Karat Packaging — Second Quarter 2026 Earnings Summary

Financial Performance

• Net sales for the second quarter ended June 30, 2026, reached a record $136.3 million, an increase of 9.9% year-over-year from $124.0 million.
• Gross profit totaled $77.2 million, up 57.1% from $49.1 million in the prior-year quarter; gross margin was 56.6% compared to 39.6% previously.
• Net income was $29.6 million, a 168.3% increase from $11.1 million in the prior-year quarter; net income margin was 21.8% versus 8.9%.
• Adjusted EBITDA was $41.6 million, up from $17.7 million in the prior-year quarter; Adjusted EBITDA margin was 30.5% versus 14.3%.
• Adjusted diluted earnings per share were $1.48 for the quarter, compared to $0.57 in the prior-year quarter.
• For the six months ended June 30, 2026, net sales increased 11.3% to $253.2 million from $227.6 million.
• Net income for the first half of 2026 increased 105.9% to $36.8 million from $17.9 million; net income margin was 14.5% versus 7.8%.
• Adjusted EBITDA for the first half of 2026 was $54.1 million, up from $29.6 million; Adjusted EBITDA margin was 21.4% versus 13.0%.
• Adjusted diluted earnings per share for the first half of 2026 were $1.83, compared to $0.90 in the prior-year period.
• Net cash provided by operating activities for the six months ended June 30, 2026, was $40.3 million, compared to $17.5 million in the prior-year period.
• Free cash flow for the six months ended June 30, 2026, was $38.1 million, compared to $16.2 million in the prior-year period.
• Cash and cash equivalents were $38.4 million as of June 30, 2026, compared to $37.9 million as of December 31, 2025.
• Total assets were $316.8 million as of June 30, 2026, compared to $287.7 million as of December 31, 2025.
• Total stockholders' equity was $174.3 million as of June 30, 2026, compared to $156.9 million as of December 31, 2025.

Guidance and Future Outlook

• Net sales for the third quarter of 2026 are expected to increase by low double-digits from the prior-year quarter.
• Gross margin for the third quarter of 2026 is expected to be between 35% and 37%, including insignificant IEEPA tariff refunds.
• Adjusted EBITDA margin for the third quarter of 2026 is expected to be between 9% and 11%, including insignificant IEEPA tariff refunds.
• Net sales for the full year 2026 are expected to increase by low double-digits from the prior year.
• Gross margin for the full year 2026 is expected to be in the low 40s, including IEEPA tariff refunds recorded during the first half of 2026.
• Adjusted EBITDA margin for the full year 2026 is expected to be approximately mid-teens, including IEEPA tariff refunds recorded during the first half of 2026.

Business Segments and Product Lines

• Online business sales grew 23.6% year-over-year in the second quarter of 2026.
• The company added four new chain accounts during the second quarter of 2026.
• Net sales by category for the second quarter of 2026 were: Chains and distributors ($105.9 million), Online ($25.8 million), and Retail ($4.5 million).
• Net sales by category for the six months ended June 30, 2026, were: Chains and distributors ($198.8 million), Online ($45.3 million), and Retail ($9.1 million).
• A new 47,000-square-foot distribution center in Orlando, Florida, is being finalized and is expected to be operational by the third quarter of 2026.

Market and Competitive Landscape

• The company reported solid customer demand and accelerating momentum in its online business growth.
• The sales pipeline is expanding.
• The company continues to execute plans to enhance operational efficiency and manage costs to support sustainable profitability.

Risks and Challenges

• Product costs as a percentage of net sales increased to 49.2% in the second quarter of 2026 from 48.5% in the prior-year quarter, driven by higher sales volume and resin prices.
• Import costs as a percentage of net sales increased to 11.1% in the second quarter of 2026 from 9.5% in the prior-year quarter, due to increased container volume and higher average container rates.
• Operating expenses increased to $39.6 million in the second quarter of 2026 from $32.6 million, driven by higher shipping, online platform fees, marketing, salaries, bad debt, and warehouse expenses.
• Forward-looking statements regarding financial targets are subject to risks, uncertainties, and assumptions, including those detailed in the company's Form 10-K and Form 10-Q filings.

Management Commentary and Tone

• Alan Yu, Chief Executive Officer, stated the company delivered record quarterly net sales driven by solid customer demand and accelerated online growth.
• Management noted that financial performance included a benefit from IEEPA tariff refunds which contributed to strong reported profitability.
• Management expressed encouraging momentum across the business and confidence in future growth prospects.

Other Key Points

• IEEPA tariff refunds reduced cost of goods sold by $25.8 million in the second quarter of 2026, reversing costs absorbed in prior periods.
• IEEPA tariff refunds contributed $25.8 million to gross profit, $20.2 million to net income, and $25.8 million to Adjusted EBITDA in the second quarter of 2026.
• Interest income related to IEEPA tariff refunds was $0.9 million in the second quarter of 2026.
• The Board of Directors approved an increase in the regular quarterly dividend to $0.47 per share, payable on or about August 28, 2026, to stockholders of record as of August 21, 2026.
• During the second quarter of 2026, the company repurchased 73,510 shares of common stock at an average price of $27.11 per share, for a total investment of approximately $2.0 million.
• Approximately $10.0 million remained available for future repurchases under the Share Repurchase Program as of June 30, 2026.
• Net cash provided by operating activities included cash receipts of $25.2 million related to IEEPA tariff refunds during the six months ended June 30, 2026.
• The company hosts an investor conference call on August 6, 2026, at 2:00 p.m. Pacific Time to discuss results.