krt-20240930

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 September 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 November 4, 2024 was 20,024,105 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	33

Item 4.	Controls and Procedures	33

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		37

KARAT PACKAGING INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share and per share data)

PART I - FINANCIAL INFORMATION


	September 30, 2024		December 31, 2023
Assets
Current assets
Cash and cash equivalents (including $1,210 and $13,566 associated with variable interest entity at September 30, 2024 and December 31, 2023, respectively)	$	38,903	$	23,076
Short-term investments (including $11,128 and $0 associated with variable interest entity at September 30, 2024 and December 31, 2023, respectively)	21,531		26,343
Accounts receivable, net of allowance for bad debt of $562 and $392 at September 30, 2024 and December 31, 2023, respectively	33,868		27,763
Inventories	70,918		71,528
Prepaid expenses and other current assets (including $58 and $82 associated with variable interest entity at September 30, 2024 and December 31, 2023, respectively)	4,869		6,219
Total current assets	170,089		154,929
Property and equipment, net (including $43,275 and $44,185 associated with variable interest entity at September 30, 2024 and December 31, 2023, respectively)	90,132		95,226
Deposits	282		1,047
Goodwill	3,510		3,510
Intangible assets, net	307		327
Operating right-of-use assets	41,391		20,739
Other non-current assets (including $42 and $53 associated with variable interest entity at September 30, 2024 and December 31, 2023, respectively)	1,092		619
Total assets	$	306,803	$	276,397
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable (including $67 and $63 associated with variable interest entity at September 30, 2024 and December 31, 2023, respectively)	$	23,375	$	18,446
Accrued expenses (including $366 and $591 associated with variable interest entity at September 30, 2024 and December 31, 2023, respectively)	12,751		10,576
Related party payable	3,963		5,306
Deferred revenue (including $0 and $116 associated with variable interest entity at September 30, 2024 and December 31, 2023)	909		951
Long-term debt, current portion (including $1,165 and $1,122 associated with variable interest entity at September 30, 2024 and December 31, 2023, respectively)	1,165		1,122
Operating lease liabilities, current portion	8,616		4,800
Other current liabilities (including $2,186 and $1,302 associated with variable interest entity at September 30, 2024 and December 31, 2023, respectively)	3,700		3,200
Total current liabilities	54,479		44,401


	September 30, 2024		December 31, 2023
Deferred tax liability	4,197		4,197
Long-term debt, net of current portion and debt discount of $156 and $203 at September 30, 2024 and December 31, 2023, respectively (including $47,565 and $48,396 associated with variable interest entity at September 30, 2024 and December 31, 2023, respectively, and debt discount of $156 and $203 associated with variable interest entity at September 30, 2024 and December 31, 2023, respectively)	47,565		48,396
Operating lease liabilities, net of current portion	36,603		16,687
Other non-current liabilities (including $116 and $0 associated with variable interest entity at September 30, 2024 and December 31, 2023 respectively)	363		26
Total liabilities	143,207		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 September 30, 2024 and December 31, 2023	—		—
Common stock, 0.001 par value, 100,000,000 shares authorized, 20,044,105 and 20,021,105 shares issued and outstanding, respectively, as of September 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	88,823		86,667
Treasury stock, $0.001 par value, 23,000 shares as of both September 30, 2024 and December 31, 2023	(248)		(248)
Retained earnings	68,717		67,679
Total Karat Packaging Inc. stockholders’ equity	157,312		154,118
Noncontrolling interest	6,284		8,572
Total stockholders’ equity	163,596		162,690
Total liabilities and stockholders’ equity	$	306,803	$	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 September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Net sales	$	112,771	$	105,528	$	320,984	$	310,069
Cost of goods sold	69,274		66,584		196,478		191,120
Gross profit	43,497		38,944		124,506		118,949
Operating expenses
Selling expenses	13,746		8,004		38,377		25,500
General and administrative expenses (including $643 and $702 associated with variable interest entity for the three months ended September 30, 2024 and 2023; respectively, $1,888 and $2,020 associated with variable interest entity for the nine months ended September 30, 2024 and 2023, respectively)	18,508		19,870		53,170		53,767
Impairment expense and (gain) loss, net, on disposal of machinery	(27)		(310)		2,498		2,231
Total operating expenses	32,227		27,564		94,045		81,498
Operating income	11,270		11,380		30,461		37,451
Other income (expenses)
Rental income (including $263 and $235 associated with variable interest entity for the three months ended September 30, 2024 and 2023; respectively, $776 and $721 associated with variable interest entity for the nine months ended September 30, 2024 and 2023, respectively)	593		259		1,484		781
Other income (expenses), net	48		32		154		(58)
(Loss) gain on foreign currency transactions	(287)		455		152		350
Interest income (including $123 and $80 associated with variable interest entity for the three months ended September 30, 2024 and 2023; respectively, $469 and $278 associated with variable interest entity for the nine months ended September 30, 2024 and 2023, respectively)	770		454		1,734		1,040
Interest expense (including $517 and $528 associated with variable interest entity for the three months ended September 30, 2024 and 2023; respectively, $1,553 and $1,499 associated with variable interest entity for the nine months ended September 30, 2024 and 2023, respectively)	(535)		(536)		(1,607)		(1,516)
Total other income, net	589		664		1,917		597
Income before provision for income taxes	11,859		12,044		32,378		38,048
Provision for income taxes	2,597		2,904		7,413		9,045
Net income	9,262		9,140		24,965		29,003
Net income attributable to noncontrolling interest	168		75		605		431
Net income attributable to Karat Packaging Inc.	$	9,094	$	9,065	$	24,360	$	28,572
Basic and diluted earnings per share:
Basic	$	0.45	$	0.46	$	1.22	$	1.44
Diluted	$	0.45	$	0.45	$	1.21	$	1.43
Weighted average common shares outstanding, basic	20,017,774		19,890,646		19,993,964		19,888,244
Weighted average common shares outstanding, diluted	20,133,813		19,994,648		20,107,801		19,962,999

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
Cash dividends declared ($0.50 per share)	—	—		—	—		—		(9,952)		(9,952)		—		(9,952)
Stock-based compensation	—	—		—	—		250		—		250		—		250
Exercise of stock options	5,800	—		—	—		103		—		103		—		103
Noncontrolling interest tax withholding	—	—		—	—		—		—		—		(94)		(94)
Net income	—	—		—	—		—		9,065		9,065		75		9,140
Balance, September 30, 2023	19,916,839	$	20	(23,000)	$	(248)	$	86,620	$	67,773	$	154,165	$	10,588	$	164,753


	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	—	—		—	—

SEC Form 10-Q filed by Karat Packaging Inc.