August 11, 2022 16:05 ET | Source: Karat Packaging Inc. Karat Packaging Inc.
Los Angeles, California, UNITED STATES
– Record Quarterly Revenue of $114.9 Million with Continued Strengthening in Profitability –
– Reiterates Revenue and Gross Margin Outlook for 2022 –
CHINO, Calif., Aug. 11, 2022 (GLOBE NEWSWIRE) -- Karat Packaging Inc. (Nasdaq: KRT) (“Karat”), a specialty distributor and manufacturer of environmentally friendly, disposable foodservice products and related items, today announced financial results for its quarter ended June 30, 2022.
“Results for our second quarter continued to reflect strong demand, including our ability to grow wallet share from existing and new customers,” said Alan Yu, chief executive officer. “The positive sales performance was across all categories, paced by 30 percent growth in the distributors channel and 50 percentage growth in our eco-friendly products.”
“Sales were negatively impacted by fewer order fulfillments of approximately $2 million, caused by shipping delays between our Chino manufacturing plant and other Karat warehouses, including two facilities that we recently leased in May 2022. The quarter’s shipping delay issues were transitional due to inventory overflow received in May and June and I thank the entire Karat team for working diligently to resolve the issues.”
“Our joint venture announced in April, Green Earth Technology in Taiwan, is progressing well. The 180,000-square-foot, state-of-the art automated bagasse factory in Taiwan to produce 100% compostable foodservice products is expected to be completed ahead of schedule, with production and initial shipments to begin before the end of this year.”
“As more cities and states in the U.S. and around the world enact new regulations to ban Styrofoam and single use plastic, we are experiencing increased inquiries from national chain and grocery accounts for compostable products. Karat is committed to its leadership position in the eco-friendly disposable foodservice products arena. We are in discussions with our partner to expand the manufacturing capacity in our Taiwan joint venture, and we plan to accelerate our initiative to build a bagasse factory in the U.S. in 2023, using the proprietary manufacturing processes of the new Taiwan facility,” Mr. Yu added.
Net sales for the 2022 second quarter increased 21.5 percent to $114.9 million, from $94.5 million in the prior-year quarter.
Gross profit for the 2022 second quarter increased 20.9 percent to $34.0 million, from $28.1 million in the prior-year quarter.
Despite the higher freight and duty costs in the 2022 second quarter, gross margin was 29.6 percent, consistent with 29.7 percent in the prior-year quarter. Gross margin was favorably impacted by a shift to higher margin products, such as environmentally friendly products, price increases implemented to partially offset increased product, ocean freight and labor costs, favorable foreign currency exchange rate impact, along with improved operating efficiencies and leverage.
Operating expenses in the 2022 second quarter were $26.2 million, or 22.8% of net sales, compared with $21.2 million, or 22.5% of net sales, in the prior-year quarter. The increase included higher rent and stock-compensation expense, incremental warehouse transfer costs to manage inventory overflow, higher demurrage fees, and additional temporary labor costs, including COVID-19 related illness.
Operating income in the second quarter of 2022 was $7.8 million, or 6.8 percent of net sales, compared with $6.9 million, or 7.3 percent of net sales, in the prior-year quarter.
Other income totaled $1.1 million in the 2022 second quarter, compared with $4.0 million in the prior-year quarter. The $1.1 million other income for the three months ended June 30, 2022 consisted primarily of a gain on foreign currency transactions of $0.9 million and net interest income of $0.2 million. The decrease primarily reflects a gain of $5.0 million from forgiveness of the Paycheck Protection Program (PPP) loan, partially offset by an interest expense of $1.1 million in the prior-year quarter.
The effective tax rate for the 2022 second quarter was 19.5 percent, compared with 14.2 percent for the prior-year quarter. The lower tax rate last year was primarily attributable to the gain of $5.0 million from forgiveness of the PPP loan.
Net income and net income margin for the 2022 second quarter were $7.2 million and 6.3 percent, respectively, compared with $9.3 million and 9.9 percent, respectively, in the prior-year quarter. 2021 second quarter results included the $5.0 million gain from forgiveness of the PPP loan. Net income attributable to Karat in the 2022 second quarter was $6.3 million, or $0.32 per diluted share, compared with $9.6 million, or $0.50 per diluted share, in the prior-year quarter.
Adjusted EBITDA totaled $11.8 million in the 2022 second quarter, compared with $10.3 million in the prior-year quarter. Adjusted EBITDA margin, a non-GAAP measure defined below, was 10.3 percent of net sales, compared with 10.9 percent in the prior-year quarter.
Adjusted diluted earnings per common share, a non-GAAP measure defined below, rose to $0.34 per share, from $0.29 per share in the prior-year quarter.
Net sales for the first six months of 2022 increased 29.4 percent to $220.3 million, from $170.2 million in the same period last year.
Gross profit for the first six months of 2022 increased 37.3 percent to $68.3 million, from $49.7 million in the same period last year.
Despite the higher freight and duty costs in the first six months of 2022, gross margin was 31.0 percent, an increase from 29.2 percent in the same period last year. Gross margin was favorably impacted by a shift to higher margin products, such as environmentally friendly products, price increases implemented to partially offset increased product, ocean freight and labor costs, favorable foreign currency exchange rate impact, along with improved operating efficiencies and leverage.
Operating expenses were $51.0 million in the 2022 year-to-date period, compared with $39.1 million in the same period last year. The increase included higher rent, production and stock-compensation expense, incremental warehouse transfer costs to manage inventory overflow, higher demurrage fees, and additional temporary labor costs, including COVID-19 related illness.
Operating income increased to $17.3 million in the first six months of 2022, or 7.8 percent of net sales, compared with $10.6 million, or 6.3 percent of net sales, in the same period last year.
Other income totaled $2.3 million in the first half of 2022, compared with $4.5 million in the same period last year. Other income in the 2021 year-to-date period primarily reflects the $5.0 million gain on forgiveness of the PPP loan recorded in the second quarter.
Net income increased to $15.1 million for the first six months of 2022, from $12.4 million in the same period last year, including the $5.0 million gain on forgiveness of the PPP loan. Net income margin was 6.9 percent in the first six months of 2022, versus 7.3 percent in the same period last year. Net income attributable to Karat was $13.0 million, or $0.65 per diluted share, in the first six months of 2022, compared with $11.4 million, or $0.66 per diluted share, in the same period last year.
Adjusted EBITDA increased to $24.8 million in the first six months of 2022, compared with $17.2 million in the same period last year. Adjusted EBITDA margin was 11.3 percent in the 2022 year-to-date period, compared with 10.1 percent in the same period last year.
The Company will host an investor conference call today, August 11, 2022, at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time) to discuss its 2022 second quarter results.
Phone: 800-715-9871 (domestic); 646-307-1963 (international) Conference ID: 6108821 Webcast: 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 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 continued increases in customer demand, along with achieving third quarter and full year 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 or 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 SEC. 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
KARAT PACKAGING INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except share and per share data)
KARAT PACKAGING INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands, except share and per share data)
KARAT PACKAGING, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)
KARAT PACKAGING INC. AND SUBSIDIARIES RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (UNAUDITED)
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:
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 SUBSIDIARIES NET SALES BY CATEGORY (UNAUDITED) (In Thousands)