• Karat Packaging Reports 2021 First Quarter Financial Results

    المصدر: Nasdaq GlobeNewswire / 27 مايو 2021 16:05:00   America/New_York

    CHINO, Calif., May 27, 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 first quarter ended March 31, 2021.

    First Quarter 2021 Highlights

    • Net sales of $75.7 million, up 18.1 percent from $64.1 million for the same period last year
    • Gross profit of $21.6 million, up 20.9 percent from $17.9 million for the same period last year
    • Gross margin of 28.6 percent, up 70 basis points from 27.9 percent for the same period last year
    • Acquired Pacific Cup, Inc., adding the company’s sixth distribution center and third manufacturing plant

    Alan Yu, chief executive officer, said, “Results for the 2021 first quarter reflected strong customer demand, particularly for the company’s environmentally friendly products, and demonstrated our ability to deliver customized solutions to a diverse and expanding customer base. Sales grew at a rapid pace in our distributor and online channels, based, in part, on favorable market trends as more restaurants and foodservice outlets began to open. The increase was partially offset by temporary supply chain disruptions and higher freight costs, and a severe winter storm in February. However, sales rebounded in March, and the positive trend is continuing into the second quarter.

    “We took action in the first quarter to pass on higher costs to customers through a series of targeted price increases that are continuing into the second quarter. We are experiencing solid growth in sales and profitability, as our strong brand recognition, nimble operations and the rapidly increasing size and scope of our distribution network provide us with significant advantages in the foodservice market,” Mr. Yu added.

    First Quarter 2021 Financial Results

    Net sales for the first quarter of 2021 increased 18.1 percent to $75.7 million, from $64.1 million in the same period last year. The increase primarily was driven by greater product penetration with existing customers, new customers added in the quarter, an increase in direct-to-consumer sales through the company’s online channel and higher logistic service and shipping revenue.

    Gross profit for the 2021 first quarter increased 20.9 percent to $21.6 million, from $17.9 million in the same period last year, primarily reflecting higher-margin sales through the company’s online channel, partially offset by an increase in freight costs.

    Operating expenses for the 2021 first quarter totaled $17.9 million, a 29.4 percent increase from $13.8 million in last year’s first quarter. The increase was primarily due to higher shipping costs, payroll expenses associated with workforce expansion, an increase in facility costs and higher professional fees.

    Operating income in the first quarter of 2021 was $3.8 million, or 5.0 percent of net sales, compared with $4.1 million, or 6.4 percent of net sales, in the same period last year.

    Other income was $465,000 in the 2021 first quarter, compared with other expense of $3.3 million in the same period last year. The change primarily reflected a decrease in interest expense as a result of changes in the fair value of interest rate swap positions.

    Net income was $3.1 million in the 2021 first quarter, compared with $567,000 in the same period last year. Net income margin was 4.0 percent in the first quarter, compared with 0.9 percent in the same period last year. The increase in net income attributable to noncontrolling interests in the 2021 first quarter compared to the same period last year is due to changes in the fair value of interest rate swap positions held by Global Wells, the company’s variable interest entity used to manage certain facilities. Net income attributable to Karat Packaging was $1.8 million, or $0.12 per diluted share, compared with $2.5 million, or $0.16 per diluted share.

    Adjusted EBITDA amounted to $6.8 million in the 2021 first quarter, compared with $6.0 million in the same period last year. Adjusted EBITDA margin was 9.0 percent of net sales, compared with 9.3 percent in the same period last year. 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 provided by operating activities rose to $4.5 million in the 2021 first quarter, from $1.5 million in the same period last year. The increase primarily reflects improvements in working capital.

    In the 2021 first quarter, Karat Packaging completed the acquisition of Pacific Cup, Inc., including its manufacturing and distributing facility in Hawaii. The acquisition increases the company’s network to six distribution centers and three manufacturing plants.

    On April 15, 2021, Karat Packaging completed an initial public offering (IPO) of its common stock, which resulted in the issuance and sale of 3,950,000 shares at a public offering price of $16.00 per share. On April 23, 2021, the company’s lead underwriter exercised an overallotment option of 592,500 shares at the IPO price of $16.00 per share. Gross proceeds in the IPO totaled approximately $72.7 million. In connection with the IPO, the company used a portion of the proceeds to pay down an aggregate of $50.2 million in principal balance of its loan obligations.

    Investor Conference Call

    The Company will host an investor conference call today, May 27, 2021, at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time).

    Phone: 877-270-2148 (domestic); 412-902-6510 (international)
    Replay: Accessible through June 3, 2021; 877-344-7529 (domestic); 412-317-0088 (international); replay access code 10156716
    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

    This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements 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 company’s registration statement for the initial public offering filed with the SEC on April 14, 2021. Copies are available on the SEC’s 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/Jeff Misakian/Roger Pondel
    310-279-5980        
    karat@pondel.com


    (tables below)


    KARAT PACKAGING INC. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

      Three Months Ended March 31, 
      2021  2020 
    Net sales $75,673,000  $64,083,000 
    Cost of goods sold  54,047,000   46,192,000 
    Gross profit  21,626,000   17,891,000 
             
    Operating expenses:        
    Selling expense  6,400,000   4,701,000 
    General and administrative expense (including $0.6 million and $0.1 million associated with variable interest entity for the three-months ended March 31, 2021 and 2020, respectively)  11,455,000   9,102,000 
    Total operating expenses  17,855,000   13,803,000 
    Operating income  3,771,000   4,088,000 
             
    Other income (expense)        
    Rental income (including $0.2 million and $0 associated with variable interest entity for the three-months ended March 31, 2021 and 2020, respectively)  246,000   - 
    Other income  106,000   26,000 
    Loss on foreign currency transactions  (165,000)  (41,000)
    Interest income (expense) (including $0.8 million interest income and $2.4 million interest expense associated with variable interest entity for the three-months ended March 31, 2021 and 2020, respectively)  278,000   (3,306,000)
    Total other income (expense)  465,000   (3,321,000)
    Income before provision for income tax  4,236,000   767,000 
             
    Provision for income tax  1,186,000   200,000 
             
    Net income  3,050,000   567,000 
             
    Net income (loss) attributable to noncontrolling interest  1,270,000   (1,884,000)
             
    Net income attributable to Karat Packaging Inc. $1,780,000  $2,451,000 
             
    Basic and diluted earnings per share:        
    Basic $0.12  $0.16 
    Diluted $0.12  $0.16 
             
    Weighted average common shares outstanding, basic  15,167,000   15,190,000 
    Weighted average common shares outstanding, diluted  15,403,000   15,461,000 
             


    KARAT PACKAGING INC. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

      March 31,  December 31, 
      2021  2020 
    Assets      
           
    Current assets        
    Cash and cash equivalents (including $0.1 million associated with variable interest entity at March 31, 2021 and December 31, 2020) $961,000  $448,000 
    Accounts receivable, net of allowance for doubtful accounts of $0.3 million at March 31, 2021 and December 31, 2020  25,579,000   23,838,000 
    Inventories  46,065,000   48,961,000 
    Prepaid expenses and other current assets (including $0.1 million associated with variable interest entity at March 31, 2021 and December 31, 2020)  3,422,000   6,530,000 
    Total current assets  76,027,000   79,777,000 
    Property and equipment, net (including $47.5 million and $47.8 million associated with variable interest entity at March 31, 2021 and December 31, 2020, respectively)  93,865,000   95,533,000 
    Deposits  2,845,000   2,456,000 
    Goodwill  3,510,000   3,113,000 
    Intangible assets, net  400,000   - 
    Deferred tax asset  64,000   64,000 
    Other assets (including $0.1 million associated with variable interest entity at March 31, 2021 and December 31, 2020)  159,000   161,000 
    Total assets $176,870,000  $181,104,000 
             
    Liabilities and Stockholders’ Equity        
             
    Current liabilities        
    Accounts payable (including $0 and $0.6 million associated with variable interest entity at March 31, 2021 and December 31, 2020, respectively) $17,186,000  $20,069,000 
    Accrued expenses (including $0.2 million and $0.1 million associated with variable interest entity at March 31, 2021 and December 31, 2020, respectively)  5,510,000   4,959,000 
    Related party payable  3,420,000   5,038,000 
    Credit cards payable  634,000   794,000 
    Income taxes payable  -   41,000 
    Customer deposits (including $0.1 and $0 million associated with variable interest entity at March 31, 2021 and December 31, 2020)  635,000   551,000 
    Capital leases, current portion  325,000   321,000 
    Long-term debt, current portion (including $0.7 million associated with variable interest entity at March 31, 2021 and December 31, 2020, respectively)  11,841,000   11,364,000 
    Total current liabilities  39,551,000   43,137,000 
             
    Deferred tax liability  6,181,000   6,181,000 
    Line of credit  33,239,000   33,169,000 
    Long-term debt, net of current portion (including $36.5 million and $36.7 million associated with variable interest entity at March 31, 2021 and December 31, 2020, respectively, and debt discount of $0.1 million associated with variable interest entity at March 31, 2021 and December 31, 2020)  51,048,000   53,410,000 
    Capital leases, net of current portion  207,000   290,000 
    Other liabilities (including $2.6 million and $3.9 million associated with variable interest entity at March 31, 2021 and December 31, 2020, respectively)  3,726,000   5,049,000 
    Total liabilities  133,952,000   141,236,000 
             
    Karat Packaging Inc. stockholders’ equity        
    Common stock, $0.001 par value, 100,000,000 shares authorized, 15,190,000 shares issued, 15,167,000 shares outstanding at March 31, 2021 and December 31, 2020  15,000   15,000 
    Additional paid in capital  13,981,000   13,981,000 
    Treasury stock, $0.001 par value, 23,000 shares on March 31, 2021 and December 31, 2020  (248,000)  (248,000)
    Retained earnings  20,436,000   18,656,000 
    Total Karat Packaging Inc. stockholders’ equity  34,184,000   32,404,000 
    Noncontrolling interest  8,734,000   7,464,000 
    Total stockholders’ equity  42,918,000   39,868,000 
    Total liabilities and stockholders’ equity $176,870,000  $181,104,000 
             


    KARAT PACKAGING, INC. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

      Three Months Ended March 31, 
      2021  2020 
    Cash flows from operating activities        
    Net income $3,050,000  $567,000 
    Adjustments to reconcile net income to net cash provided by operating activities:        
    Depreciation and amortization  2,464,000   1,892,000 
    Provision for bad debt  -   38,000 
    Change in fair value of interest rate swap  (1,323,000)  2,415,000 
    Amortization of loan fees  3,000   3,000 
    (Increase) decrease in operating assets        
    Accounts receivable  (1,741,000)  (2,006,000)
    Inventories  3,049,000   (1,187,000)
    Prepaid expenses and other current assets  3,108,000   (452,000)
    Due from affiliated companies  -   (14,000)
    Deposits  (41,000)  (2,272,000)
    Other assets  2,000   1,000 
    Increase (decrease) in operating liabilities        
    Accounts payable  (2,883,000)  1,899,000 
    Accrued expenses  551,000   581,000 
    Related party payable  (1,618,000)  469,000 
    Credit cards payable  (160,000)  (285,000)
    Income taxes payable  (41,000)  - 
    Customer deposits  84,000   (148,000)
    Net cash provided by operating activities $4,504,000  $1,501,000 
             
    Cash flows from investing activities        
    Purchases of property and equipment  (273,000)  (2,252,000)
    Deposits paid for property and equipment  (921,000)  (759,000)
    Acquisition of Pacific Cup, Inc.  (900,000)  - 
    Net cash used in investing activities $(2,094,000) $(3,011,000)
             
    Cash flows from financing activities        
    Net proceeds from line of credit  70,000   2,790,000 
    Proceeds from long-term debt, net of issuance cost  -   2,000,000 
    Payments on long-term debt  (1,888,000)  (1,738,000)
    Payments on capital lease obligations  (79,000)  (78,000)
    Net cash (used in) provided by financing activities $(1,897,000) $2,974,000 
             
    Net increase in cash and cash equivalents  513,000   1,464,000 
             
    Cash and cash equivalents        
    Beginning of year $448,000  $802,000 
    End of year $961,000  $2,266,000 
             


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

      Three Months Ended March 31,  
      2021  2020  
    Reconciliation of Adjusted EBITDA (unaudited): (in thousands)  
    Net income: $3,050  $567  
    Add (deduct):         
    Interest expense  (278)  3,306  
    Income tax expense  1,186   200  
    Depreciation and amortization  2,464   1,892  
    IPO related expenses  396   —  
              
    Adjusted EBITDA $6,818   5,965  


      Three Months Ended March 31, 2021
    (in thousands)
    		 
    Reconciliation of Adjusted EBITDA by Entity
    (unaudited):    		  
      Karat Packaging  Global Wells  Eliminations  Consolidated 
    Net Sales $   75,673   $                  —  $             —  $      75,673  
                 
    Net income (loss): $          1,780   $         1,469  $        (199)  $    3,050  
    Add (deduct):            
    Interest expense  553    (831)   —   (278 ) 
    Income tax expense  1,186    —   —   1,186  
    Depreciation and amortization  2,161    303   —   2,464  
    IPO related expenses  396    —   —   396  
                 
    Adjusted EBITDA $        6,076   $              941  $   (199)  $      6,818  
    Net income margin  2.4%           4.0% 
    Adjusted EBITDA margin  8.0%         9.0% 


      Three Months Ended March 31, 2020
    (in thousands)
    		 
    Reconciliation of Adjusted EBITDA by Entity
    (unaudited):    		  
      Karat Packaging  Global Wells  Eliminations  Consolidated 
    Net Sales $64,083   $—  $—  $64,083  
                 
    Net income (loss): $2,451   $(2,178) $294  $567  
    Add (deduct):            
    Interest expense  860    2,446   —   3,306  
    Income tax expense  200    —   —   200  
    Depreciation and amortization  1,833    59   —   1,892  
                 
    Adjusted EBITDA $5,344   $327  $294  $5,965  
    Net income margin  3.8%           0.9% 
    Adjusted EBITDA margin  8.3%         9.3% 

    We define net income margin as net income by net sales and adjusted EBITDA margin as adjusted EBITDA divided by net sales.

    Note about Non-GAAP Financial Measures

    Karat 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 SUBSIDIARIES
    NET SALES BY CATEGORY
    (Unaudited)

      Three Months Ended March 31,
      2021 2020
    National Distribution $18,289,000 $15,498,000
    Distributors  40,010,000  33,934,000
    Online  11,443,000  6,286,000
    Retail  5,931,000  8,365,000
      $75,673,000 $64,083,000

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