Karat(KRT)2024-11-08 19:31Net Sales and Revenue - Net sales for the three months ended September 30, 2024 were $112.8 million, a 6.9% increase compared to $105.5 million in the same period last year, driven by a $9.4 million increase in volume and product mix, and $3.0 million from online sales platform fees, partially offset by a $5.7 million unfavorable pricing comparison[96] - Net sales for the nine months ended September 30, 2024, increased by 3.5% YoY to $321.0 million, driven by higher volume and product mix changes[104] Gross Profit and Margin - Gross margin for the three months ended September 30, 2024 was 38.6%, an increase of 170 basis points compared to the same period last year[87] - Gross profit for Q3 2024 increased to $43.5 million, up 11.7% YoY, with gross margin improving to 38.6% from 36.9% in Q3 2023[98] - Gross profit for the nine months ended September 30, 2024, increased by 4.7% YoY to $124.5 million, with gross margin improving to 38.8% from 38.4%[107] Net Income - Net income for the three months ended September 30, 2024 was $9.3 million, a 1.3% increase compared to $9.1 million in the same period last year[87] - Net income for Q3 2024 was $9.3 million, a slight increase of 1.3% YoY, primarily due to a reduction in income tax provision[103] - Net income for the nine months ended September 30, 2024, decreased by 13.9% YoY to $25.0 million, driven by lower operating income[112] - Net income for the nine months ended September 30, 2024, was $25.0 million (7.8% of net sales), compared to $29.0 million (9.4% of net sales) in the same period in 2023[121] Cost of Goods Sold - Cost of goods sold for the three months ended September 30, 2024 was $69.3 million, a 4.0% increase compared to $66.6 million in the same period last year, driven by a $1.4 million increase in ocean freight and duty costs and $0.7 million in production expenses[97] - Cost of goods sold for the nine months ended September 30, 2024, increased by 2.8% YoY to $196.5 million, primarily due to higher freight and duty costs[106] Operating Expenses and Income - Operating expenses for Q3 2024 rose to $32.2 million, a 16.9% increase YoY, driven by online sales platform fees and new distribution center costs[100] - Operating expenses for the nine months ended September 30, 2024, increased by 15.4% YoY to $94.0 million, driven by online sales platform fees and new distribution center costs[108] - Operating income for the nine months ended September 30, 2024, decreased by 18.7% YoY to $30.5 million, primarily due to higher operating expenses[109] Adjusted EBITDA - Adjusted EBITDA for the three months ended September 30, 2024 was $14.7 million, a 3.4% decrease compared to the same period last year[89] - Adjusted EBITDA for Q3 2024 was $14.7 million, representing 13.0% of net sales, compared to $15.2 million (14.4% of net sales) in Q3 2023[119] - Adjusted EBITDA for the nine months ended September 30, 2024, was $43.9 million, representing 13.7% of net sales, compared to $51.6 million (16.6% of net sales) in the same period in 2023[121] Cash Flow and Liquidity - The company generated $19.5 million in net cash from operating activities for the three months ended September 30, 2024, compared to $12.0 million in the same period last year[88] - Net cash provided by operating activities for the nine months ended September 30, 2024, was $39.7 million, compared to $43.1 million in the same period in 2023[137] - Net cash provided by investing activities for the nine months ended September 30, 2024, was $1.8 million, primarily due to $38.6 million in redemptions of short-term investments, partially offset by $33.6 million in purchases of short-term investments[139] - Net cash used in investing activities was $21.3 million for the nine months ended September 30, 2023, primarily including $18.0 million in net purchases of short-term investments, $5.4 million of deposits for property and equipment, and $2.9 million for direct purchases of property and equipment[140] - Net cash used in financing activities was $25.7 million for the nine months ended September 30, 2024, primarily including $23.0 million of cash dividends paid to shareholders and $2.3 million for the redemption of a non-controlling member's interest in Global Wells[141] - Net cash used in financing activities was $9.6 million for the nine months ended September 30, 2023, primarily including $16.9 million of cash dividends paid to shareholders and $0.7 million of term loan repayments, partially offset by $8.0 million of additional borrowings under the 2027 Term Loan[142] Dividends and Financial Liquidity - The company declared a quarterly cash dividend of $0.40 per share on November 5, 2024, payable on or around November 29, 2024[89] - The company declared a quarterly cash dividend of $0.40 per share on November 5, 2024, with total dividends paid in the current fiscal year amounting to $23.0 million[130] - The company had financial liquidity of $75.1 million and additional short-term investments of $21.5 million as of September 30, 2024[89] Working Capital and Liabilities - Working capital increased by $5.1 million (4.6%) to $115.6 million as of September 30, 2024, driven by a $15.2 million increase in current assets, partially offset by a $10.1 million increase in current liabilities[135] - The company has an import duty liability reserve of $3.0 million as of September 30, 2024, related to an ongoing investigation by U.S. Customs and Border Protection[129] Loans and Credit Facilities - The company has a $40.0 million revolving loan facility with a standby letter of credit sublimit of $5.0 million, of which $3.8 million was issued as of September 30, 2024, leaving $36.2 million available for borrowing[125] - As of September 30, 2024, the company had $27.8 million outstanding under the 2027 Term Loan and $21.1 million outstanding under the 2026 Term Loan[128] Government Grants and Other Income - The company received government grants totaling $1.5 million and $1.3 million for Lollicup and Global Wells, respectively, as of September 30, 2024, which have not yet been recognized as other income[132] Related Party Transactions and Accounting - Significant related party transactions are detailed in Note 13 of the Condensed Consolidated Financial Statements[143] - Recent accounting pronouncements are summarized in Note 2 of the Condensed Consolidated Financial Statements[144] - Quantitative and qualitative disclosures about market risk are not required for smaller reporting companies[145] Distribution Centers and Manufacturing - The company operates a 500,000 square foot distribution center in Rockwall, Texas, a 300,000 square foot distribution center in Chino, California, and a 76,000 square foot distribution center in Kapolei, Hawaii, with selected manufacturing capabilities in all facilities[86] Eco-Friendly Products - Eco-friendly products accounted for 33.4% of total sales during the three months ended September 30, 2024, up from 32.7% in the same period last year[90]