacturing,
which further enhanced gross margin to a near record high of 35.7
percent.
“Sales of our eco-friendly products grew 11
percent for the quarter and comprised 33 percent of total net
sales, which exceeded our expectations. We continue to develop new
and innovative eco-friendly products to meet increasing demand and
expand our customer base.
“As part of our growth plan, we recently signed
a new lease for a distribution center in Arizona, which is expected
to be fully operational early in the second quarter. Together with
our salesforce expansion, we can further penetrate key U.S. markets
in the South, Midwest, and Pacific Northwest regions. We also are
implementing automation and AI technologies to enhance operation
and distribution productivity.
“With Karat’s strong operating cash flow and
balance sheet, our board of directors in February authorized
another increase in the quarterly cash dividend payment to $0.30
per share, from the previous quarterly dividend of $0.20 per
share,” Yu added.
Fourth Quarter 2023 Financial
Results
Net sales for the 2023 fourth quarter increased
3.1 percent to $95.6 million, from $92.7 million in the
prior-year quarter. The year-over-year increase included the impact
of $6.4 million from the adjustment of online sales platform
fees and volume growth of 7.3 percent, partially offset by
unfavorable year-over-year pricing comparison, as the Company
passed on savings from ocean freight and raw material costs to
customers.
Cost of goods sold for the 2023 fourth quarter
was $61.5 million, which included an additional import duty
reserve of $2.3 million and the adjustment of
$3.9 million of certain production expenses from general and
administrative expenses, compared with $63.0 million in the
prior-year quarter, which included an out-of-period inventory
write-off of $1.7 million. Despite the larger unfavorable
discrete items in the 2023 fourth quarter, gross profit increased
14.9 percent to $34.1 million, from $29.7 million in the
prior-year quarter.
Gross margin expanded 370 basis points to 35.7
percent in the 2023 fourth quarter, from 32.0 percent in the same
quarter last year primarily as a result of our continued scale back
of manufacturing operations in favor of imports and improved
operating efficiencies.
Operating expenses in the 2023 fourth quarter
were $29.5 million, or 30.8 percent of net sales, compared
with $24.9 million, or 26.8 percent of net sales, in the
prior-year quarter. Operating expenses in the 2023 fourth quarter
included a negative impact totaling $3.6 million from the vendor
prepayment write-off and the adjustments noted above. Additionally,
the year-over-year increase in operating expense was primarily
driven by higher labor costs and rent and warehouse expense from
workforce expansion and additional leased warehouses partially
offset by a decrease in shipping and transportation costs and
stock-compensation expense.
Net income for the 2023 fourth quarter was
$4.2 million, compared with $4.5 million in the
prior-year quarter. Net income margin was 4.4 percent in the 2023
fourth quarter, compared with 4.9 percent in the prior-year
quarter.
Net income attributable to Karat for the 2023
fourth quarter was $3.9 million, or $0.19 per diluted share,
compared with $4.5 million, or $0.23 per diluted share, in the
prior-year quarter.
Adjusted EBITDA, a non-GAAP measure defined
below, was $8.6 million in the 2023 fourth quarter, compared
with $9.9 million in the prior-year quarter. Adjusted EBITDA
margin, a non-GAAP measure defined below, was 9.0 percent of net
sales, compared with 10.7 percent in the prior-year quarter.
Adjusted diluted earnings per common share, a
non-GAAP measure defined below, was $0.24 per share in the 2023
fourth quarter, compared with $0.30 per share in the prior-year
quarter.
2023 Full Year
Results
Net sales for the year ended December 31, 2023,
decreased 4.1 percent to $405.7 million, from
$423.0 million in the prior year. The year-over-year decrease
was primarily driven by unfavorable pricing comparison and lower
logistics services and shipping revenue partially offset by the
positive impact of $6.4 million from the adjustment of online
sales platform fees and volume growth of 3.7 percent.
Cost of goods sold for the year ended December
31, 2023, was $252.6 million, which included an additional
import duty charge of $3.9 million, an inventory write-off of
$1.7 million in connection with scaling back production, and
the adjustment of $3.9 million of certain production expenses
from general and administrative expenses, compared with
$290.9 million in the prior year, which included an
out-of-period inventory write-off of $0.9 million. Despite the
larger unfavorable discrete items in 2023, gross profit increased
15.9% to $153.0 million, from $132.1 million a year
ago.
Gross margin for the year ended December 31,
2023, increased to 37.7 percent, from 31.2 percent for the prior
year. Gross margin benefited from lower total ocean freight and
import costs, the Company’s initiative to scale back manufacturing
operations in favor of imports and the strong U.S. dollar.
Operating expenses for the year ended December
31, 2023, were $111.0 million, or 27.4 percent of net sales,
compared with $102.1 million, or 24.1 percent of net sales,
for the prior year. Operating expenses for the year ended December
31, 2023 included a negative impact totaling $2.5 million from the
additional import duty charge and the adjustments. Additionally,
the year-over-year increase was primarily due to increases in
labor, rent, warehouse, and utility expenses from workforce
expansion and additional leased warehouses, marketing expense as we
grow our e-commerce channel, and impairment expense and loss, net,
primarily related to disposal of machinery as we scaled back
production. Such increases were partially offset by a decrease in
shipping and transportation costs, stock-compensation expense and
bad debt expense.
Net income for the year ended December 31, 2023,
increased 28.4 percent to $33.2 million, from
$25.8 million for the year ended December 31, 2022. Net income
margin increased to 8.2 percent in 2023, compared with 6.1 percent
in the prior year.
Net income attributable to Karat was
$32.5 million, or $1.63 per diluted share, for the full 2023
year, compared with $23.6 million, or $1.19 per diluted share,
in the prior year.
Adjusted EBITDA, a non-GAAP measure defined
below, increased to $59.1 million for the full 2023 year,
compared with $45.6 million in the prior year. Adjusted EBITDA
margin, a non-GAAP measure defined below, increased to 14.6 percent
in 2023, compared with 10.8 percent in 2022.
Adjusted diluted earnings per common share, a
non-GAAP measure defined below, rose to $1.83 per share in 2023,
from $1.30 per share in the prior year.
Investor Conference CallThe
Company will host an investor conference call today, March 14,
2024, at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time) to discuss
its 2023 fourth quarter and full year 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
and 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 or Roger
Pondel310-279-5980ir@karatpackaging.com
KARAT PACKAGING INC. AND
SUBSIDIARIESCONSOLIDATED STATEMENTS OF
INCOME(In thousands, except share and per share
data) |
|
|
Three Months Ended December 31, |
|
Year Ended December 31, |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
(Unaudited) |
|
(Unaudited) |
|
(Unaudited) |
|
|
Net sales |
$ |
95,582 |
|
|
$ |
92,667 |
|
|
$ |
405,651 |
|
|
$ |
422,957 |
|
Cost of goods sold |
|
61,488 |
|
|
|
63,002 |
|
|
|
252,608 |
|
|
|
290,871 |
|
Gross profit |
|
34,094 |
|
|
|
29,665 |
|
|
|
153,043 |
|
|
|
132,086 |
|
Operating expenses |
|
|
|
|
|
|
|
Selling expense |
|
15,990 |
|
|
|
7,626 |
|
|
|
41,490 |
|
|
|
35,844 |
|
General and administrative expenses (including $729 and $876
associated with variable interest entity for the three months ended
December 31, 2023 and 2022, respectively, and $2,749 and $2,775
associated with variable interest entity for the years ended
December 31, 2023 and 2022, respectively) |
|
13,185 |
|
|
|
17,226 |
|
|
|
66,952 |
|
|
|
66,259 |
|
Impairment expense and loss (gain), net, on disposal of
machinery |
|
294 |
|
|
|
1 |
|
|
|
2,525 |
|
|
|
(32 |
) |
Total operating expenses |
|
29,469 |
|
|
|
24,853 |
|
|
|
110,967 |
|
|
|
102,071 |
|
Operating income |
|
4,625 |
|
|
|
4,812 |
|
|
|
42,076 |
|
|
|
30,015 |
|
Other income (expense) |
|
|
|
|
|
|
|
Rental income (including $260 and $234 associated with variable
interest entity for the three months ended December 31, 2023 and
2022, respectively, and $981 and $949 associated with variable
interest entity for the years ended December 31, 2023 and
2022, respectively) |
|
309 |
|
|
|
234 |
|
|
|
1,090 |
|
|
|
949 |
|
Other income (expense) |
|
13 |
|
|
|
7 |
|
|
|
(45 |
) |
|
|
(228 |
) |
(Loss) gain on foreign currency transactions |
|
(247 |
) |
|
|
216 |
|
|
|
103 |
|
|
|
1,568 |
|
Interest income (including $328 and $10 associated with variable
interest entity for the three months ended December 31, 2023 and
2022, respectively, and $606 and $2,171 associated with variable
interest entity for the years ended December 31, 2023 and
2022, respectively) |
|
763 |
|
|
|
65 |
|
|
|
1,803 |
|
|
|
2,226 |
|
Interest expense (including $520 and $441 associated with variable
interest entity for the three months ended December 31, 2023 and
2022, respectively, and $2,019 and $1,821 associated with variable
interest entity for the years ended December 31, 2023 and
2022, respectively) |
|
(527 |
) |
|
|
(440 |
) |
|
|
(2,043 |
) |
|
|
(2,017 |
) |
Total other income, net |
|
311 |
|
|
|
82 |
|
|
|
908 |
|
|
|
2,498 |
|
Income before provision for income taxes |
|
4,936 |
|
|
|
4,894 |
|
|
|
42,984 |
|
|
|
32,513 |
|
Provision for income taxes |
|
759 |
|
|
|
353 |
|
|
|
9,804 |
|
|
|
6,676 |
|
Net income |
|
4,177 |
|
|
|
4,541 |
|
|
|
33,180 |
|
|
|
25,837 |
|
Net income attributable to noncontrolling
interest |
|
279 |
|
|
|
— |
|
|
|
710 |
|
|
|
2,189 |
|
Net income attributable to Karat Packaging
Inc. |
$ |
3,898 |
|
|
$ |
4,541 |
|
|
$ |
32,470 |
|
|
$ |
23,648 |
|
Basic and diluted earnings per share: |
|
|
|
|
|
|
|
Basic |
$ |
0.20 |
|
|
$ |
0.23 |
|
|
$ |
1.63 |
|
|
$ |
1.19 |
|
Diluted |
$ |
0.19 |
|
|
$ |
0.23 |
|
|
$ |
1.63 |
|
|
$ |
1.19 |
|
Weighted average common shares outstanding, basic |
|
19,953,525 |
|
|
|
19,872,681 |
|
|
|
19,904,698 |
|
|
|
19,824,911 |
|
Weighted average common shares outstanding, diluted |
|
20,021,314 |
|
|
|
19,936,954 |
|
|
|
19,977,712 |
|
|
|
19,925,905 |
|
KARAT PACKAGING INC. AND
SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share
data) |
|
|
December 31, 2023 |
|
December 31, 2022 |
|
(Unaudited) |
|
|
Assets |
|
|
|
Current
assets |
|
|
|
Cash and cash equivalents (including $13,566 and $2,022 associated
with variable interest entity at December 31, 2023 and 2022,
respectively) |
$ |
23,076 |
|
|
$ |
16,041 |
|
Short-term investments |
|
26,343 |
|
|
|
— |
|
Accounts receivable, net of allowance for bad debt of $392 and
$1,260 at December 31, 2023 and 2022, respectively (including
$0 and $6 associated with variable interest entity at
December 31, 2023 and 2022, respectively) |
|
27,763 |
|
|
|
29,912 |
|
Inventories |
|
71,528 |
|
|
|
71,206 |
|
Prepaid expenses and other current assets (including $82 and $191
associated with variable interest entity at December 31, 2023
and 2022, respectively) |
|
6,219 |
|
|
|
6,641 |
|
Total current assets |
|
154,929 |
|
|
|
123,800 |
|
Property and equipment, net
(including $44,185 and $45,399 associated with variable interest
entity at December 31, 2023 and 2022, respectively) |
|
95,226 |
|
|
|
95,568 |
|
Deposits |
|
1,047 |
|
|
|
12,413 |
|
Goodwill |
|
3,510 |
|
|
|
3,510 |
|
Intangible assets, net |
|
327 |
|
|
|
353 |
|
Operating right-of-use assets |
|
20,739 |
|
|
|
15,713 |
|
Other assets (including $53 and $38 associated with variable
interest entity at December 31, 2023 and 2022,
respectively) |
|
619 |
|
|
|
818 |
|
Total assets |
$ |
276,397 |
|
|
$ |
252,175 |
|
Liabilities and
Stockholders’ Equity |
|
|
|
Current
liabilities |
|
|
|
Accounts payable (including $63 and $2 associated with variable
interest entity at December 31, 2023 and 2022,
respectively) |
$ |
18,446 |
|
|
$ |
18,559 |
|
Accrued expenses (including $591 and $625 associated with variable
interest entity at December 31, 2023 and 2022,
respectively) |
|
10,576 |
|
|
|
9,005 |
|
Related party payable |
|
5,306 |
|
|
|
4,940 |
|
Customer deposits (including $116 and $165 associated with variable
interest entity at December 31, 2023 and 2022,
respectively) |
|
951 |
|
|
|
1,281 |
|
Long-term debt, current portion (including $1,122 and $957
associated with variable interest entity at December 31, 2023
and 2022, respectively) |
|
1,122 |
|
|
|
957 |
|
Operating lease liabilities, current portion |
|
4,800 |
|
|
|
4,511 |
|
Other payables (including $1,302 and $0 associated with variable
interest entity at December 31, 2023 and 2022,
respectively) |
|
3,200 |
|
|
|
— |
|
Total current liabilities |
|
44,401 |
|
|
|
39,253 |
|
|
December 31, 2023 |
|
December 31, 2022 |
|
(Unaudited) |
|
|
Deferred tax liability |
|
4,197 |
|
|
|
5,156 |
|
Long-term debt, net of current portion and debt discount of $203
and $216 at December 31, 2023 and December 31, 2022,
respectively (including $48,396 and $41,558 associated with
variable interest entity at December 31, 2023 and 2022,
respectively, and debt discount of $203 and $216 associated with
variable interest entity at December 31, 2023 and 2022,
respectively) |
|
48,396 |
|
|
|
41,558 |
|
Operating lease liabilities, net of current portion |
|
16,687 |
|
|
|
11,623 |
|
Other liabilities (including $0 and $1,302 associated with variable
interest entity at December 31, 2023 and 2022,
respectively) |
|
26 |
|
|
|
2,652 |
|
Total liabilities |
|
113,707 |
|
|
|
100,242 |
|
|
|
|
|
Karat Packaging Inc.
stockholders’ equity |
|
|
|
Preferred stock, $0.001 par value, 10,000,000 shares authorized, no
shares issued and outstanding, as of December 31, 2023 and
2022 |
|
— |
|
|
|
— |
|
Common stock, $0.001 par value, 100,000,000 shares authorized,
19,988,482 and 19,965,482 shares issued and outstanding,
respectively, as of December 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 |
|
86,667 |
|
|
|
85,792 |
|
Treasury stock, $0.001 par value, 23,000 shares as of both
December 31, 2023 and 2022 |
|
(248 |
) |
|
|
(248 |
) |
Retained earnings |
|
67,679 |
|
|
|
56,118 |
|
Total Karat Packaging Inc. stockholders’ equity |
|
154,118 |
|
|
|
141,682 |
|
Noncontrolling interest |
|
8,572 |
|
|
|
10,251 |
|
Total stockholders’ equity |
|
162,690 |
|
|
|
151,933 |
|
Total liabilities and stockholders’ equity |
$ |
276,397 |
|
|
$ |
252,175 |
|
KARAT PACKAGING, INC. AND
SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH
FLOWS(In thousands) |
|
|
Year Ended December 31, |
|
|
2023 |
|
|
|
2022 |
|
|
(Unaudited) |
|
|
Cash flows from
operating activities |
|
|
|
Net income |
$ |
33,180 |
|
|
$ |
25,837 |
|
Adjustments to reconcile net
income to net cash provided by operating activities: |
|
|
|
Depreciation and amortization (including $1,214 associated with
variable interest entity for both the year ended December 31, 2023
and 2022) |
|
10,783 |
|
|
|
10,405 |
|
Adjustments to allowance for bad debt |
|
(711 |
) |
|
|
1,010 |
|
Adjustments to inventory reserve |
|
(399 |
) |
|
|
6 |
|
Write-off of inventory |
|
3,897 |
|
|
|
3,470 |
|
Impairment of deposits |
|
549 |
|
|
|
465 |
|
Write-off of vendor prepayment |
|
1,124 |
|
|
|
— |
|
Loss (gain), net, on disposal of machinery and equipment |
|
2,002 |
|
|
|
(32 |
) |
Change in fair value of interest rate swap (including $0 and $2,159
associated with variable interest entity for the year ended
December 31, 2023 and 2022, respectively) |
|
— |
|
|
|
(2,159 |
) |
Amortization of loan fees (including $57 and $40 associated with
variable interest entity for the year ended December 31, 2023 and
2022, respectively) |
|
81 |
|
|
|
40 |
|
Accrued interest on certificates of deposit |
|
(155 |
) |
|
|
— |
|
Stock-based compensation |
|
770 |
|
|
|
2,047 |
|
Amortization of operating right-of-use assets |
|
4,969 |
|
|
|
3,822 |
|
Deferred income taxes |
|
(959 |
) |
|
|
(478 |
) |
(Increase) decrease in operating assets |
|
|
|
Accounts receivable (including $6 and $18 associated with variable
interest entity for the year ended December 31, 2023 and 2022,
respectively) |
|
2,860 |
|
|
|
1,854 |
|
Inventories |
|
(3,820 |
) |
|
|
(16,210 |
) |
Prepaid expenses and other current assets (including $109 and $75
associated with variable interest entity for the year ended
December 31, 2023 and 2022, respectively) |
|
(466 |
) |
|
|
(1,514 |
) |
Other assets (including $14 and $27 associated with variable
interest entity for the year ended December 31, 2023 and 2022,
respectively) |
|
1,439 |
|
|
|
(36 |
) |
Increase (decrease) in operating liabilities |
|
|
|
Accounts payable (including $60 and $495 associated with variable
interest entity for the year ended December 31, 2023 and 2022,
respectively) |
|
696 |
|
|
|
89 |
|
Accrued expenses (including $34 and $402 associated with variable
interest entity for the year ended December 31, 2023 and 2022,
respectively) |
|
1,571 |
|
|
|
1,571 |
|
Related party payable |
|
366 |
|
|
|
2,937 |
|
Income taxes payable |
|
— |
|
|
|
(85 |
) |
Customer deposits (including $49 and $77 associated with variable
interest entity for the year ended December 31, 2023 and 2022,
respectively) |
|
(330 |
) |
|
|
66 |
|
Operating lease liability |
|
(4,642 |
) |
|
|
(3,780 |
) |
Other liabilities (including $0 and $1 associated with variable
interest entity for the year ended December 31, 2023 and 2022,
respectively) |
|
574 |
|
|
|
149 |
|
Net cash provided by operating activities |
$ |
53,379 |
|
|
$ |
29,474 |
|
Cash flows from
investing activities |
|
|
|
Purchases of property and equipment |
|
(2,835 |
) |
|
|
(2,657 |
) |
Proceeds on disposal of property and equipment |
|
841 |
|
|
|
77 |
|
Payments for costs incurred from sale of machinery and
equipment |
|
(186 |
) |
|
|
— |
|
Deposits paid for joint venture investment |
|
(2,900 |
) |
|
|
(5,876 |
) |
Deposits refunded from joint venture investment |
|
6,900 |
|
|
|
1,876 |
|
Deposits refunded from cancelled machinery orders |
|
503 |
|
|
|
— |
|
Deposits paid for property and equipment |
|
(6,309 |
) |
|
|
(12,090 |
) |
Proceeds from settlement of interest rate swap (including $0 and
$825 associated with variable interest entity for the year ended
December 31, 2023 and 2022, respectively) |
|
— |
|
|
|
825 |
|
Purchase of short-term investments (including $8,000 and $0
associated with variable interest entity for the year ended
December 31, 2023 and 2022, respectively) |
|
(49,188 |
) |
|
|
— |
|
Redemption of short-term investments (including $8,000 and $0
associated with variable interest entity for the year ended
December 31, 2023 and 2022, respectively) |
|
23,000 |
|
|
|
— |
|
Net cash used in investing activities |
$ |
(30,174 |
) |
|
$ |
(17,845 |
) |
Cash flows from
financing activities |
|
|
|
Proceeds from line of credit |
|
— |
|
|
|
21,100 |
|
Payments on line of credit |
|
— |
|
|
|
(21,100 |
) |
Proceeds from long-term debt (including $8,000 and $27,477
associated with variable interest entity for the year ended
December 31, 2023 and 2022, respectively) |
|
8,000 |
|
|
|
27,477 |
|
Payments for lender fees |
|
(61 |
) |
|
|
— |
|
Payments on long-term debt (including $1,010 and $21,572 associated
with variable interest entity for the year ended December 31, 2023
and 2022, respectively) |
|
(1,010 |
) |
|
|
(21,572 |
) |
Tax withholding on vesting of restricted stock units |
|
(18 |
) |
|
|
— |
|
Proceeds from exercise of common stock options |
|
123 |
|
|
|
51 |
|
Dividends paid to shareholders |
|
(20,909 |
) |
|
|
(6,964 |
) |
Distributions to shareholders, net of tax withholding (including
$2,295 and $0 associated with variable interest entity for the year
ended December 31, 2023 and 2022, respectively) |
|
(2,295 |
) |
|
|
— |
|
Payments of noncontrolling interest tax withholding (including $0
and $1,063 associated with variable interest entity for the year
ended December 31, 2023 and 2022, respectively) |
|
— |
|
|
|
(1,063 |
) |
Net cash used in financing activities |
$ |
(16,170 |
) |
|
$ |
(2,071 |
) |
Net increase in cash and cash equivalents |
|
7,035 |
|
|
|
9,558 |
|
Cash and cash
equivalents |
|
|
|
Beginning of year |
$ |
16,041 |
|
|
$ |
6,483 |
|
End of year |
$ |
23,076 |
|
|
$ |
16,041 |
|
Supplemental
disclosures of non-cash investing and financing
activities: |
|
|
|
Transfers from deposit to
property and equipment |
$ |
10,463 |
|
|
$ |
9,859 |
|
Non-cash purchases of property
and equipment |
$ |
148 |
|
|
$ |
196 |
|
Supplemental
disclosures of cash flow information: |
|
|
|
Cash paid for income tax |
$ |
11,765 |
|
|
$ |
8,303 |
|
Cash paid for interest |
$ |
1,996 |
|
|
$ |
1,978 |
|
KARAT PACKAGING INC. AND
SUBSIDIARIESRECONCILIATION 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 December 31, |
|
Year Ended December 31, |
|
|
2023 |
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
Amounts |
% of Net Sales |
Amounts |
% of Net Sales |
|
Amounts |
% of Net Sales |
Amounts |
% of Net Sales |
Net income: |
$ |
4,177 |
|
|
4.4 |
% |
$ |
4,541 |
|
|
4.9 |
% |
|
$ |
33,180 |
|
|
8.2 |
% |
$ |
25,837 |
|
|
6.1 |
% |
Add (deduct): |
|
|
|
|
|
|
|
|
|
Interest income |
|
(763 |
) |
|
(0.8 |
) |
|
(65 |
) |
|
(0.1 |
) |
|
|
(1,803 |
) |
|
(0.4 |
) |
|
(2,226 |
) |
|
(0.5 |
) |
Interest expense |
|
527 |
|
|
0.5 |
|
|
440 |
|
|
0.5 |
|
|
|
2,043 |
|
|
0.5 |
|
|
2,017 |
|
|
0.5 |
|
Provision for income taxes |
|
759 |
|
|
0.8 |
|
|
353 |
|
|
0.4 |
|
|
|
9,804 |
|
|
2.4 |
|
|
6,676 |
|
|
1.6 |
|
Depreciation and amortization |
|
2,725 |
|
|
2.9 |
|
|
2,653 |
|
|
2.9 |
|
|
|
10,783 |
|
|
2.7 |
|
|
10,405 |
|
|
2.4 |
|
Stock-based compensation expense |
|
27 |
|
|
— |
|
|
273 |
|
|
0.3 |
|
|
|
770 |
|
|
0.2 |
|
|
2,047 |
|
|
0.5 |
|
Out-of-period adjustment (3) |
|
1,124 |
|
|
1.2 |
|
|
1,675 |
|
|
1.8 |
|
|
|
— |
|
|
— |
|
|
879 |
|
|
0.2 |
|
Secondary offering transaction costs (2) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
453 |
|
|
0.1 |
|
|
— |
|
|
— |
|
Write-off of inventory (1) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
1,710 |
|
|
0.4 |
|
|
— |
|
|
— |
|
Impairment expenses and (gain) loss, net, on disposal of machinery
(1) |
|
(3 |
) |
|
— |
|
|
— |
|
|
— |
|
|
|
2,132 |
|
|
0.5 |
|
|
— |
|
|
— |
|
Adjusted
EBITDA |
$ |
8,573 |
|
|
9.0 |
% |
$ |
9,870 |
|
|
10.7 |
% |
|
$ |
59,072 |
|
|
14.6 |
% |
$ |
45,635 |
|
|
10.8 |
% |
(1) The write-off of inventory and impairment
expense and (gain) loss, net, on disposal of machinery represent
costs incurred in connection with the scaling back of production in
the U.S. 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.
(2) Secondary offering transaction costs
represent legal and professional fees incurred in connection with
the completion of the secondary offering, which were directly
related to the offering and were incremental to our normal
operating expenses.
(3) The out-of-period adjustment for the three
months ended December 31, 2023 represented a write-off of a
vendor prepayment due to the resolution of a legal contingency,
which management believes was not representative of our underlying
operating performance. The adjustment was to correct an immaterial
error in its previously issued quarterly financial statements for
the quarter ended September 30, 2023. Although the full year
financial statements for the year ended December 31, 2023 are not
affected, the impact of the adjustment for the quarter ended
December 31, 2023 was a decrease to other assets and an
increase in general and administrative expenses of
$1.1 million.
The out-of-period adjustment for the year ended
December 31, 2022 represented an inventory write-off recorded
during the year 2022, which management believes was not
representative of our underlying operating performance. The
adjustment was to correct immaterial errors in the accounting for
certain inventory items in our previously issued quarterly and
annual financial statements. The impact of the inventory write-off
was an increase to cost of goods sold of $1.7 million and
$0.9 million for the three and twelve months ended
December 31, 2022, respectively.
Reconciliation of
Adjusted Diluted Earnings Per Common Share |
Three Months Ended December 31, |
|
Year Ended December 31, |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Diluted earnings per common
share: |
$ |
0.19 |
|
|
$ |
0.23 |
|
|
$ |
1.63 |
|
|
$ |
1.19 |
|
Add (deduct): |
|
|
|
|
|
|
|
Stock-based compensation
expense |
|
— |
|
|
|
0.01 |
|
|
|
0.04 |
|
|
|
0.10 |
|
Out-of-period adjustment |
|
0.06 |
|
|
|
0.08 |
|
|
|
— |
|
|
|
0.04 |
|
Secondary offering transaction
costs |
|
— |
|
|
|
— |
|
|
|
0.02 |
|
|
|
— |
|
Write-off of inventory |
|
— |
|
|
|
— |
|
|
|
0.09 |
|
|
|
— |
|
Impairment expense and loss,
net, on disposal of machinery |
|
— |
|
|
|
— |
|
|
|
0.11 |
|
|
|
— |
|
Tax impact |
|
(0.01 |
) |
|
|
(0.02 |
) |
|
|
(0.06 |
) |
|
|
(0.03 |
) |
Adjusted diluted
earnings per common shares |
$ |
0.24 |
|
|
$ |
0.30 |
|
|
$ |
1.83 |
|
|
$ |
1.30 |
|
Reconciliation of
Adjusted EBITDA by Entity: |
Three Months Ended December 31, 2023 |
|
Year Ended December 31, 2023 |
|
KaratPackaging |
Global Wells |
Eliminations |
Consolidated |
|
KaratPackaging |
Global Wells |
Eliminations |
Consolidated |
Net income (loss): |
$ |
3,972 |
|
$ |
321 |
|
$ |
(116 |
) |
$ |
4,177 |
|
|
$ |
32,544 |
|
$ |
820 |
|
$ |
(184 |
) |
$ |
33,180 |
|
Add: |
|
|
|
|
|
|
|
|
|
Interest income |
|
(435 |
) |
|
(328 |
) |
|
— |
|
|
(763 |
) |
|
|
(1,197 |
) |
|
(623 |
) |
|
17 |
|
|
(1,803 |
) |
Interest expense |
|
7 |
|
|
520 |
|
|
— |
|
|
527 |
|
|
|
41 |
|
|
2,019 |
|
|
(17 |
) |
|
2,043 |
|
Provision for income taxes |
|
759 |
|
|
— |
|
|
— |
|
|
759 |
|
|
|
9,804 |
|
|
— |
|
|
— |
|
|
9,804 |
|
Depreciation and amortization |
|
2,421 |
|
|
304 |
|
|
— |
|
|
2,725 |
|
|
|
9,569 |
|
|
1,214 |
|
|
— |
|
|
10,783 |
|
Out-of-period adjustment (3) |
|
1,124 |
|
|
— |
|
|
— |
|
|
1,124 |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Stock-based compensation expense |
|
27 |
|
|
— |
|
|
— |
|
|
27 |
|
|
|
770 |
|
|
— |
|
|
— |
|
|
770 |
|
Secondary offering transaction costs (2) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
453 |
|
|
— |
|
|
— |
|
|
453 |
|
Write-off of inventory (1) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
1,710 |
|
|
— |
|
|
— |
|
|
1,710 |
|
Impairment expense and (gain) loss, net, on disposal of machinery
(1) |
|
(3 |
) |
|
— |
|
|
— |
|
|
(3 |
) |
|
|
2,132 |
|
|
— |
|
|
— |
|
|
2,132 |
|
Adjusted
EBITDA |
$ |
7,872 |
|
$ |
817 |
|
$ |
(116 |
) |
$ |
8,573 |
|
|
$ |
55,826 |
|
$ |
3,430 |
|
$ |
(184 |
) |
$ |
59,072 |
|
(1) The write-off of inventory and impairment
expense and (gain) loss, net, on disposal of machinery represent
costs incurred in connection with the scaling back of production in
the U.S. 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.
(2) Secondary offering transaction costs
represent legal and professional fees incurred in connection with
the completion of the secondary offering, which were directly
related to the offering and were incremental to our normal
operating expenses.
(3) The out-of-period adjustment represented a
write-off of a vendor prepayment due to the resolution of a legal
contingency, which management believes was not representative of
our underlying operating performance. The adjustment was to correct
an immaterial error in its previously issued quarterly financial
statements for the quarter ended September 30, 2023. Although the
full year financial statements for the year ended December 31, 2023
are not affected, the impact of the adjustment for the quarter
ended December 31, 2023 was a decrease to other assets, and an
increase in general and administrative expenses of
$1.1 million.
Reconciliation of
Adjusted EBITDA by Entity: |
Three Months Ended December 31, 2022 |
|
Year Ended December 31, 2022 |
|
KaratPackaging |
Global Wells |
Eliminations |
Consolidated |
|
KaratPackaging |
Global Wells |
Eliminations |
Consolidated |
Net income (loss): |
$ |
4,552 |
|
$ |
— |
|
$ |
(11 |
) |
$ |
4,541 |
|
|
$ |
23,648 |
|
$ |
2,531 |
|
$ |
(342 |
) |
$ |
25,837 |
|
Add (deduct) |
|
|
|
|
|
|
|
|
|
Interest income |
|
(56 |
) |
|
(71 |
) |
|
62 |
|
|
(65 |
) |
|
|
(56 |
) |
|
(2,300 |
) |
|
130 |
|
|
(2,226 |
) |
Interest expense |
|
61 |
|
|
441 |
|
|
(62 |
) |
|
440 |
|
|
|
326 |
|
|
1,821 |
|
|
(130 |
) |
|
2,017 |
|
Provision for income taxes |
|
353 |
|
|
— |
|
|
— |
|
|
353 |
|
|
|
6,676 |
|
|
— |
|
|
— |
|
|
6,676 |
|
Depreciation and amortization |
|
2,348 |
|
|
305 |
|
|
— |
|
|
2,653 |
|
|
|
9,190 |
|
|
1,215 |
|
|
— |
|
|
10,405 |
|
Stock-based compensation expense |
|
273 |
|
|
— |
|
|
— |
|
|
273 |
|
|
|
2,047 |
|
|
— |
|
|
— |
|
|
2,047 |
|
Out-of-period adjustment (1) |
|
1,675 |
|
|
— |
|
|
— |
|
|
1,675 |
|
|
|
879 |
|
|
— |
|
|
— |
|
|
879 |
|
Adjusted
EBITDA |
$ |
9,206 |
|
$ |
675 |
|
$ |
(11 |
) |
$ |
9,870 |
|
|
$ |
42,710 |
|
$ |
3,267 |
|
$ |
(342 |
) |
$ |
45,635 |
|
(1) The out-of-period adjustment represented an
inventory write-off recorded during the year ended December 31,
2022, which management believes was not representative of our
underlying operating performance. The adjustment was to correct
immaterial errors in the accounting for certain inventory items in
our previously issued quarterly and annual financial statements.
The impact of the inventory write-off was an increase to cost of
goods sold of $1.7 million and $0.9 million for the three
and twelve months ended December 31, 2022, respectively.
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,
secondary offering transaction costs, write-off of certain
inventory items outside the normal course of business, impairment
expense and (gain) loss, net, on disposal of machinery outside the
normal course of business, and out-of-period adjustment.
- 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, secondary offering transaction costs,
write-off of certain inventory items outside the normal course of
business, impairment expense and (gain) loss, net, on disposal of
machinery outside the normal course of business, out-of-period
adjustment, 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 SUBSIDIARIESNET
SALES BY CATEGORY (UNAUDITED)(In
thousands) |
|
|
Three Months Ended December 31, |
|
Year Ended December 31, |
|
|
2023 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
|
(in thousands) |
National and regional
chains |
$ |
21,053 |
|
|
$ |
21,843 |
|
|
$ |
89,655 |
|
|
$ |
95,786 |
|
Distributors |
|
50,041 |
|
|
|
53,207 |
|
|
|
228,316 |
|
|
|
242,285 |
|
Online |
|
17,846 |
|
|
|
10,613 |
|
|
|
61,265 |
|
|
|
53,697 |
|
Retail |
|
6,642 |
|
|
|
7,004 |
|
|
|
26,415 |
|
|
|
31,189 |
|
|
$ |
95,582 |
|
|
$ |
92,667 |
|
|
$ |
405,651 |
|
|
$ |
422,957 |
|
Karat Packaging (NASDAQ:KRT)
Historical Stock Chart
From May 2024 to Jun 2024
Karat Packaging (NASDAQ:KRT)
Historical Stock Chart
From Jun 2023 to Jun 2024