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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 9, 2023
Karat Packaging Inc.
(Exact name of registrant as specified in its charter)
Delaware001-4033683-2237832
(State or other jurisdiction of incorporation(Commission File Number(IRS 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:
N/A
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a -12)
oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e -4(c))
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.001 par value per shareKRTThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant is an emerging growth company as defined in in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b -2 of this chapter).
Emerging growth company ☒
If an emerging growth company, indicate by checkmark 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.o
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Item 2.02. Results of Operations and Financial Condition.

    On November 9, 2023, Karat Packaging Inc. (the "Company”) issued a press release reporting its financial results for the quarter ended September 30, 2023. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

    The information furnished pursuant to this Item 2.02, including Exhibit 99.1, shall not be deemed "filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act”), or otherwise subject to the liabilities under that section and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.


Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

Exhibit
Number		Description
99.1
104Cover Page Interactive Data File (embedded within the Inline XBRL document)

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: November 9, 2023
KARAT PACKAGING INC.
By:
/s/ Jian Guo
Jian Guo
Chief Financial Officer
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Karat Packaging Reports 2023 Third Quarter Financial Results
49% Expansion of Net Income with Continued Success in Growth Strategy Execution

CHINO, Calif, November 9, 2023 – 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 third quarter and nine-months ended September 30, 2023.

Third Quarter 2023 Highlights

•Quarterly net sales of $105.5 million, down 4.1 percent from the prior year quarter.
•Gross profit of $38.9 million, up 14.0 percent from the prior year quarter.
•Gross margin of 36.9 percent versus 31.1 percent in the prior year quarter.
•Net income of $9.1 million, up 48.5 percent from the prior year quarter.
•Net income margin of 8.7 percent versus 5.6 percent in the prior year quarter.
•Adjusted EBITDA of $15.2 million, up $3.5 million, or 29.6 percent from the prior year quarter.
•Adjusted EBITDA margin of 14.4 percent versus 10.7 percent in the prior year quarter.

Guidance

•Net sales for the 2023 fourth quarter expected to increase 2 to 5 percent from the prior year quarter.
•Net sales for the 2023 full year expected to decrease by mid-single digit.
•Gross margin goal for the 2023 fourth quarter: 36.0 to 38.0 percent versus 32.0 percent for 2022 fourth quarter.
•Gross margin goal for the 2023 full year: 37.5 to 38.5 percent versus 31.2 percent for 2022.
•Eco-friendly product sales objective for the 2023 full year: 33 to 34 percent of total sales, compared with 27 percent in 2022.

“We delivered another strong performance for our third quarter. Sales volume was approximately seven percent higher than the prior year’s quarter, although total revenue again was impacted by unfavorable year-over-year pricing comparison,” said Alan Yu, Chief Executive Officer. “Margin growth continued to benefit from our strategy to scale back manufacturing operations in the U.S. and significant lower ocean freight costs compared with the previous year.”

“Sales of our eco-friendly products continued to improve and represented approximately 33 percent of total sales in the third quarter, versus 27 percent last year. Online channel sales also increased during the third quarter. Our new Chicago and Houston distribution centers, which became fully operational by the end of the quarter, are expected to contribute to new geographical market penetration and to enhance fill rates. We also anticipate doubling the size of our Washington distribution center with the move into a new 100,000 square-foot distribution center later this year. Additionally, as part of our strategic growth plan,
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we are looking to open smaller satellite warehouses in 2024 in select regions to support online sales growth, as well as deploying AI technologies to further improve operating efficiency.”

“With our strong operating cash flow and balance sheet, our board of directors earlier this week authorized an increase in the quarterly cash dividend payment to $0.20 per share from $0.10 per share. The board’s action reflects its confidence in Karat’s long-term future,” Yu added.

Third Quarter 2023 Financial Results

Net sales for the 2023 third quarter decreased 4.1 percent to $105.5 million, from $110.0 million in the prior year quarter, primarily due to unfavorable year-over-year pricing comparison, as the Company proactively passed on savings from ocean freight and raw material costs to customers, as well as lower logistics services and shipping revenue, partially offset by an increase in volume and change in product mix.

Gross profit for the 2023 third quarter increased 14.0 percent to $38.9 million, from $34.2 million in the prior year quarter.

Gross margin expanded 580 basis points to 36.9 percent in the 2023 third quarter, from 31.1 percent in the prior year quarter. Despite the unfavorable impact from price reductions, gross margin benefited from the Company’s efforts to scale back manufacturing operations in favor of imports, the strong US dollar, as well as a significant decrease in ocean freight costs. Ocean freight cost as a percentage of net sales was 7.9 percent during the 2023 third quarter, down from 14.8 percent in the prior year quarter.

Operating expenses in the 2023 third quarter were $27.6 million, or 26.1 percent of net sales, compared with $26.3 million, or 23.9 percent of net sales, in the prior year quarter. The increase was primarily due to workforce expansion and the shift towards imports as we reduced production but increased warehouse headcount, higher marketing expense to support online sales growth, higher professional expenses in connection with the secondary offering completed during the quarter, and higher rental expense from the additional leased warehouses. The increase in operating expenses was partially offset by a decrease in shipping and transportation costs due to lower shipping rates.

Operating income in the 2023 third quarter increased 43.9 percent to $11.4 million, or 10.8 percent of net sales, from $7.9 million, or 7.2 percent of net sales, in the prior year quarter.

Other income, net totaled $0.7 million for the 2023 third quarter, compared with $0.1 million in the prior year quarter, primarily due to an increase in interest income of $0.5 million.

The effective tax rate for the 2023 third quarter was 24.1 percent, compared with 23.6 percent for the prior year quarter.

Net income for the 2023 third quarter increased 48.5 percent to $9.1 million, from $6.2 million for the prior year quarter. Net income margin rose to 8.7 percent in the 2023 third quarter, from 5.6 percent in the prior year quarter.

Net income attributable to Karat for the 2023 third quarter advanced to $9.1 million, or $0.45 per diluted share, from $6.1 million, or $0.31 per diluted share, in the prior year quarter.

Adjusted EBITDA, a non-GAAP measure defined below, increased to $15.2 million in the 2023 third quarter, from $11.7 million in the prior year quarter. Adjusted EBITDA margin, a non-GAAP measure defined below, rose to 14.4 percent of net sales, from 10.7 percent in the prior year quarter.
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Adjusted diluted earnings per common share, a non-GAAP measure defined below, rose to $0.47 per share, from $0.33 per share in the prior year quarter.

Nine Month 2023 Financial Results

Net sales for the first nine months of 2023 decreased 6.1 percent to $310.1 million, from $330.3 million in the same period last year.

Gross profit for the first nine months of 2023 increased 16.1 percent to $118.9 million, from $102.4 million in the same period last year. Gross margin for the first nine months of 2023 of 38.4 percent included a 60-basis-point impact from the write-off of raw materials associated with the disposal of certain machinery in the second quarter. The 740-basis-points improvement in gross margin from 31.0 percent in the same period last year was primarily due to the Company’s efforts to scale back manufacturing operations in favor of imports, the strong US dollar, and a significant decrease in ocean freight costs. Ocean freight cost as a percentage of net sales was 6.7 percent during the first nine months of 2023, down from 15.8 percent for the same period in 2022.

Operating expenses were $81.5 million for the nine months of 2023, or 26.3 percent of net sales, compared with $77.2 million or 23.4 percent of net sales in the same period last year. The increase was primarily due to the impairment expense and loss, net, on disposal of machinery due to the Company’s scaling back manufacturing in the U.S., workforce expansion and the shift towards import, higher marketing expense to support online sales growth, and higher rental expense from the additional leased warehouses partially offset by reduced shipping and transportation costs due to lower shipping rates.

Operating income increased 48.6 percent to $37.5 million for the first nine months of 2023, or 12.1 percent of net sales, compared with $25.2 million, or 7.6 percent of net sales, in the same period last year.

Other income, net was $0.6 million in the first nine months of 2023, compared with $2.4 million in the same period last year, which consisted primarily of gains associated with an interest rate swap.

Net income increased 36.2 percent to $29.0 million for the first nine months of 2023, from $21.3 million in the same period last year. Net income margin increased to 9.4 percent in the first nine months of 2023, compared with 6.4 percent in the same period last year. Net income attributable to Karat was $28.6 million, or $1.43 per diluted share, for the first nine months of 2023, compared with $19.1 million, or $0.96 per diluted share, in the same period last year.

Adjusted EBITDA, a non-GAAP measure defined below, increased to $51.6 million in the first nine months of 2023, compared with $36.6 million in the same period last year. Adjusted EBITDA margin, a non-GAAP measure defined below, increased to 16.6 percent in the 2023 year-to-date period, compared with 11.1 percent in the same period last year.

Adjusted diluted earnings per common share, a non-GAAP measure defined below, rose to $1.62 per share in the first nine months of 2023, from $1.03 per share in the same period last year.

Investor Conference Call

The Company will host an investor conference call today, November 9, 2023, at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time) to discuss its 2023 third quarter results.

Phone: 877-418-4045 (domestic); 412-317-6745 (international)
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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 Statements
Statements 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 Sfetcu/Roger Pondel
310-279-5980
ir@karatpackaging.com










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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,
2023202220232022
Net sales$105,528 $109,996 $310,069 $330,290 
Cost of goods sold66,584 75,828 191,120 227,869 
Gross profit38,944 34,168 118,949 102,421 
Operating expenses
Selling expense8,004 9,413 25,500 28,218 
General and administrative expense (including $702 and $665 associated with variable interest entity for the three months ended September 30, 2023 and 2022, respectively; $2,020 and $1,899 associated with variable interest entity for the nine months ended September 30, 2023 and 2022, respectively)
19,870 16,861 53,767 49,033 
Impairment expense and (gain) loss, net, on disposal of machinery
(310)(16)2,231 (33)
Total operating expenses27,564 26,258 81,498 77,218 
Operating income11,380 7,910 37,451 25,203 
Other income (expense)
Rental income (including $235 and $239 associated with variable interest entity for the three months ended September 30, 2023 and 2022, respectively; and $721 and $715 associated with variable interest entity for the nine months ended September 30, 2023 and 2022, respectively)
259 239 781 715 
Other income (expense), net 32 28 (58)(235)
Gain on foreign currency transactions455 369 350 1,352 
Interest income (including $80 and $0 interest income associated with variable interest entity for the three months ended September 30, 2023 and 2022, respectively; and $278 and $2,160 interest income associated with variable interest entity for the nine months ended September 30, 2023 and 2022, respectively)
454 — 1,040 2,160 
Interest expense (including $528 and $470 interest expense associated with variable interest entity for the three months ended September 30, 2023 and 2022, respectively; and $1,499 and $1,379 interest expense associated with variable interest entity for the nine months ended September 30, 2023 and 2022, respectively)
(536)(493)(1,516)(1,576)
Total other income, net664 143 597 2,416 
Income before provision for income taxes12,044 8,053 38,048 27,619 
Provision for income taxes2,904 1,900 9,045 6,323 
Net income9,140 6,153 29,003 21,296 
Net income attributable to noncontrolling interest75 57 431 2,189 
Net income attributable to Karat Packaging Inc.$9,065 $6,096 $28,572 $19,107 
Basic and diluted earnings per share:
Basic$0.46 $0.31 $1.44 $0.96 
Diluted$0.45 $0.31 $1.43 $0.96 
Weighted average common shares outstanding, basic19,890,646 19,809,417 19,888,244 19,808,813 
Weighted average common shares outstanding, diluted19,994,648 19,938,042 19,962,999 19,922,047 



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KARAT PACKAGING INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share and per share data)
September 30, 2023December 31, 2022
Assets
Current assets
Cash and cash equivalents (including $7,770 and $2,022 associated with variable interest entity at September 30, 2023 and December 31, 2022, respectively)
$28,162 $16,041 
Short-term investments (including $8,000 and $0 associated with variable interest entity at September 30, 2023, and December 31, 2022, respectively)
18,063 — 
Accounts receivable, net of allowance for doubtful accounts of $430 and $1,260 at September 30, 2023 and December 31, 2022, respectively (including $0 and $6 associated with variable interest entity at September 30, 2023 and December 31, 2022, respectively)
33,984 29,912 
Inventories 71,657 71,206 
Prepaid expenses and other current assets (including $25 and $191 associated with variable interest entity at September 30, 2023 and December 31, 2022, respectively)
6,823 6,641 
Total current assets 158,689 123,800 
Property and equipment, net (including $44,489 and $45,399 associated with variable interest entity at September 30, 2023 and December 31, 2022, respectively)
96,690 95,568 
Deposits 1,672 12,413 
Goodwill 3,510 3,510 
Intangible assets, net333 353 
Operating right-of-use assets17,068 15,713 
Other assets (including $55 and $38 associated with variable interest entity at September 30, 2023 and December 31, 2022, respectively)
2,002 818 
Total assets$279,964 $252,175 
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable (including $60 and $2 associated with variable interest entity at September 30, 2023 and December 31, 2022, respectively)
$19,384 $18,559 
Accrued expenses (including $461 and $625 associated with variable interest entity at September 30, 2023 and December 31, 2022, respectively)
8,858 9,005 
Related party payable 2,555 4,940 
Income taxes payable 8,010 — 
Customer deposits (including $116 and $165 associated with variable interest entity at September 30, 2023 and December 31, 2022, respectively)
803 1,281 
Long-term debt, current portion (including $1,111 and $957 associated with variable interest entity at September 30, 2023 and December 31, 2022, respectively)
1,111 957 
Operating lease liabilities, current portion4,927 4,511 
Other payables49 — 
Total current liabilities 45,697 39,253 
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September 30, 2023
December 31, 2022
Deferred tax liability 5,156 5,156 
Long-term debt, net of current portion and debt discount of $219 and $216 at September 30, 2023 and December 31, 2022, respectively (including $48,668 and $41,558 associated with variable interest entity at September 30, 2023 and December 31, 2022, respectively, and debt discount of $219 and $216 associated with variable interest entity at September 30, 2023 and December 31, 2022, respectively)
48,668 41,558 
Operating lease liabilities, net of current portion12,866 11,623 
Other liabilities (including $1,302 associated with variable interest entity at both September 30, 2023 and December 31, 2022)
2,824 2,652 
Total liabilities 115,211 100,242 

Karat Packaging Inc. stockholders’ equity
Preferred stock, $0.001 par value, 10,000,000 shares authorized, no shares issued and outstanding, at both September 30, 2023 and December 31, 2022
— — 
Common stock, $0.001 par value, 100,000,000 shares authorized, 19,916,839 and 19,893,839 shares issued and outstanding, respectively, as of September 30, 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 86,620 85,792 
Treasury stock, $0.001 par value, 23,000 shares at both September 30, 2023 and December 31, 2022
(248)(248)
Retained earnings 67,773 56,118 
Total Karat Packaging Inc. stockholders’ equity 154,165 141,682 
Noncontrolling interest 10,588 10,251 
Total stockholders’ equity 164,753 151,933 
Total liabilities and stockholders’ equity$279,964 $252,175 

















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KARAT PACKAGING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
Nine Months Ended September 30,
20232022
Cash flows from operating activities
Net income $29,003 $21,296 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including $910 associated with variable interest entity for both the nine months ended September 30, 2023 and 2022)
8,058 7,752 
Adjustments to allowance for doubtful accounts(673)1,112 
Adjustments to inventory reserve(27)441 
Write-off of inventory3,225 — 
Impairment of deposits523 — 
Loss (gain), net, on disposal of machinery and equipment
1,708 (33)
Change in fair value of interest rate swap (including $0 and $2,159 associated with variable interest entity for the nine months ended September 30, 2023 and 2022, respectively)
— (2,159)
Amortization of loan fees (including $41 and $28 associated with variable interest entity for the nine months ended September 30, 2023 and 2022, respectively)
57 28 
Accrued interest on certificates of deposit
(63)— 
Stock-based compensation743 1,774 
Amortization of operating right-of-use assets3,617 2,897 
(Increase) decrease in operating assets
Accounts receivable (including $6 and $21 associated with variable interest entity for the nine months ended September 30, 2023 and 2022, respectively)
(3,399)(5,068)
Inventories (3,649)(15,255)
Prepaid expenses and other current assets (including $22 and $396 associated with variable interest entity for the nine months ended September 30, 2023 and 2022, respectively)
431 (2,264)
Other assets (including $34 and $458 associated with variable interest entity for the nine months ended September 30, 2023 and 2022, respectively)
(75)(43)
Increase (decrease) in operating liabilities
Accounts payable (including $57 and $470 associated with variable interest entity for the nine months ended September 30, 2023 and 2022, respectively)
1,701 459 
Accrued expenses (including $163 and $414 associated with variable interest entity for the nine months ended September 30, 2023 and 2022, respectively)
(147)1,130 
Related party payable (2,385)2,855 
Income taxes payable 8,010 111 
Customer deposits (including $49 and $156 associated with variable interest entity for the nine months ended September 30, 2023 and 2022, respectively)
(478)(29)
Operating lease liability(3,313)(2,897)
Other liabilities (including $0 and $1 associated with variable interest entity for the nine months ended September 30, 2023 and 2022, respectively)
172 150 
Other payables49 242 
Net cash provided by operating activities$43,088 $12,499 
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Nine Months Ended September 30,
2023
2022
Cash flows from investing activities
Purchases of property and equipment(2,870)(2,007)
Proceeds from disposal of property and equipment605 76 
Payments for costs incurred from sale of machinery and equipment(189)— 
Deposits paid for joint venture investment(2,900)(4,000)
Deposits refunded from joint venture investment6,900 — 
Deposit refund from cancelled property and equipment purchase503 — 
Deposits paid for property and equipment(5,390)(11,471)
Proceeds from settlement of interest rate swap (including $0 and $825 associated with variable interest entity for the nine months ended September 30, 2023 and 2022, respectively)
— 825 
Purchase of short-term investments (including $8,000 and $0 associated with variable interest entity for the nine months ended September 30, 2023 and 2022, respectively)
(28,000)— 
Redemption of short-term investments
10,000 — 
Net cash used in investing activities $(21,341)$(16,577)
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 nine months ended September 30, 2023 and 2022, respectively)
8,000 27,477 
Payments for lender fees(61)— 
Payments on long-term debt (including $733 and $21,338 associated with variable interest entity for the nine months ended September 30, 2023 and 2022, respectively)
(733)(21,338)
Tax withholding on vesting of restricted stock units(18)— 
Proceeds from exercise of common stock options103 51 
Dividends paid to shareholders(16,917)— 
Payments of noncontrolling interest tax withholding (including $0 and $1,064 associated with variable interest entity for the nine months ended September 30, 2023 and 2022, respectively)
— (1,064)
Net cash (used in) provided by financing activities $(9,626)$5,126 
Net increase in cash and cash equivalents 12,1211,048
Cash and cash equivalents
Beginning of period $16,041 $6,483 
End of period $28,162 $7,531 
Supplemental disclosures of non-cash investing and financing activities:
Transfers from deposit to property and equipment $8,953 $6,639 
Non-cash purchases of property and equipment$71 $— 
Supplemental disclosures of cash flow information:
Cash paid for income tax $309 $7,069 
Cash paid for interest $1,493 $1,541 





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KARAT PACKAGING INC. AND SUBSIDIARIES
RECONCILIATION 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 September 30,Nine Months Ended September 30,
2023202220232022
Amounts% of net saleAmounts% of net saleAmounts% of net saleAmounts% of net sale
Net income:$9,140 8.7 %$6,153 5.6 %$29,003 9.4 %$21,296 6.4 %
Add (deduct):

Interest income(454)(0.4)— —(1,040)(0.3)(2,160)(0.7)
Interest expense5360.54930.41,5160.51,5760.5
Provision for income taxes
2,9042.81,9001.79,0452.96,3231.9
Depreciation and amortization2,7082.62,6042.58,0582.67,7522.4
Stock-based compensation expense250 0.2598 0.5743 0.21,774 0.6
Secondary offering transaction costs (2)4530.4——4530.1——
Write-off of inventory (1)————1,710 0.6——
Impairment expense and (gain) loss, net, on disposal of machinery (1)
(310)(0.4)— —2,135 0.6— —
Adjusted EBITDA$15,227 14.4 %$11,748 10.7 %$51,623 16.6 %$36,561 11.1 %


Reconciliation of Adjusted Diluted Earnings Per Common ShareThree Months Ended September 30,Nine Months Ended September 30,
 2023202220232022
Diluted earnings per common share:$0.45 $0.31 $1.43 $0.96 
Add (deduct):  
Stock-based compensation expense0.010.030.040.09
Secondary offering transaction costs (2)0.02—0.02—
Write-off of inventory (1)——0.09—
Impairment expense and (gain) loss, net, on disposal of machinery (1)
(0.01)—0.10 —
Income tax impact of adjustments—(0.01)(0.06)(0.02)
Adjusted diluted earnings per common shares$0.47 $0.33 $1.62 $1.03 

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Reconciliation of Adjusted EBITDA by Entity:
Three Months Ended September 30, 2023Nine Months Ended September 30, 2023
Karat PackagingGlobal WellsEliminationsConsolidatedKarat PackagingGlobal WellsEliminationsConsolidated
Net income (loss):$9,039 $87 $14 $9,140 $28,572 $499 $(68)$29,003 
Add (deduct)








Interest income(375)(79)— (454)(762)(295)17 (1,040)
Interest expense8 528 — 536 34 1,499 (17)1,516 
Provision for income taxes
2,904 — — 2,904 9,045 — — 9,045 
Depreciation and amortization2,405 303 — 2,708 7,148 910 — 8,058 
Stock-based compensation expense250 — — 250 743 — — 743 
Secondary offering transaction costs (2)453 — — 453 453 — — 453 
Write-off of inventory (1)— — — — 1,710 — — 1,710 
Impairment expense and (gain) loss, net, on disposal of machinery (1)
(310)— — (310)2,135 — — 2,135 
Adjusted EBITDA$14,374 $839 $14 $15,227 $49,078 $2,613 $(68)$51,623 

(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.



Reconciliation of Adjusted EBITDA by Entity:
Three Months Ended September 30, 2022Nine Months Ended September 30, 2022
Karat PackagingGlobal WellsEliminationsConsolidatedKarat PackagingGlobal WellsEliminationsConsolidated
Net income (loss):$6,060 $66 $27 $6,153 $19,096 $2,531 $(331)$21,296 
Add (deduct)








Interest income— (68)68 — — (2,228)68 (2,160)
Interest expense91 470 (68)493 265 1,379 (68)1,576 
Provision for income taxes
1,900 — — 1,900 6,323 — — 6,323 
Depreciation and amortization2,301 303 — 2,604 6,842 910 — 7,752 
Stock-based compensation expense598 — — 598 1,774 — — 1,774 
Adjusted EBITDA$10,950 $771 $27 $11,748 $34,300 $2,592 $(331)$36,561 

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, and impairment expense and (gain) loss, net, on disposal of machinery outside the normal course of business.
•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
11

of machinery outside the normal course of business, 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.


12

KARAT PACKAGING INC. AND SUBSIDIARIES
NET SALES BY CATEGORY (UNAUDITED)
(In Thousands)

Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
(in thousands)
National and regional chains$23,407 $23,956 $68,602 $73,943 
Distributors61,03763,555178,274189,078
Online14,27114,04443,41943,084
Retail6,8138,44119,77424,185
$105,528 $109,996 $310,069 $330,290 
13
v3.23.3
Cover page
Nov. 09, 2023
Cover [Abstract]  
Document Type 8-K
Document Period End Date Nov. 09, 2023
Entity Registrant Name Karat Packaging Inc.
Entity Incorporation, State or Country Code DE
Entity File Number 001-40336
Entity Tax Identification Number 83-2237832
Entity Address, Address Line One 6185 Kimball Avenue
Entity Address, City or Town Chino
Entity Address, State or Province CA
Entity Address, Postal Zip Code 91708
City Area Code 626
Local Phone Number 965-8882
Written Communications false
Soliciting Material false
Pre-commencement Tender Offer false
Pre-commencement Issuer Tender Offer false
Title of 12(b) Security Common Stock, $0.001 par value per share
Trading Symbol KRT
Security Exchange Name NASDAQ
Entity Emerging Growth Company true
Entity Ex Transition Period false
Amendment Flag false
Entity Central Index Key 0001758021
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