Karat(KRT) - 2025 Q3 - Quarterly Results

Financial Performance - Record quarterly net sales of $124.5 million, up 10.4% from $112.8 million in the prior-year quarter[6] - Net income for the third quarter was $7.6 million, compared to $9.3 million in the prior-year quarter, resulting in a net income margin of 6.1%[13] - Adjusted EBITDA for the third quarter was $13.1 million, with an adjusted EBITDA margin of 10.5%, down from 13.0% in the prior-year quarter[14] - Net sales for Q3 2025 reached $124.5 million, a 10.4% increase from $112.8 million in Q3 2024[28] - Adjusted diluted earnings per common share for the first nine months of 2025 was $1.27, compared to $1.35 per share in the same period last year[22] - Operating income for Q3 2025 decreased to $8.6 million, compared to $11.3 million in Q3 2024, reflecting a decline in operating margin from 10.0% to 6.9%[28] - Net income attributable to Karat Packaging Inc. for Q3 2025 was $7.3 million, down from $9.1 million in Q3 2024, with diluted earnings per share of $0.36[28] - The diluted earnings per common share for Q3 2025 was $0.36, compared to $0.45 in Q3 2024, while the nine-month diluted earnings per share was $1.22 for 2025, slightly up from $1.21 in 2024[36] Cost and Expenses - Gross margin decreased to 34.5%, down from 38.6% in the prior-year quarter, primarily due to increased import costs[10] - Cost of goods sold for the third quarter increased 17.8% to $81.6 million, driven by higher import duties and tariffs[9] - Operating expenses for the third quarter were $34.3 million, an increase from $32.2 million in the prior-year quarter, mainly due to higher shipping costs[11] - Gross profit for Q3 2025 was $42.9 million, slightly down from $43.5 million in Q3 2024, resulting in a gross margin of 34.4%[28] - Stock-based compensation expense for Q3 2025 was $0.01 per share, down from $0.02 per share in Q3 2024[36] Guidance and Future Projections - Full year guidance maintained for net sales, gross margin, and adjusted EBITDA margin, pending potential impacts from additional tariff changes[6] - Anticipated new business supplying paper bags projected to add approximately $20 million in annual revenue, with full fulfillment expected by Q1 2026[7] Cash Flow and Assets - Cash and cash equivalents decreased to $24.0 million from $31.6 million at the end of 2024[32] - Net cash provided by operating activities for the nine months ended September 30, 2025, was $18.5 million, down from $39.7 million in the same period of 2024[32] - Free Cash Flow for the nine months ended September 30, 2025, was $14,694 million, a decrease from $36,424 million in the same period of 2024[38] - Total assets increased to $302.8 million as of September 30, 2025, compared to $294.5 million at the end of 2024[32] - The company reported a total of $84.1 million in inventories as of September 30, 2025, up from $70.7 million at the end of 2024[32] - Total liabilities increased to $141.3 million as of September 30, 2025, compared to $132.3 million at the end of 2024[32] Adjusted EBITDA and Non-GAAP Measures - Adjusted EBITDA for Q3 2025 was $13.1 million, representing 10.5% of net sales, compared to $14.7 million or 13.0% in Q3 2024[33] - The adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by net sales, providing insight into operational efficiency[41] - The company emphasizes the use of non-GAAP financial measures to assess core performance, which may not be directly comparable to other companies[39] - Future financial targets for adjusted EBITDA margin are subject to variability and complexity, making precise GAAP reconciliations challenging[41] Other Financial Information - The company incurred secondary offering transaction costs of $214 million for the nine months ended September 30, 2025, impacting the adjusted earnings per share[37] - The company reported a net income of $9,262 million for the three months ended September 30, 2024, with a significant contribution from interest income and tax provisions[35] - For the nine months ended September 30, 2025, consolidated Adjusted EBITDA reached $42,656 million, with Karat Packaging at $39,854 million and Global Wells at $2,937 million[35] - Adjusted EBITDA for the three months ended September 30, 2024, was $14,715 million, with Karat Packaging contributing $13,850 million and Global Wells contributing $894 million[35]