Karat(KRT) - 2025 Q2 - Quarterly Results

Financial Performance Overview Second Quarter 2025 Performance Karat Packaging achieved record Q2 2025 net sales of $124.0 million and net income of $11.1 million, driven by volume growth and improved gross margin despite foreign currency losses Key Highlights and Guidance Q2 2025 Financial Highlights (vs. Q2 2024) | Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $124.0M | $112.6M | +10.1% | | Gross Profit | $49.1M | $43.4M | +13.1% | | Gross Margin | 39.6% | 38.5% | +110 bps | | Net Income | $11.1M | $9.2M | +19.8% | | Adjusted EBITDA | $17.7M | $15.7M | +12.8% | - The company successfully navigated trade uncertainty by diversifying its supply chain, reducing sourcing from China to just 10% in the second quarter, with plans to expand into other Asian countries and Latin America[3] Q3 2025 Guidance | Metric | Expected Range | | :--- | :--- | | Net Sales Growth (YoY) | High single-digit to low double-digits | | Gross Margin | Low to mid 30s | | Adjusted EBITDA Margin | 10% to 12% | Detailed Financial Results (Q2 2025) - Net sales growth was driven by a $14.2 million increase from volume and product mix changes, partially offset by a $3.3 million unfavorable impact from year-over-year pricing[6] - Gross margin improved to 39.6% from 38.5%, benefiting from lower product costs due to favorable vendor pricing and product mix, partially offset by higher ocean freight and duty costs[8] - Operating expenses saw a minimal increase of 0.8%, as higher shipping and rent costs were largely offset by reductions in online platform fees, marketing expenses, and stock-based compensation[9] - A significant unfavorable variance in other income/expenses was primarily caused by a $2.9 million loss on foreign currency transactions due to the weakening of the U.S. Dollar against the New Taiwan Dollar[10] Six-Month 2025 Performance For H1 2025, net sales increased 9.3% to $227.6 million and net income grew 13.8% to $17.9 million, primarily due to volume and product mix changes Detailed Financial Results (H1 2025) H1 2025 Financial Summary (vs. H1 2024) | Metric | H1 2025 | H1 2024 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $227.6M | $208.2M | +9.3% | | Gross Profit | $89.9M | $81.0M | +10.9% | | Gross Margin | 39.5% | 38.9% | +60 bps | | Net Income | $17.9M | $15.7M | +13.8% | | Diluted EPS | $0.86 | $0.76 | +13.2% | - The increase in net sales for the first half was primarily driven by a $26.1 million contribution from higher volume and changes in product mix, partially offset by a $7.4 million unfavorable pricing comparison[13] - Operating expenses increased by 6.0% to $65.5 million, mainly due to higher shipping costs ($4.6 million), increased rent expense ($2.1 million), and higher professional fees ($0.5 million) related to a secondary offering[16] Shareholder Information The board approved a regular quarterly dividend of $0.45 per share, with an investor conference call scheduled to discuss Q2 results - On August 5, 2025, Karat's board of directors approved a regular quarterly dividend of $0.45 per share, payable around August 27, 2025, to stockholders of record as of August 20, 2025[21] - An investor conference call was scheduled for August 7, 2025, at 2:00 p.m. Pacific Time to discuss the second quarter results[22] Financial Statements Unaudited financial statements detail Q2 and H1 performance, showing growth in net sales and income, with "Chains and distributors" as the primary sales channel Condensed Consolidated Statements of Income Income Statement Summary (in thousands) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $123,986 | $112,600 | $227,610 | $208,213 | | Gross profit | $49,107 | $43,407 | $89,869 | $81,009 | | Operating income | $16,550 | $11,115 | $24,370 | $19,191 | | Net income | $11,052 | $9,227 | $17,867 | $15,703 | Net Sales by Category Net Sales by Channel (in thousands) | Channel | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Chains and distributors | $97,165 | $87,228 | $177,835 | $162,596 | | Online | $20,884 | $19,546 | $38,675 | $34,425 | | Retail | $5,937 | $5,826 | $11,100 | $11,192 | Selected Balance Sheet and Cash Flow Information Selected Balance Sheet Data (in thousands) | Account | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $30,549 | $31,584 | | Inventories | $88,779 | $70,722 | | Total assets | $320,963 | $294,522 | | Total liabilities | $158,257 | $132,323 | Selected Cash Flow Data (in thousands) | Account | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $17,476 | $20,254 | | Net cash provided by (used in) investing activities | $1,164 | $(8,467) | | Net cash used in financing activities | $(19,675) | $(15,552) | Non-GAAP Financial Measures The company uses non-GAAP measures like Adjusted EBITDA and Adjusted Diluted EPS to provide additional insight into core operating performance, with reconciliations provided Reconciliation of GAAP to Non-GAAP Measures Adjusted EBITDA Reconciliation (in thousands) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $11,052 | $9,227 | $17,867 | $15,703 | | Adjustments | $6,641 | $6,456 | $11,739 | $13,521 | | Adjusted EBITDA | $17,693 | $15,683 | $29,606 | $29,224 | Adjusted Diluted EPS Reconciliation | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Diluted EPS (GAAP) | $0.54 | $0.45 | $0.86 | $0.76 | | Adjustments (per share) | $0.03 | $0.04 | $0.04 | $0.12 | | Adjusted Diluted EPS | $0.57 | $0.49 | $0.90 | $0.88 | Free Cash Flow Reconciliation (in thousands) | Metric | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Cash from operating activities | $17,476 | $20,254 | | Purchase of property and equipment | $(1,263) | $(2,456) | | Free Cash Flow | $16,213 | $17,798 | Use and Definition of Non-GAAP Measures - Management uses non-GAAP measures to assess the core performance of the business and believes they provide useful information to investors for evaluating performance and comparing results across periods[42] - Key non-GAAP measures are defined as follows: - Adjusted EBITDA: Net income excluding interest, taxes, D&A, stock-based compensation, and certain other non-recurring items - Adjusted Diluted EPS: Diluted EPS adjusted for items like stock-based compensation and their tax effects - Free Cash Flow: Cash from operations less purchases of property and equipment[40][44] Corporate Information and Forward-Looking Statements About Karat Packaging Inc. Karat Packaging is a specialty distributor and manufacturer of disposable foodservice products, offering a wide range of items including an eco-friendly line and customized solutions - Karat Packaging is a specialty distributor and manufacturer of disposable foodservice products for restaurants and foodservice settings in the U.S[23] - The company's product portfolio includes food containers, bags, tableware, cups, and specialty beverage ingredients, also featuring the eco-friendly Karat Earth® line made from renewable resources[23] - In addition to its product offerings, Karat provides customized solutions, including new product development, design, printing, and logistics services[24] Caution Concerning Forward-Looking Statements This section warns that forward-looking statements, including financial guidance, are subject to risks and uncertainties that could cause actual results to differ materially - Forward-looking statements, including financial guidance, are predictions based on current expectations and are not guarantees of future performance[25] - Actual results could differ materially from those expressed in forward-looking statements due to various risks and uncertainties, as detailed in the company's SEC filings[25]