Karat Packaging Reports Fourth Quarter and Full Year 2021 Financial Results

– Fourth Quarter Net Sales Grew Nearly 30 Percent;Net Income Increased More than Three-Fold –

CHINO, Calif., March 23, 2022 (GLOBE NEWSWIRE) -- Karat Packaging Inc. (Nasdaq: KRT) (“Karat”), a specialty distributor and manufacturer of environmentally friendly, disposable foodservice products and related items, today announced financial results for the fourth quarter and full year ended December 31, 2021.

Fourth Quarter 2021 Highlights

• Net sales of $91.3 million, up 29.8 percent from the prior-year quarter.
• Gross profit of $28.3 million, up 46.7 percent from the prior-year quarter.
• Gross margin of 31.0 percent, an improvement of 360 basis points over the prior-year quarter.
• Net income of $6.0 million, up more than three-fold over the prior-year quarter.
• Net income margin of 6.5 percent, an improvement of 420 basis points over the prior-year quarter.
• Adjusted EBITDA margin of 11.9 percent, up 550 basis points from the prior-year quarter.

2022 Outlook

• Net sales for the 2022 first quarter: in the range of $101 million to $103 million, compared to $75.7 million for the 2021 first quarter.
• Gross margin for 2022 full year: goal of 31 percent to 32 percent on average.
• Net sales growth for 2022 full year: 17 percent to 19 percent.

Alan Yu, chief executive officer, said, “We delivered record results for the 2021 fourth quarter and continued margin expansion, despite ongoing global supply chain challenges and tight labor conditions and delays in certain shipments to customers from December to January due to inventory shortages resulting from port congestion.

“We are continuing to grow wallet share with our existing customers, while also expanding our customer base and providing new, innovative product offerings. Our online business grew solidly, as we made ongoing investments in this important channel. Additionally, our distributors channel and national and regional chains posted very strong results, with the addition of more than 50 new national and regional restaurant chain accounts for the year. Importantly, with continued focus on the growth of our higher margin channels and products and the improvement in operating efficiencies, we achieved our gross margin target of 31 percent for the fourth quarter.

“Our strong business momentum is continuing into 2022. The foodservice sector is experiencing steady increases in consumer spending, and demand for our environmentally friendly products continues to grow, which bodes well for Karat as a leading industry provider,” Mr. Yu added.

Fourth Quarter 2021 Financial Results

Net sales for the 2021 fourth quarter increased 29.8 percent to $91.3 million, from $70.4 million for the same quarter last year. The increase primarily was driven by greater product penetration with existing customers, new customers added in the quarter, and the ability to pass through inflation-related cost increases. The significant topline growth was broad-based across Karat’s national and regional restaurant chains, distributors and online channels.

Gross profit for the 2021 fourth quarter increased 46.7 percent to $28.3 million, from $19.3 million for the same quarter last year.

Gross margin expanded 360 basis points to 31.0 percent in the 2021 fourth quarter, compared with 27.4 percent for the same quarter last year, as Karat’s improved operating efficiencies more than offset unfavorable increases in inventory and ocean freight costs. Gross margin in the 2021 third quarter was 29.0 percent.

Operating expenses in the 2021 fourth quarter totaled $21.2 million, or 23.2% of net sales, compared with $17.2 million, or 24.5% of net sales, in the prior-year quarter. The increase in operating expenses primarily reflected higher shipping costs and stock-based compensation. Operating expenses in the 2021 third quarter were $24.4 million, or 23.8% of net sales. The reduction in operating expenses as a percentage of net sales from both the prior-year quarter and the third quarter of 2021 demonstrated Karat’s continued improvement in operating efficiencies and cost leverage.

Net income for the 2021 fourth quarter advanced to $6.0 million, from $1.6 million for the same quarter last year. Net income margin was 6.5 percent for the 2021 fourth quarter, compared with 2.3 percent a year ago. Net income was $4.1 million, and net income margin was 4.0 percent, for the 2021 third quarter.

Net income attributable to Karat for the 2021 fourth quarter was $5.6 million, or $0.28 per diluted share, compared with $922,000, or $0.06 per diluted share, in the prior-year quarter, and $3.8 million, or $0.19 per diluted share, for the 2021 third quarter.

Adjusted EBITDA, a non-GAAP measure defined below, totaled $10.9 million for the 2021 fourth quarter, compared with $4.5 million for the same quarter last year, and $9.0 million for the 2021 third quarter. Adjusted EBITDA margin, a non-GAAP measure defined below, expanded to 11.9 percent of net sales, compared with 6.4 percent for the 2020 fourth quarter, and 8.8 percent in the 2021 third quarter.

Adjusted diluted earnings per common share, a non-GAAP measure defined below, rose more than five-fold to $0.32, from $0.06 per share in the prior-year quarter.

Net cash provided by operating activities amounted to $9.9 million for the 2021 fourth quarter, compared with $2.2 million for the same quarter last year. The improvement was primarily driven by the $4.4 million increase in net income, a $6.9 million favorable change in working capital partially offset by a $3.6 million decrease in net favorable non-cash reconciling items.

Full Year 2021 Financial Results

Net sales for 2021 increased 23.3 percent to $364.2 million, from $295.5 million for 2020. Net sales related to personal protective equipment (PPE) products declined from the peak of $38.1 million for 2020 to $2.7 million for 2021.

Gross profit for 2021 rose 21.0 percent to $107.8 million, from $89.1 million for 2020. Gross margin for 2021 was 29.6 percent, compared with 30.2 percent for the prior year primarily due to elevated ocean freight rates.

Operating expenses for 2021 were $84.7 million, compared with $61.4 million for 2020, primarily driven by the following increases: (1) $12.0 million in shipping and transportation costs due to higher volume and fuel costs; (2) $5.1 million in payroll-related costs due to workforce expansion; (3) $2.0 million in stock-based compensation expense; (4) $1.2 million in online marketing expense; and (5) $1.1 million in professional services fees.

Other income totaled $4.4 million for 2021, compared with other expense of $5.8 million for 2020. The improvement in other income primarily reflected a $5 million gain on PPP loan forgiveness, recorded during the second quarter 2021, as well as a decrease in net interest expense of $4.1 million, primarily due to the payoff of certain borrowings and the change in fair value of interest rate swap positions, which resulted in interest income of $1.5 million in 2021, compared with interest expense of $1.6 million in 2020.

Net income for 2021 increased 34.6 percent to $22.4 million, from $16.7 million for 2020. Net income margin was 6.2 percent for 2021, compared with 5.6 percent for last year. Net income attributable to Karat for 2021 was $20.8 million, or $1.12 per diluted share, compared with $17.5 million, or $1.13 per diluted share, for 2020.

Adjusted EBITDA, a non-GAAP measure defined below, totaled $37.0 million for 2021, compared with $36.0 million for 2020. Adjusted EBITDA margin, a non-GAAP measure defined below, was 10.2 percent for 2021, compared with 12.2 percent for the prior year. In 2020, margin was positively impacted by significantly higher margin PPE sales, primarily during the second quarter of 2020.

Adjusted diluted earnings per common share for 2021, a non-GAAP measure defined below, was $1.00 compared with $1.13 per common share for 2020. In 2020, adjusted diluted earnings per common share was positively impacted by the same reasons noted above.

Investor Conference Call

The Company will host an investor conference call today, March 23, 2022, at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time) to discuss its fourth quarter and full year 2021 results.

About Karat Packaging Inc.

Karat Packaging Inc. is a specialty distributor and manufacturer of a wide range of environmentally friendly, disposable foodservice products and related items, primarily used by national and regional restaurants and in foodservice settings throughout the United States. Its products include food and take-out containers, bags, tableware, cups, lids, cutlery, straws, specialty beverage ingredients, equipment, gloves and other products. The company’s eco-friendly Karat Earth® line offers quality, sustainably focused products that are made from renewable resources. Karat Packaging also offers customized solutions, including new product development and design, printing, and logistics services. To learn more about Karat Packaging, please visit the company’s website at www.karatpackaging.com.

Caution Concerning Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements, including, but not limited to the net sales forecast for the 2022 first quarter and 2022 full year, are subject to numerous conditions, many of which are beyond the control of the company, including those set forth in the Risk Factors section of the company’s registration statement for the initial public offering filed with the SEC on April 14, 2021. Copies are available on the SEC’s website at www.sec.gov. Karat Packaging undertakes no obligation to update these statements for revisions or changes after the date of this release, except as required by law.

Investor Relations and Media Contacts:

PondelWilkinson Inc.        Judy Lin Sfetcu/Roger Pondel310-279-5980        [email protected]

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Use of Non-GAAP Financial MeasuresKarat utilizes certain financial measures and key performance indicators that are not defined by, or calculated in accordance with, GAAP to assess our financial and operating performance. A non-GAAP financial measure is defined as a numerical measure of a company’s financial performance that (i) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the comparable measure calculated and presented in accordance with GAAP in the statement of operations; or (ii) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the comparable GAAP measure so calculated and presented. The following non-GAAP measures are presented in this press release:

• Beginning in the fourth quarter of fiscal 2021, Adjusted EBITDA is calculated as net income before interest and income taxes, depreciation and amortization, IPO related expenses, gain on forgiveness of debt and stock-based compensation expense. The prior period Adjusted EBITDA has been revised to conform to this definition.
• Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by net sales.
• Adjusted diluted earnings per common share is calculated as diluted earnings per common share, plus the per share impact of IPO related expense, gain on forgiveness of debt, stock-based compensation, and adjusted for the related tax effects of these adjustments.

We believe the above-mentioned non-GAAP measures, which are used by management to assess the core performance of Karat, provide useful information and additional clarity of our operating results to our investors in their own evaluation of the core performance of Karat and facilitate a comparison of such performance from period to period. These are not measurements of financial performance or liquidity under GAAP and should not be considered in isolation or construed as substitutes for net income or other cash flow data prepared in accordance with GAAP for purposes of analyzing our profitability or liquidity. These measures should be considered in addition to, and not as a substitute for, revenue, net income, earnings per share, cash flows or other measures of financial performance prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies, as other companies may calculate such financial results differently.

*Includes PPE net sales of $0.5 million and $1.2 million for the three months ended December 31, 2021 and 2020, respectively, and $2.7 million and $38.1 million for the years ended December 31, 2021 and 2020, respectively.