Karat Packaging — Third Quarter 2026 Earnings Summary

Financial Performance:

• Quarterly net sales reached $134.7 million, an 8.2% increase from $124.5 million in the prior-year quarter.
• Gross profit was $45.1 million, up 5.2% from $42.9 million in the prior-year quarter.
• Gross margin declined to 33.5% from 34.5% in the prior-year quarter.
• Net income was $4.7 million, down from $7.6 million in the prior-year quarter.
• Net income margin decreased to 3.5% from 6.1% in the prior-year quarter.
• Adjusted EBITDA was $8.9 million, compared to $13.1 million in the prior-year quarter.
• Adjusted EBITDA margin was 6.6%, down from 10.5% in the prior-year quarter.
• Net income attributable to Karat Packaging was $4.4 million, or $0.22 per diluted share, compared to $7.3 million, or $0.36 per diluted share, in the prior-year quarter.
• Adjusted diluted earnings per share were $0.24 for the quarter, compared to $0.37 in the prior-year quarter.
• For the nine months ended September 30, 2026, net sales increased 10.2% to $388.0 million from $352.1 million.
• Nine-month net income increased to $41.5 million from $25.5 million, including a $20.2 million contribution from IEEPA tariff refunds.
• Nine-month Adjusted EBITDA was $63.0 million, including a $25.8 million contribution from IEEPA tariff refunds, compared to $42.7 million in the prior-year period.
• Nine-month Adjusted EBITDA margin was 16.2%, including a 660-basis-point benefit from IEEPA tariff refunds, compared to 12.1% in the prior-year period.
• Operating expenses increased 17.2% to $40.3 million in the quarter, driven by higher shipping, online platform fees, and marketing expenses.
• Cost of goods sold increased 9.8% to $89.6 million in the quarter, driven by higher product costs and ocean freight.

Guidance and Future Outlook:

• Net sales for the fourth quarter of 2026 are expected to increase by 9% to 11% from the prior-year quarter.
• Gross margin for the fourth quarter of 2026 is expected to be between 33% and 35%.
• Adjusted EBITDA margin for the fourth quarter of 2026 is expected to be in the high-single digits.
• Full-year 2026 net sales are expected to increase by 9% to 11% from the prior year.
• Full-year 2026 gross margin is expected to be between 39% and 41%, including IEEPA tariff refunds.
• Full-year 2026 Adjusted EBITDA margin is expected to be approximately mid-teens, including IEEPA tariff refunds.
• Price increases on select items are scheduled for implementation in the current month and January 2027 to offset higher costs.
• A new Florida distribution center is expected to open in November 2026.

Business Segments and Product Lines:

• Online sales grew nearly 38% year-over-year in the third quarter.
• Sales by category for the quarter: Chains and distributors ($103.3 million), Online ($26.9 million), and Retail ($4.6 million).
• The company secured four new chain accounts in the second quarter, with shipments to these accounts beginning in October.
• Additional new business was won from these existing chain customers across multiple product lines, with shipments expected to commence in early 2027.
• Four additional chain accounts were secured in the third quarter, with shipments expected to commence in the first half of 2027.
• The company is diversifying sourcing toward markets with favorable trade conditions and freight costs, including Indonesia, Malaysia, and South America.

Market and Competitive Landscape:

• The company operates in the specialty distribution and manufacturing of environmentally friendly, disposable foodservice products.
• Elevated oil prices and ocean freight costs are impacting the market environment.
• The company is realigning its global supply chain to mitigate cost pressures.

Risks and Challenges:

• Increased import and domestic shipping costs pressured margins.
• Elevated resin prices contributed to higher product costs.
• Ocean freight costs rose 17.0% in the average container rate compared to the prior-year quarter.
• Online sales growth resulted in increased shipping and transportation costs.

Management Commentary and Tone:

• CEO Alan Yu stated the company delivered solid top-line growth with continued strong momentum in the e-commerce business.
• Management expressed encouragement regarding sales performance despite margin pressure from costs.
• Management remains confident in long-term growth prospects due to new account wins and pipeline strength.
• Management believes supply chain realignment, price increases, and the new Florida distribution center position the company to accelerate revenue growth and improve operating performance.

Other Key Points:

• On November 3, 2026, the Board of Directors approved a regular quarterly dividend of $0.47 per share, payable on or about November 27, 2026.
• During the first nine months of 2026, the company repurchased $2.0 million of common stock under its Share Repurchase Program.
• Approximately $10.0 million remained available for future repurchases as of September 30, 2026.
• No stock repurchases occurred during the third quarter of 2026.
• IEEPA tariff refunds of $25.8 million were recognized during the nine months ended September 30, 2026.
• Net cash provided by operating activities for the nine months ended September 30, 2026, was $50.0 million, including $25.2 million in cash receipts related to IEEPA tariff refunds.
• Free Cash Flow for the nine months ended September 30, 2026, was $47.2 million, compared to $14.7 million in the prior-year period.