Karat(KRT)2021-08-13 21:22Financial 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].