GlobeNewswire Inc | Nov 11, 2021 04:10PM EST

November 11, 2021

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 years 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, were 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 Karats 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 years 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 companys 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) Accessible through November 18, 2021;Replay: 877-344-7529 (domestic); 412-317-0088 (international); replay access code 10161613 Accessible at http://Webcast: 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 10161613Webcast: 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 companys 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 companys 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 companys registration statement for the initial public offering filed with the SEC on April 14, 2021. Copies are available on the SECs 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 Pondel310-279-5980karat@pondel.com

(tables follow)

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

Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Net sales $ 102,711 $ 76,317 $ 272,910 $ 225,137 Cost of goods 72,918 53,286 193,393 155,308 soldGross profit 29,793 23,031 79,517 69,829 Operating expenses:Selling 9,855 6,112 24,026 16,241 expenseGeneral andadministrativeexpense(including$0.7 millionand $0.8millionassociatedwith variableinterestentity for thethree-monthsendedSeptember 30,2021 and 2020, 14,573 9,877 39,485 27,948 respectively;and $2.0million and$1.4 millionfor thenine-monthsendedSeptember 30,2021 and 2020,respectively,associatedwith variableinterestentity)Totaloperating 24,428 15,989 63,511 44,189 expensesOperating 5,365 7,042 16,006 25,640 income Other income (expense)Rental income(including$0.2 millionand $0associatedwith variableinterestentity for thethree-monthsendedSeptember 30,2021 and 2020,respectively; 246 66 738 66 and $0.7million and $0for thenine-monthsendedSeptember 30,2021 and 2020,respectively,associatedwith variableinterestentity)Other income 101 24 223 86 Loss onforeign (63 ) (268 ) (347 ) (377 )currencytransactionsInterestexpense(including$0.3 millionand $0.3millioninterestexpenseassociatedwith variableinterestentity for thethree-monthsendedSeptember 30, (308 (847 ) (1,158 ) (4,858 )2021 and 2020, )respectively;and $0.3million and$2.9 millionfor thenine-monthsendedSeptember 30,2021 and 2020,respectively,associatedwith variableinterestentity)Gain onforgiveness of - - 5,000 - debtTotal otherincome (24 ) (1,025 ) 4,456 (5,083 )(expense)Income beforeprovision for 5,341 6,017 20,462 20,557 income tax Provision for 1,268 1,451 4,001 5,483 income taxNet income 4,073 4,566 16,461 15,074 Net income(loss)attributable 287 494 1,312 (1,521 )tononcontrollinginterest Net incomeattributable $ 3,786 $ 4,072 $ 15,149 $ 16,595 to KaratPackaging Inc. Basic anddiluted earnings pershare:Basic $ 0.19 $ 0.27 $ 0.84 $ 1.09 Diluted $ 0.19 $ 0.26 $ 0.84 $ 1.07 Weightedaverage commonshares 19,710,043 15,180,879 17,945,205 15,185,440 outstanding,basicWeightedaverage commonshares 19,881,295 15,451,879 18,110,127 15,456,440 outstanding,diluted

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

September December 31, 30, 2021 2020 Assets Current assets Cash and cash equivalents (including $0.7 millionand $0.1 million associated with variable interest $ 1,679 $ 448 entity at September 30, 2021 and December 31,2020)Accounts receivable, net of allowance for doubtfulaccounts of $0.3 million and $0.3 million atSeptember 30, 2021 and December 31, 2020, 33,276 23,838 respectively (including $0.00 and $0.00 millionassociated with variable interest entity atSeptember 30, 2021 and December 31,2020)Inventories 60,207 48,961 Prepaid expenses and other current assets(including $0.1 million and $0.1 million 5,690 6,530 associated with variable interest entity atSeptember 30, 2021 and December 31, 2020)Total current assets 100,852 79,777 Property and equipment, net (including $46.9million and $47.8 million associated with variable 94,041 95,533 interest entity at September 30, 2021 and December31, 2020, respectively)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 $0.1million associated with variable interest entity 399 161 at September 30, 2021 and December 31, 2020)Total assets $ 203,490 $ 181,104 Liabilities and Stockholders? Equity Current liabilities Accounts payable (including $0 and $0.6 millionassociated with variable interest entity at $ 19,028 $ 20,069 September 30, 2021 and December 31, 2020,respectively)Accrued expenses (including $0.4 million and $0.1million associated with variable interest entity 8,161 4,959 at September 30, 2021 and December 31, 2020,respectively)Related party payable 2,611 5,038 Credit cards payable 131 794 Income taxes payable 106 41 Customer deposits (including $0.1 and $0 millionassociated with variable interest entity at 1,125 551 September 30, 2021 and December 31, 2020)Capital leases, current portion 186 321 Debt, current portion (including $1.2 million and$0.7 million associated with variable interest 1,166 11,364 entity at September 30, 2021 and December 31,2020, respectively)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 debtdiscount of $0.2 million and $0.1 million atSeptember 30, 2021 and 2020, respectively(including $35.6 million and $36.7 millionassociated with variable interest entity at 35,629 53,410 September 30, 2021 and December 31, 2020,respectively, and debt discount of $0.2 millionand $0.1 million associated with variable interestentity at September 30, 2021 and December 31,2020)Capital leases, net of current portion 106 290 Other liabilities (including $2.9 million and $3.9million associated with variable interest entity 4,051 5,049 at September 30, 2021 and December 31, 2020,respectively)Total liabilities 78,481 141,236 Karat Packaging Inc. stockholders? equity Common stock, $0.001 par value, 100,000,000 sharesauthorized, 19,737,500 shares and 19,714,500shares issued and outstanding, respectively, at 20 15 September 30, 2021; 15,190,000 and 15,167,000shares issued and outstanding, respectively, atDecember 31, 2020Additional paid in capital 82,656 13,981 Treasury stock, $0.001 par value, 23,000 and23,000 shares on September 30, 2021 and December (248 ) (248 )31, 2020Retained 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 SUBSIDIARIESCONDENSED 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 $ (1,246 ) $ 12,300 operating activities Cash flows from investing activities Purchases of property and equipment (1,604 ) (27,621 ) Proceeds on disposal of property and - 24 equipment Deposits paid for property and equipment (3,792 ) (5,640 ) Effect on initial consolidation of Lollicup Franchising Inc, net of cash - (893 ) acquired Acquisition of Pacific Cup, Inc., net of (900 ) - cash acquired 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 15,997 24,542 issuance cost Payments on long-term debt (38,985 ) (5,497 )Issuance of common stock in connection withour initial public offering, net of issuance 67,592 - costsDividends 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 1,231 1,265 equivalents Cash and cash equivalents Beginning of year $ 448 $ 802 End of year $ 1,679 $ 2,067

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

Three Months Three Months Nine Months Ended September 30, Ended June 30, Ended September 30, 2021 2020 2021 2021 2020 Reconciliationof Adjusted (in thousands) (in thousands)EBITDA: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 308 847 1,128 1,158 4,858 expenseIncome tax 1,268 1,451 1,547 4,001 5,483 expenseDepreciationand 2,534 2,234 2,479 7,477 6,103 amortizationIPO related ? ? 601 997 ? expensesGain onforgiveness of ? ? (5,000 ) (5,000 ) ? debtAdjusted $ 8,183 $ 9,098 $ 10,093 $ 25,094 $ 31,518 EBITDANet income 4.0 % 6.0 % 9.9 % 6.0 % 6.7 %margin1Adjusted 8.0 % 11.9 % 10.7 % 9.2 % 14.0 %EBITDA margin1



Reconciliation Three Months Ended September 30, 2021 of Adjusted (in thousands)EBITDA byEntity: Karat Packaging Global Wells Eliminations Consolidated Net income $ 3,786 $ 332 $ ) 4,073 (loss): (45Add (deduct): Interest 35 273 ? 308 expenseIncome tax ? ? 1,268 expense 1,268Depreciation and 2,231 303 ? 2,534 amortizationIPO related ? ? ? ? expensesGain onforgiveness of ? ? ? ? debtAdjusted $ $ 908 ) 8,183 EBITDA 7,320 (45

Reconciliationof Adjusted Nine Months Ended September 30, 2021 EBITDA by (in thousands)Entity: Karat Packaging Global Wells Eliminations Consolidated Net income $ 15,149 $ 1,517 $ ) $ 16,461 (loss): (205Add (deduct): Interest 875 283 ? 1,158 expenseIncome tax 4,001 ? ? 4,001 expenseDepreciationand 6,568 910 ? 7,477 amortizationIPO related 997 ? ? 997 expensesGain onforgiveness of (5,000 ) ? ? (5,000 ) debtAdjusted $ 22,589 $ 2,710 $ ) $ 25,094 EBITDA (205

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 MeasuresKarat 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 SUBSIDIARIESNET SALES BY CATEGORY(Unaudited)

Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020National $ 22,894,000 $ 18,426,000 $ 63,493,000 $ 50,092,000Distributors 57,317,000 39,862,000 148,294,000 118,322,000Online 14,644,000 8,928,000 39,790,000 26,472,000Retail 7,856,000 9,101,000 21,333,000 30,251,000Net Sales $ 102,711,000 $ 76,317,000 $ 272,910,000 $ 225,137,000

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

Three Months Ended September 30, 2021 2020National $ 22,871,000 $ 18,317,000 Distributors 56,671,000 35,639,000 Online 14,571,000 8,480,000 Retail 7,802,000 8,747,000 Net sales, excluding PPE $ 101,915,000 $ 71,183,000