krt-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission file number 001-40336

Karat Packaging Inc.

(Exact name of registrant as specified in its charter)


Delaware						83-2237832
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

6185 Kimball Avenue Chino, CA						91708
(Address of principal executive offices)						(Zip Code)


			(626) 965-8882
			(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value

KRT

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☒

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of Common Stock, $0.001 par value, outstanding on August 5, 2024 was 20,014,665 shares.

Table of Contents


		Page
PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	2

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	32

Item 4.	Controls and Procedures	32

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	36

Item 1A.	Risk Factors	36

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 3.	Defaults Upon Senior Securities	36

Item 4.	Mine Safety Disclosures	36

Item 5.	Other Information	36

Item 6.	Exhibits	36

SIGNATURES		38

KARAT PACKAGING INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share and per share data)

PART I - FINANCIAL INFORMATION


	June 30, 2024		December 31, 2023
Assets
Current assets
Cash and cash equivalents (including $4,705 and $13,566 associated with variable interest entity at June 30, 2024 and December 31, 2023, respectively)	$	19,311	$	23,076
Short-term investments (including $7,132 and $0 associated with variable interest entity at June 30, 2024 and December 31, 2023, respectively)	32,743		26,343
Accounts receivable, net of allowance for bad debt of $491 and $392 at June 30, 2024 and December 31, 2023, respectively	33,683		27,763
Inventories	79,841		71,528
Prepaid expenses and other current assets (including $72 and $82 associated with variable interest entity at June 30, 2024 and December 31, 2023, respectively)	4,265		6,219
Total current assets	169,843		154,929
Property and equipment, net (including $43,578 and $44,185 associated with variable interest entity at June 30, 2024 and December 31, 2023, respectively)	92,281		95,226
Deposits	159		1,047
Goodwill	3,510		3,510
Intangible assets, net	313		327
Operating right-of-use assets	43,403		20,739
Other non-current assets (including $44 and $53 associated with variable interest entity at June 30, 2024 and December 31, 2023, respectively)	1,184		619
Total assets	$	310,693	$	276,397
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable (including $68 and $63 associated with variable interest entity at June 30, 2024 and December 31, 2023, respectively)	$	24,316	$	18,446
Accrued expenses (including $268 and $591 associated with variable interest entity at June 30, 2024 and December 31, 2023, respectively)	13,947		10,576
Related party payable	3,873		5,306
Customer deposits (including $0 and $116 associated with variable interest entity at June 30, 2024 and December 31, 2023)	877		951
Long-term debt, current portion (including $1,150 and $1,122 associated with variable interest entity at June 30, 2024 and December 31, 2023, respectively)	1,150		1,122
Operating lease liabilities, current portion	7,758		4,800
Other current liabilities (including $2,186 and $1,302 associated with variable interest entity at June 30, 2024 and December 31, 2023, respectively)	3,686		3,200
Total current liabilities	55,607		44,401


	June 30, 2024		December 31, 2023
Deferred tax liability	4,197		4,197
Long-term debt, net of current portion and debt discount of $172 and $203 at June 30, 2024 and December 31, 2023, respectively (including $47,844 and $48,396 associated with variable interest entity at June 30, 2024 and December 31, 2023, respectively, and debt discount of $172 and $203 associated with variable interest entity at June 30, 2024 and December 31, 2023, respectively)	47,844		48,396
Operating lease liabilities, net of current portion	38,854		16,687
Other non-current liabilities (including $116 and $0 associated with variable interest entity at June 30, 2024 and December 31, 2023 respectively)	363		26
Total liabilities	146,865		113,707
Commitments and Contingencies (Note 15)
Karat Packaging Inc. stockholders’ equity
Preferred stock, $0.001 par value, 10,000,000 shares authorized, no shares issued and outstanding, as of June 30, 2024 and December 31, 2023	—		—
Common stock, $0.001 par value, 100,000,000 shares authorized, 20,037,665 and 20,014,665 shares issued and outstanding, respectively, as of June 30, 2024 and 19,988,482 and 19,965,482 shares issued and outstanding, respectively, as of December 31, 2023	20		20
Additional paid in capital	88,307		86,667
Treasury stock, $0.001 par value, 23,000 shares as of both June 30, 2024 and December 31, 2023	(248)		(248)
Retained earnings	69,633		67,679
Total Karat Packaging Inc. stockholders’ equity	157,712		154,118
Noncontrolling interest	6,116		8,572
Total stockholders’ equity	163,828		162,690
Total liabilities and stockholders’ equity	$	310,693	$	276,397

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

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,
	2024		2023		2024		2023
Net sales	$	112,600	$	108,740	$	208,213	$	204,541
Cost of goods sold	69,193		66,879		127,204		124,536
Gross profit	43,407		41,861		81,009		80,005
Operating expenses:
Selling expenses	13,868		8,871		24,631		17,572
General and administrative expenses (including $689 and $647 associated with variable interest entity for the three months ended June 30, 2024 and 2023; respectively, $1,245 and $1,318 associated with variable interest entity for the six months ended June 30, 2024 and 2023, respectively)	17,893		17,192		34,662		33,821
Impairment expense and loss, net, on disposal of machinery	531		2,459		2,525		2,541
Total operating expenses	32,292		28,522		61,818		53,934
Operating income	11,115		13,339		19,191		26,071
Other income (expenses)
Rental income (including $258 and $239 associated with variable interest entity for the three months ended June 30, 2024 and 2023; respectively, $513 and $486 associated with variable interest entity for the six months ended June 30, 2024 and 2023, respectively)	600		275		891		522
Other income (expenses), net	51		118		106		(90)
Gain (loss) on foreign currency transactions	317		322		439		(105)
Interest income (including $133 and $182 associated with variable interest entity for the three months ended June 30, 2024 and 2023; respectively, $346 and $198 associated with variable interest entity for the six months ended June 30, 2024 and 2023, respectively)	533		519		964		586
Interest expense (including $519 and $565 associated with variable interest entity for the three months ended June 30, 2024 and 2023; respectively, $1,036 and $971 associated with variable interest entity for the six months ended June 30, 2024 and 2023, respectively)	(548)		(573)		(1,072)		(980)
Total other income (expenses), net	953		661		1,328		(67)
Income before provision for income taxes	12,068		14,000		20,519		26,004
Provision for income taxes	2,841		3,323		4,816		6,141
Net income	9,227		10,677		15,703		19,863
Net income attributable to noncontrolling interest	127		175		437		356
Net income attributable to Karat Packaging Inc.	$	9,100	$	10,502	$	15,266	$	19,507
Basic and diluted earnings per share:
Basic	$	0.46	$	0.53	$	0.76	$	0.98
Diluted	$	0.45	$	0.53	$	0.76	$	0.98
Weighted average common shares outstanding, basic	19,994,250		19,886,585		19,981,928		19,887,023
Weighted average common shares outstanding, diluted	20,113,842		19,953,510		20,094,664		19,947,155

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

KARAT PACKAGING INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(In thousands, except share and per share data)


	Common Stock			Treasury Stock			Additional Paid-in Capital		Retained Earnings		Total Stockholders’ Equity Attributable to Karat Packaging Inc.		Noncontrolling Interest		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance, January 1, 2023	19,908,005	$	20	(23,000)	$	(248)	$	85,792	$	56,118	$	141,682	$	10,251	$	151,933
Issuance of common stock upon vesting of restricted stock units, net shares withheld to cover taxes	2,452	—		—	—		(14)		—		(14)		—		(14)
Stock-based compensation	—	—		—	—		277		—		277		—		277
Net income	—	—		—	—		—		9,005		9,005		181		9,186
Balance, March 31, 2023	19,910,457	$	20	(23,000)	$	(248)	$	86,055	$	65,123	$	150,950	$	10,432	$	161,382
Cash dividends declared ($0.35 per share)	—	—		—	—		—		(6,965)		(6,965)		—		(6,965)
Issuance of common stock upon vesting of restricted stock units, net shares withheld to cover taxes	582	—		—	—		(4)		—		(4)		—		(4)
Stock-based compensation	—	—		—	—		216		—		216		—		216
Net income	—	—		—	—		—		10,502		10,502		175		10,677
Balance, June 30, 2023	19,911,039	$	20	(23,000)	$	(248)	$	86,267	$	68,660	$	154,699	$	10,607	$	165,306

	Common Stock			Treasury Stock			Additional Paid-in Capital		Retained Earnings		Total Stockholders’ Equity Attributable to Karat Packaging Inc.		Noncontrolling Interest		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance, January 1, 2024	19,988,482	$	20	(23,000)	$	(248)	$	86,667	$	67,679	$	154,118	$	8,572	$	162,690
Cash dividends declared ($0.30 per share)	—	—		—	—		—		(5,992)		(5,992)		—		(5,992)
Issuance of common stock upon vesting of restricted stock units	3,750	—		—	—		—		—		—		—		—
Stock-based compensation	—	—		—	—		375		—		375		—		375
Exercise of stock options	2,800	—		—	—		52		—		52		—		52
Global Wells noncontrolling membership interest redemption	—	—		—	—		—		(316)		(316)		(2,893)		(3,209)
Net income	—	—		—	—		—		6,166		6,166		310		6,476
Balance, March 31, 2024	19,995,032	$	20	(23,000)	$	(248)	$	87,094	$	67,537	$	154,403	$	5,989	$	160,392
Cash dividends declared ($0.35 per share)	—	—		—	—		—		(7,004)		(7,004)		—		(7,004)
Issuance of common stock upon vesting of restricted stock units	27,800	—		—	—		—		—		—		—		—
Stock-based compensation	—	—		—	—		940		—		940		—		940
Exercise of stock options	14,833	—		—	—		273		—		273		—		273
Net income	—	—		—	—		—		9,100		9,100		127		9,227
Balance, June 30, 2024	20,037,665	$	20	(23,000)	$	(248)	$	88,307	$	69,633	$	157,712	$	6,116	$	163,828

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

KARAT PACKAGING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)


	Six Months Ended June 30,
	2024		2023
Cash flows from operating activities
Net income	$	15,703	$	19,863
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including $607 associated with variable interest entity for both the six months ended June 30, 2024 and 2023, respectively)	5,289		5,350
Adjustments to allowance for bad debt	140		(843)
Adjustments to inventory reserve	375		(408)
Write-off of inventory	451		2,944
Impairment of deposits	—		523
Impairment of operating right-of-use asset	1,993		—
Loss, net, on disposal of machinery and equipment	532		2,018
Amortization of loan fees (including $31 associated with variable interest entity for both the six months ended June 30, 2024 and 2023, respectively)	46		40
Accrued interest on certificates of deposit (including $132 and $0 associated with variable interest entity for the six months ended June 30, 2024 and 2023, respectively)	(299)		—
Stock-based compensation	1,315		493
Amortization of operating right-of-use assets	3,461		2,281
(Increase) decrease in operating assets
Accounts receivable (including $0 and $3 associated with variable interest entity for the six months ended June 30, 2024 and 2023, respectively)	(6,060)		(2,061)
Inventories	(9,139)		(7,625)
Prepaid expenses and other current assets (including $12 and $9 associated with variable interest entity for the six months ended June 30, 2024 and 2023, respectively)	1,976		478
Other non-current assets (including $10 and $21 associated with variable interest entity for the six months ended June 30, 2024 and 2023, respectively)	(165)		(36)
Increase (decrease) in operating liabilities
Accounts payable (including $5 and $1 associated with variable interest entity for the six months ended June 30, 2024 and 2023, respectively)	6,300		4,006
Accrued expenses (including $323 and $336 associated with variable interest entity for the six months ended June 30, 2024 and 2023, respectively)	3,371		(1,059)
Related party payable	(1,433)		2,187
Income taxes payable	—		5,105
Customer deposits (including $0 and $49 associated with variable interest entity for the six months ended June 30, 2024 and 2023, respectively)	(449)		(302)
Operating lease liabilities	(3,093)		(2,205)
Other liabilities	(60)		304
Net cash provided by operating activities	$	20,254	$	31,053


	Six Months Ended June 30,
	2024		2023
Cash flows from investing activities
Purchases of property and equipment	(415)		(1,816)
Proceeds on disposal of property and equipment	90		28
Payments for costs incurred from sale of machinery and equipment	—		(209)
Deposits paid for joint venture investment	—		(2,900)
Deposits refunded from joint venture investment	—		6,900
Deposit refund from cancelled property and equipment purchase	—		503
Deposits paid for property and equipment	(2,041)		(3,823)
Purchases of short-term investments (including $7,000 and $8,000 associated with variable interest entity for the six months ended June 30, 2024 and 2023, respectively)	(22,513)		(28,000)
Redemption of short-term investments	16,412		—
Net cash used in investing activities	$	(8,467)	$	(29,317)
Cash flows from financing activities
Proceeds from long-term debt (including $0 and $8,000 associated with variable interest entity for the six months ended June 30, 2024 and 2023, respectively)	—		8,000
Payments for lender fees	—		(61)
Payments on long-term debt (including $555 and $476 associated with variable interest entity for the six months ended June 30, 2024 and 2023, respectively)	(555)		(476)
Tax withholding on vesting of restricted stock units	—		(18)
Proceeds from exercise of common stock options	325		—
Dividends paid to shareholders

SEC Form 10-Q filed by Karat Packaging Inc.