Karat Packaging Inc. (NASDAQ:KRT) Q3 2022 Earnings Conference Call November 10, 2022 5:00 PM ET Company Participants Roger Pondel - Investor Relations Alan Yu - Chief Executive Officer Jian Guo - Chief Financial Officer Conference Call Participants Jake Bartlett - Truist Securities Michael Hoffman - Stifel Ryan Merkel - William Blair Operator Good day and welcome to the Karat Packaging Inc. Third Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Af ...

Karat Packaging Inc. (NASDAQ:KRT) Q2 2022 Earnings Conference Call August 11, 2022 5:00 PM ET Company Participants Roger Pondel - Investor Relations Alan Yu - Chief Executive Officer Jian Guo - Chief Financial Officer Conference Call Participants Jake Bartlett - Truist Securities Michael Hoffman - Stifel Paul Dircks - William Blair Operator Ladies and gentlemen, thank you for standing-by, and welcome to the Karat Packaging Second Quarter 2022 Earnings Conference Call. [Operator Instructions] I would now li ...

Financial Performance - The company achieved record quarterly revenues of $114.9 million for the three months ended June 30, 2022, representing a 21.5% increase compared to $94.5 million for the same period in 2021[147]. - Net income for the three months ended June 30, 2022, was $7.2 million, despite challenges from commodity input cost inflation and supply chain disruptions[147]. - The company generated consolidated Adjusted EBITDA of $11.8 million for the three months ended June 30, 2022, an increase of 14.6% compared to the same period in 2021[147]. - Gross profit was $34.0 million for the three months ended June 30, 2022, reflecting a 20.9% increase from $28.1 million in the same period in 2021[155]. - Operating income for the three months ended June 30, 2022, was $7.8 million, a 13.6% increase from $6.9 million in the same period in 2021[157]. - Net income for the three months ended June 30, 2022 was $7.2 million, a decrease of $2.1 million, or 22.9%, compared to $9.3 million for the same period in 2021[160]. - Net sales for the six months ended June 30, 2022 were $220.3 million, an increase of $50.1 million, or 29.4%, compared to $170.2 million for the same period in 2021[161]. - Gross profit for the six months ended June 30, 2022 was $68.3 million, an increase of $18.5 million, or 37.3%, with a gross profit margin of 31.0%[165]. - Operating income for the six months ended June 30, 2022 was $17.3 million, an increase of $6.7 million, or 62.5%, compared to $10.6 million for the same period in 2021[167]. - Adjusted EBITDA for the six months ended June 30, 2022 was $24.8 million, with an Adjusted EBITDA margin of 11.3%, compared to $17.2 million and 10.1% for the same period in 2021[178]. Expenses and Costs - Freight and duty costs totaled $20.7 million during the three months ended June 30, 2022, an increase of $10.9 million from the same period in 2021, primarily due to elevated ocean freight rates[149]. - Operating expenses increased by 23.2% to $26.2 million for the three months ended June 30, 2022, compared to $21.2 million for the same period in 2021[156]. - Operating expenses for the six months ended June 30, 2022 were $51.0 million, an increase of $11.9 million, or 30.4%, compared to $39.1 million for the same period in 2021[166]. - Other income for the six months ended June 30, 2022 was $2.3 million, a decrease of $2.2 million, or 49.3%, compared to $4.5 million for the same period in 2021[168]. - Provision for income taxes for the six months ended June 30, 2022 was $4.4 million, with an effective tax rate of 22.6%, compared to $2.7 million and 18.1% for the same period in 2021[169]. Investments and Growth - The company invested $4.0 million to establish a joint venture in Taiwan for manufacturing compostable foodservice products, with production expected to start in the second half of 2022[147]. - The company added 140,000 square feet of warehouse space in May 2022 to enhance operational efficiency and support future growth[147]. - The company made payments totaling $4.0 million towards a joint venture investment in Taiwan during the three months ended June 30, 2022[185]. - The company anticipates making the remaining investment in the joint venture within the next 12 months[185]. - The increase in net sales was driven by $15.4 million from existing customers and $5.0 million from over 4,000 new customers acquired during the three months ended June 30, 2022[153]. - The increase in net sales was primarily driven by an increase of $41.6 million in product sales to existing customers and $8.5 million from over 9,000 new customers[161]. - The company continues to explore options for strategic acquisitions and investments to support business growth[186]. Cash Flow and Liquidity - For the six months ended June 30, 2022, net cash used in operating activities was $7.7 million, compared to net cash provided of $2.7 million for the same period in 2021[190]. - Net cash used in investing activities for the six months ended June 30, 2022 was $12.4 million, which included $1.6 million for manufacturing equipment and $7.6 million in deposits for additional equipment[192]. - Net cash provided by financing activities for the six months ended June 30, 2022 was $17.1 million, primarily from net borrowings of $11.6 million under the Line of Credit[193]. - The company had $11.6 million outstanding on the Line of Credit, $20.7 million under the 2027 Term Loan, and $22.5 million under the 2026 Term Loan as of June 30, 2022[184]. - As of June 30, 2022, the company reported working capital of $96.7 million, an increase of $24.6 million or 34.1% from $72.1 million at December 31, 2021[188]. - Current assets increased by $31.3 million, driven by a $5.7 million increase in accounts receivable and a $27.0 million increase in inventory due to higher sales volume[188]. - The company expects to meet its long-term liquidity needs with cash flows from operations and financing arrangements[187]. Market Conditions - The COVID-19 pandemic and macroeconomic dynamics have created significant uncertainty in the global economy, potentially affecting operations beyond 2022[186].

KARAT PACKAGING INC. (NASDAQ: KRT) June 2022 Investor Presentation One-Stop-Shop Solutions Disposable Foodservice Products DISCLAIMER Forward-Looking Statements Certain statements made in this presentation regarding Karat Packaging Inc. or its affiliates (the "Company") regarding the Company's expectations, beliefs, goals or prospects may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to numerous c ...

Karat Packaging Inc. (NASDAQ:KRT) Q1 2022 Results Conference Call May 12, 2022 5:00 PM ET Company Participants Roger Pondel - IR, PondelWilkinson Alan Yu - CEO Jian Guo - CFO Conference Call Participants Jake Bartlett - Truist Securities Brian Butler - Stifel Paul Dircks - William Blair Michael Hoffman - Stifel Operator Good day, and welcome to the Karat Packaging Inc. First Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the ...

Table of Contents 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 March 31, 2022 OR ☐ 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 ...

Risks and Challenges - The company faces significant risks related to changes in laws and regulations affecting food and beverage products, which could negatively impact customer demand [75]. - Supply chain disruptions have already affected the company, with increased freight costs and delays leading to diminished margins in 2021, and expectations of continued impacts in 2022 [78]. - Raw material inflation and shortages, particularly of polyethylene terephthalate (PET) plastic resin, could adversely affect the company's financial condition and results of operations [79]. - The competitive landscape is challenging, with larger companies potentially offering superior products or lower prices, which could hinder the company's ability to maintain or grow net sales [80]. - Economic conditions, including consumer spending trends and discretionary income, significantly influence the company's sales, with potential declines in demand due to economic uncertainty [84]. - Changes in freight carrier costs could materially impact the company's results of operations, affecting timely delivery and cost-effectiveness [83]. - The ongoing effects of COVID-19 remain unpredictable, potentially leading to increased operating costs and supply chain disruptions [90]. - The company relies on a non-exclusive supplier network, which poses risks related to timely delivery and compliance with quality standards, potentially harming margins [86]. - Labor cost inflation and the unavailability of skilled workers could disrupt the company's operations, leading to significant losses [103]. - The company may face significant risks due to potential delays or disruptions in the shipment of goods through operational ports, which could harm its business and financial condition [99]. - Inaccurate demand forecasting could lead to excess inventory or shortages, negatively impacting sales and financial performance [95]. - The company may face legal and regulatory proceedings that could harm its financial condition and results of operations, including compliance with various laws and regulations [119]. - Credit risk is a concern for the company, particularly regarding accounts receivable, which could be impacted by customers' ability to meet payment obligations during economic downturns [121]. - The company is subject to payment-related risks, including evolving regulations and potential increases in processing fees, which could affect its operations [120]. - The company may experience difficulties in managing growth, which could lead to operational challenges and impact its profitability if sales do not increase sufficiently [116]. - The company faces risks related to international operations, including potential tariffs and trade restrictions that could materially harm its business and results of operations [125]. - Tariffs could significantly raise product costs, leading to margin erosion or the need to increase prices, which may result in customer loss [126]. - The company relies on overseas manufacturers for product shipments, making it vulnerable to delays and increased costs associated with international logistics [127]. - Foreign exchange rate fluctuations, particularly with the New Taiwan Dollar, could adversely impact the company's financial condition and results of operations [130]. Financial Condition and Capital Structure - The company plans to incur significant capital expenditures for leasing additional warehouse space and investing in its E-commerce platform, which may affect its ability to service existing debt obligations [102]. - The company has identified material weaknesses in its internal control over financial reporting, which could harm its business and lead to a decline in stock price if not remediated effectively [122]. - As of December 31, 2021, the company's disclosure controls and procedures were deemed ineffective due to these material weaknesses [123]. - The company is undertaking steps to improve its internal controls, but there is no assurance that these improvements will be successful or timely [124]. - The company may pursue acquisitions, which could result in operating difficulties and adversely affect its financial condition and growth prospects [133]. - The company does not intend to pay dividends in the foreseeable future, relying on stock price appreciation for investor returns [144]. - Karat Packaging Inc. has approximately $36.7 million in outstanding indebtedness as of December 31, 2021, secured by the company's property and equipment [147]. - The company relies on cash generated from its wholly-owned subsidiary, Lollicup, for funding operations and future dividend payments [145]. - The ability of subsidiaries to distribute cash is subject to restrictions in subsidiary agreements and applicable laws, which could impact the company's operations [145]. - The company may face significant operating and financial restrictions due to its debt agreements, potentially limiting its ability to incur additional debt or transfer assets [148]. - If the company fails to comply with debt covenants, it could trigger defaults, leading to acceleration of debt repayment [148]. Corporate Governance and Compliance - As of March 1, 2022, directors and significant stockholders own 73.1% of the company's common stock, which could limit changes in corporate control [131]. - The company is classified as an "emerging growth company," allowing it to delay adopting new financial accounting standards, which may affect investor attractiveness [153]. - The company intends to take advantage of exemptions from certain reporting requirements, which could result in a less active trading market for its common stock [154]. - The company must comply with various laws and regulations as a public entity, increasing legal and financial compliance costs [157]. - Effective internal controls over financial reporting are crucial; any failure could adversely affect the company's financial position and results [159]. - The success of new product designs and developments is critical for maintaining and increasing sales, with potential costs and risks associated with product quality and market acceptance [107].

Table of Contents 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, 2021 OR ☐ 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 cha ...

Financial Data and Key Metrics Changes - For Q3 2021, net sales increased by 35% year-over-year to $103 million, with adjusted EBITDA at $8.2 million, down from $9.1 million a year ago [15][24] - Gross margin for Q3 2021 was 29%, a decline of 120 basis points compared to 30.2% in the same period last year, primarily due to increased freight costs [19][23] - Operating income decreased by 24% to $5 million, with an operating margin of 5.2% compared to 9.2% for the same period last year [22] Business Line Data and Key Metrics Changes - Sales from distributors, the largest channel, grew by 44%, while sales from national chains expanded by 24% [16] - Online sales rose by 64% year-over-year, reflecting strong demand and continued investment in this channel [11][17] - Retail channel sales fell by 14% as some sales shifted to online channels [17] Market Data and Key Metrics Changes - The company experienced inventory shortages due to tight labor conditions and port delays, impacting sales capacity [11] - Gross margin was negatively affected by increased landed costs, including freight and duty fees of approximately $1.8 million [12][19] Company Strategy and Development Direction - The company is targeting net sales in the range of $93 million to $96 million for Q4 2021, representing a 34% increase at the midpoint compared to the same period last year [14] - To mitigate supply constraints, the company is increasing imports from overseas and finding new vendors [34][55] - The company is investing in additional manufacturing capacity, including new machines and hiring more staff to meet demand [63] Management's Comments on Operating Environment and Future Outlook - Management noted that demand remains strong, particularly for environmentally friendly products, and expects continued growth despite supply constraints [8][26] - The company anticipates improvements in gross margins in Q4 due to price increases and lower landed costs from inventory [13][40] - Management expressed concerns about ongoing supply chain challenges and inflationary pressures impacting costs [46][68] Other Important Information - Net income for Q3 2021 was $4.1 million, down from $4.6 million in the same period last year, with diluted earnings per share of $0.19 compared to $0.26 [23] - The effective tax rate was 24% for both periods, with expectations to remain in the mid-20% range for 2021 [22] Q&A Session Summary Question: Supply constraints and seasonality impact - Management confirmed that demand is currently higher than supply, which may lessen the typical seasonal decline in Q4 [30][31] Question: Future supply improvements - Management indicated that supply constraints are expected to persist into 2022, particularly for paper products, but they are working to increase inventory from overseas [33][34] Question: Gross margin expectations - Management expects gross margins to improve in Q4 due to price increases and lower costs from inventory [40][41] Question: Restaurant customer insights - Management reported strong demand for takeout and delivery, with some customers seeing a 30% to 40% increase in holiday season takeout [43][44] Question: Year-over-year price inflation - Management noted significant price increases due to rising labor and freight costs, with no signs of price stability [45][46] Question: EBITDA margin guidance - Management reaffirmed the target of 9% to 11% EBITDA margin for the year-end, expecting strong performance in Q4 [50][51] Question: Manufacturing capacity expansion - Management is actively adding manufacturing capacity and hiring more staff to meet increased demand [63] Question: Impact of port penalties - Management estimated that potential penalties from the Port of Los Angeles could add significant costs, impacting overall inflation [65][68]

Financial Performance - Net sales for the three months ended June 30, 2021, were $94.5 million, an increase of $9.8 million or 12% compared to $84.7 million for the same period in 2020[158]. - Gross profit decreased by $0.8 million or 3% to $28.1 million, with a gross profit margin of 29.7%, down from 34.1% in the prior year[162]. - Operating income for the three months ended June 30, 2021, was $6.9 million, a decrease of $7.6 million or 53% compared to $14.5 million in the same period in 2020[164]. - Net income for the three months ended June 30, 2021, was $9.3 million, a decrease of $0.6 million or 6% from $9.9 million in the prior year[166]. - Adjusted EBITDA for the three months ended June 30, 2021, was $10.1 million, a decrease of $6.4 million or 39% compared to $16.5 million in the same period in 2020[168]. - Net sales increased by $21.4 million, or 14%, to $170.2 million for the six months ended June 30, 2021, compared to $148.8 million for the same period in 2020[171]. - Adjusted EBITDA decreased by $5.5 million, or 25%, to $16.9 million for the six months ended June 30, 2021, compared to $22.4 million for the same period in 2020[180]. - Gross profit increased by $2.9 million, or 6%, to $49.7 million for the six months ended June 30, 2021, with a gross profit margin of 29.2%, down from 31.4% in the prior year[175]. - Net income increased by $1.9 million, or 18%, to $12.4 million for the six months ended June 30, 2021, compared to $10.5 million for the same period in 2020[179]. Expenses and Costs - Cost of goods sold increased by $10.6 million or 19% to $66.4 million for the three months ended June 30, 2021, primarily due to an increase in product costs and freight expenses[159]. - Operating expenses rose by $6.8 million or 47% to $21.2 million, driven by increased shipping costs, payroll-related costs, and rent expenses[163]. - Operating expenses rose by $10.9 million, or 39%, to $39.1 million for the six months ended June 30, 2021, primarily due to increased shipping and payroll-related costs[176]. Customer Acquisition and Market Trends - The company acquired more than 9,000 new customers in the three months ended June 30, 2021, contributing to increased product sales[158]. - The company anticipates a positive impact on operations from the growing trend towards eco-friendly and compostable single-use products due to environmental concerns[184]. - Personal protective equipment sales have declined to under 1% of net sales for the first two fiscal quarters of 2021, indicating a shift in product focus[186]. Capital Expenditures and Investments - Cash and cash equivalents were approximately $7.7 million as of June 30, 2021, with expected capital expenditures of $6.3 million for the next twelve months[189]. - The company has commitments for capital expenditures not expected to exceed $6.3 million, primarily for manufacturing equipment in Texas[193]. - The Company acquired a warehouse building in Summerville, SC for $1.1 million, adding an additional distribution facility expected to be operational by September 2021[232]. - The company anticipates future capital expenditures of up to $3.2 million for manufacturing equipment in Texas[205]. Debt and Financing - Total enforceable and legally binding obligations as of June 30, 2021 amounted to $122.3 million, with long-term debt accounting for $37.2 million[206][209]. - The line of credit had approximately $3.2 million outstanding as of June 30, 2021, down from $33.2 million at December 31, 2020[199]. - Net cash provided by financing activities for the six months ended June 30, 2021 was $14.8 million, compared to $24.0 million in the same period of 2020[194]. - The company received $5.0 million under the Paycheck Protection Program, which was fully forgiven on June 10, 2021[202][203]. - The company maintains a minimum debt service coverage ratio of 1.20 to 1.00 as per its loan agreements[195][200]. - The company recorded a gain of $5.0 million from the forgiveness of the PPP loan in its income statement for the six months ended June 30, 2021[203]. Compliance and Accounting - As of June 30, 2021, the company was in compliance with all covenants included in its business loan agreements[198][201]. - The Company is an emerging growth company and has elected to take advantage of reduced public company reporting requirements under the JOBS Act[224]. - The Company plans to adopt new accounting standards in the annual reporting period beginning after December 15, 2021, and is currently assessing the impact on its consolidated financial statements[230]. - The FASB issued ASU 2016-02, requiring lessees to recognize operating leases on their balance sheet as a right-of-use asset and corresponding lease liability[225]. - The Company is currently considered a smaller reporting company, which affects its market risk disclosures[233]. - The Company periodically reviews the recoverability of deferred tax assets and provides valuation allowances as deemed necessary by management[219]. - Adequate provisions for income taxes have been made for all years, with management making judgments on tax law interpretations that may be challenged upon audit[220]. - The Company adopted ASU 2018-07 as of January 1, 2020, which did not have a material impact on its financial position or results of operations[228].